1997 (2) TMI 432 - HC - Companies Law

Summary

Issues:
- Petition under section 633(2) of the Companies Act, 1956 for relief from default in complying with section 233B of the Act.
- Exemption from cost audit for various financial years.
- Prosecution of the petitioner for alleged default under section 233B.
- Resignation of the petitioner as company secretary and its implications.

Analysis:
The petitioner, a former company secretary, filed a petition seeking relief from any default in complying with section 233B of the Companies Act, 1956. The company had faced challenges, including a prolonged lock-out period from April 26, 1985, to April 16, 1994. During this time, the Company Law Board issued orders for cost audits, but the company, due to the lock-out, faced difficulties in compliance. The petitioner resigned in 1987, but the acceptance was delayed until 1994. The Registrar of Companies later alleged non-compliance and threatened prosecution. The petitioner argued that during the lock-out period, production was halted, and the company was under BIFR consideration, justifying exemptions. The petitioner also emphasized that post-resignation liabilities should not apply.

The petitioner's counsel contended that the company had been exempted from cost audits for certain years, indicating a precedent for exemption due to operational challenges. For the year 1990-91, the company sought exemption and submitted required affidavits. The counsel argued that subsequent years should also be exempted based on similar circumstances. Regarding the alleged default in the year 1994-95, the petitioner's resignation prior to the period in question absolved him of liability as he was not the company secretary during that time. The counsel emphasized that the company's ongoing challenges and the petitioner's resignation justified relief from prosecution under section 233B.

The court analyzed the circumstances, noting the company's lock-out period and the delays in accepting the petitioner's resignation. It observed that the company had been granted exemptions in the past, indicating a pattern of understanding regarding operational challenges. The court agreed with the petitioner's argument that the company's situation during the lock-out period warranted exemptions from cost audits, extending to the petitioner as the former secretary. Considering the lack of liability post-resignation, the court allowed the petition, relieving the petitioner from prosecution. No costs were awarded in the judgment.