2001 (12) TMI 802 - HC - Companies Law

Summary

Issues:
Petition to relieve directors from criminal complaints under section 633(1) of the Companies Act, 1956 for alleged violations under section 628.

Analysis:
The petitioners, directors of a company, sought relief from potential criminal proceedings under section 633(1) of the Companies Act, 1956, related to alleged violations under section 628. The violations included failure to disclose transactions, maintain loan registers, comply with borrowing resolutions, and disclose authorized capital properly. The petitioners argued that inadvertent mistakes or technical breaches should not lead to prosecution unless deliberate violation occurred. They cited the Hindustan Steel Ltd. v. State of Orissa case, emphasizing that prosecution requires deliberate defiance or dishonest conduct.

The inspection report highlighted numerous contraventions and irregularities, such as unauthorized loans, improper investments, and violations of various sections of the Companies Act. The petitioners and others received show-cause notices regarding these violations, leading to a petition seeking relief from penal action under section 628. The court considered the petitioners' explanations and the show-cause notice, which accused them of making false statements in annual returns, attracting section 628 provisions.

The court's analysis focused on the discretionary power under section 633 to grant relief in cases where the defaulting officer acted honestly and reasonably. It emphasized that relief could only be granted if the officer's conduct was justifiable. The court noted that the violations, as per the inspection report, were of a mandatory nature, and the petitioners' honesty and reasonableness were questioned. Referring to previous judgments, the court highlighted that relief under section 633 is limited to cases where the officer acted honestly or reasonably.

Ultimately, the court dismissed the company petition, stating that the petitioners did not meet the criteria for relief under section 633. It clarified that its findings were specific to the petition and that any criminal court handling the complaints should decide based on the evidence presented, without reference to the court's observations in the petition. The judgment underscored the importance of honesty and reasonableness in seeking relief under section 633 and directed the petitioners to contest the proceedings before the appropriate judicial magistrate if necessary.