2001 (11) TMI 955 - HC - Companies Law

Summary

Issues Involved:
1. Whether the petitioner is entitled to relief under section 633(2) of the Companies Act.
2. Whether the petitioner's status as an ex officio director/chairman exempts him from liability for the alleged violations.

Issue-wise Detailed Analysis:

A. Entitlement to Relief under Section 633(2) of the Companies Act:

The petitioner, an ex officio chairman of M/s. Elnet Technologies Limited, sought relief under section 633(2) of the Companies Act, 1956, from proceedings initiated by the respondent for alleged violations of sections 58A, 17 read with 291, 113, 211, 297, 301, and 299 of the Companies Act. The petitioner argued that the violations occurred during the management of the company by Thiagaraj S. Chettiar, who was in charge of day-to-day affairs. The petitioner contended that he was not involved in these activities and only attended board meetings intermittently.

The court reviewed the petitioner's role and found that the petitioner was indeed a director and chairman of the company during the relevant periods as indicated in the statutory returns and balance sheets. The court noted that show-cause notices were issued for various violations observed during an inspection under section 209A of the Companies Act. However, the court also considered that the petitioner had acted bona fide and there was no evidence of negligence or deliberate omission on his part. The court concluded that the petitioner, being a part-time director and not involved in day-to-day management, should be relieved from liability. The court emphasized that mere technicalities should not prevail and the totality of circumstances and bona fide conduct must be considered.

B. Ex Officio Director/Chairman Liability:

The petitioner claimed that his ex officio status as a director/chairman, nominated by the State Government, exempted him from liability for the alleged violations. The court rejected this argument, stating that a director, whether full-time or part-time, elected or nominated, is bound to discharge the functions of a director and take diligent care in the affairs of the company. The court highlighted that there is no distinction in liability between whole-time or part-time directors, and all directors are equally responsible for compliance with statutory provisions.

The court referred to section 5 of the Companies Act, which defines "officer who is in default" and includes directors who are responsible for complying with the provisions of the Act. The court concluded that the petitioner, despite being an ex officio director, could not be exonerated from statutory obligations and responsibilities.

Conclusion:

The court allowed the petition, granting relief to the petitioner under section 633(2) of the Companies Act, 1956, from the threatened proceedings by the respondent. The court found that the petitioner had acted in good faith, without negligence or deliberate omission, and should be relieved from liability considering the totality of circumstances and bona fide conduct. The court emphasized that technical violations alone should not outweigh the overall context and genuine actions of the petitioner.