2006 (12) TMI 224 - HC - Companies Law

Summary

Issues Involved:
1. Interpretation of section 633(2) of the Companies Act, 1956 regarding the High Court's power to entertain applications by officers of a company apprehending legal proceedings against them.
2. Allegations of violation of provisions under section 628 of the Act based on show-cause notices issued to the petitioner.

For the first issue, the petitioner had previously filed an application u/s 633(2) of the Companies Act, 1956, which was dismissed as premature. The subsequent show-cause notice prompted the petitioner to seek exoneration from any alleged offences. The High Court's power u/s 633(2) allows it to entertain applications from officers who anticipate legal proceedings for negligence, default, breach of duty, misfeasance, or breach of trust. The petitioner faced charges related to violations of section 628 and section 211 based on notices dated December 31, 2004.

Regarding the second issue, the first notice accused the petitioner of misdeclaration and non-compliance with balance-sheet provisions for specific financial years. However, as the petitioner became a Director after the relevant period, it was unlikely for him to be involved in those matters. The second notice focused on a statement in the Directors' Report regarding the net worth of the company being fully eroded due to non-infusion of capital. The petitioner defended the statement, arguing that all material facts were disclosed in the balance-sheet and notes on accounts, and there was no misstatement of fact in the Directors' Report.

The Court analyzed the statement in the context of the entire report and financial position of the company, concluding that there was no false or misleading statement warranting penalties under section 628. The Court emphasized that the Directors' Report was part of comprehensive financial documentation, and there was no material concealment of information. Ultimately, the Court held that the petitioner was not guilty of any violations under section 628 or section 211 of the Act based on the show-cause notices issued on December 31, 2004. The petition was allowed, and no costs were awarded.