2008 (7) TMI 566 - HC - Companies Law

Criminal prosecution - relieve the petitioners denied - Held that - In the instant case, as rightly pointed out by learned counsel for the respondents, without adducing evidence, the court cannot come to a conclusion that whether the petitioners have acted honestly and reasonably and further in the instant case, there is nothing available to conclude or record a finding as to the circumstances which attended in making such violations. In the instant case, as could be noticed, there were violations of mandatory provisions and they could not be termed as mistakes. Apart from this, when this is not a fit case, as rightly found by the learned Single Judge, the court could not exercise discretionary power in favour of the petitioners. In the said circumstances, this Court is of the view that the appeal does not carry merit and it is liable to be dismissed.

Summary

Issues:
Challenge to the order of dismissal of C.P. No. 265 of 2001 under section 633(1) of the Companies Act, 1956.

Detailed Analysis:

Issue 1: Discretionary Power under Companies Act
The appeal challenged the dismissal of C.P. No. 265 of 2001 seeking relief from criminal prosecution under section 633(1) of the Companies Act, 1956. The petitioners argued that the violations were inadvertent and not deliberate, hence requesting the court to exercise its discretionary powers to relieve them from prosecution. The respondents contended that the violations were of mandatory provisions and the court correctly refused to exercise discretion.

Issue 2: Violations and Rectifications
The petitioners/appellants, managing director and former company secretary of a company, faced violations of mandatory provisions of the Companies Act, 1956. They argued that the errors were rectified promptly after inspection, demonstrating their bona fide intentions. However, the court noted that violations of mandatory provisions cannot be termed as mere mistakes and that rectification was not immediate, leading to doubts about the petitioners' honesty and reasonableness.

Issue 3: Exercise of Discretionary Power
The court emphasized that to grant relief under section 633(1) of the Act, the applicant must have acted honestly and reasonably. In this case, the violations were significant, and there was a lack of evidence to support the petitioners' claim of inadvertence. The court upheld the Single Judge's decision to deny relief, as the violations were not minor mistakes but breaches of mandatory provisions, making it inappropriate to exercise discretionary power in favor of the petitioners.

Conclusion:
The appeal was dismissed, with the court finding that the violations were substantial and not mere mistakes, thus not warranting relief from prosecution. The judgment highlighted the importance of acting honestly and reasonably to seek discretionary relief under the Companies Act, 1956.