2011 (3) TMI 1244 - HC - Companies Law

Inspection of books of accounts and records - contraventions of different accounting standards - Held that - As it appears that most of the allegations even if accepted to be correct are technical in nature and have not affected the entire accounting procedure adopted by the Company or in disclosure of the true affairs of the Company - The inference is that the Company has tried its best to maintain the accounts in terms of the accounting standards and the contraventions pointed out have not affected the true picture of the balance-sheet of the Company - thus assessee company are entitled to be excused under Section 633 (2) of the Companies Act, 1956. Accordingly this application is allowed and the opposite party-ROC is directed not to launch any prosecution against the petitioners for the alleged violation of the accounting standards.

Issues Involved:
1. Alleged contraventions of accounting standards under the Companies Act, 1956.
2. Application for relief under Section 633(2) of the Companies Act, 1956.
3. Issuance of show cause notices by the Registrar of Companies (ROC).
4. Examination of the petitioners' actions in light of Section 633(2).

Issue-wise Detailed Analysis:

1. Alleged Contraventions of Accounting Standards:
The petitioners, who are the Chairman, Directors, Company Secretary, and CEO of a company, faced allegations of violating various provisions of the Companies Act, 1956, primarily related to non-compliance with accounting standards. These allegations arose from an inspection conducted by the Assistant Director (Inspection) in September/October 2007, which resulted in a letter dated 19.3.2008 listing fifteen instances of contraventions. The company provided explanations, but the ROC issued six undated show cause notices in June 2008, indicating the intent to prosecute the petitioners.

2. Application for Relief under Section 633(2) of the Companies Act, 1956:
The petitioners sought relief under Section 633(2) of the Companies Act, 1956, which allows officers of a company to apply to the High Court for relief from liability if they apprehend proceedings for negligence, default, breach of duty, misfeasance, or breach of trust. The court has the power to relieve such officers if it finds they acted honestly and reasonably.

3. Issuance of Show Cause Notices by the ROC:
The ROC issued six show cause notices based on the alleged violations. The petitioners responded, asserting that the alleged non-compliance did not affect the true and fair view of the company's state of affairs. They argued that they acted honestly, reasonably, and diligently, and no prejudice or pecuniary benefit resulted from the alleged defaults. The petitioners maintained that the company's accounts were audited by M/s. V. Sankar Aiyar & Company and complied with relevant provisions of the Act.

4. Examination of the Petitioners' Actions in Light of Section 633(2):
The court examined the allegations and responses in a tabular format, noting that most allegations were technical and did not impact the overall accounting procedures or the true state of the company's affairs. The court referred to precedents, including decisions from the Calcutta High Court and English law, emphasizing that relief under Section 633(2) requires showing that the officers acted honestly, reasonably, and ought fairly to be excused.

Conclusion:
The court found no evidence that the petitioners acted dishonestly or unreasonably. The alleged contraventions did not affect the shareholders, and there were no complaints regarding the maintenance of accounts. The court concluded that the petitioners acted honestly and reasonably and were entitled to relief under Section 633(2). Consequently, the application was allowed, and the ROC was directed not to prosecute the petitioners for the alleged violations.

Application Allowed.

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