2004 (12) TMI 722 - HC - Companies Law

Summary

Issues Involved:
1. Contravention of Section 211/Schedule-VI of the Companies Act, 1956.
2. Contravention of Section 292 of the Companies Act, 1956.
3. Contravention of Section 370 of the Companies Act, 1956.
4. Maintainability of the petition under Section 633(2) of the Companies Act, 1956.

Detailed Analysis:

1. Contravention of Section 211/Schedule-VI:
The petitioners were accused of violating Section 211/Schedule-VI by not properly disclosing the nature of securities in the annual accounts. The show cause notice alleged that a Rs. 10 crore deposit with Citibank under the Investment Management Account Scheme was in the nature of a Portfolio Management Scheme (PMS) and that RBI guidelines were not complied with. The petitioners argued that the deposit did not amount to PMS, as PMS guidelines are applicable to scheduled banks and not to non-banking companies. The court accepted the petitioners' explanation, noting that the real nature of the transaction was a deposit bearing interest, and the entire amount was received back with interest. Thus, there was no contravention of Section 211 read with Schedule-VI.

2. Contravention of Section 292:
The petitioners were alleged to have violated Section 292 by not specifying the total amount up to which funds could be invested by the delegatee in the Board resolution. The petitioners contended that post facto approval by the Board was a proper and sufficient compliance, citing the Calcutta High Court judgment in Mathura Dass Saraf v. Company Law Board. The court agreed, stating that post facto approval is permissible and that the Board had later passed resolutions to obviate any technical objections. Therefore, no violation of Section 292 was established.

3. Contravention of Section 370:
The show cause notice alleged that the company exceeded the 30% limit for loans without the approval of the Administrative Ministry, violating Section 370. The petitioners argued that the Ministry of Petroleum and Natural Gas had retrospectively exempted the company from the provisions of Section 370. The court found that the Ministry's approval covered the period in question, making the charge unsustainable.

4. Maintainability of the Petition under Section 633(2):
The ROC objected to the maintainability of the petition, arguing that such a petition could only be filed before proceedings are commenced and that the petitioners should approach the trial court first. The court rejected this objection, stating that Section 633(2) allows officers to seek relief from the High Court if they apprehend proceedings against them. The court has the same power to relieve the officers as it would have had if it were the trial court. The court emphasized that Section 633 is designed to provide relief against undue hardship in deserving cases, where the officers have acted honestly and reasonably.

Conclusion:
The court quashed the show cause notices and dismissed the criminal proceedings initiated by the ROC. The court found that the charges were based on incorrect assumptions and that the petitioners had acted within the bounds of the law. The petitions were allowed, and the impugned notices were quashed.