1959 (8) TMI 23 - HC - Companies Law

Summary

Issues Involved:
1. Breach of Section 149(1) of the Companies Act.
2. Applicability of Section 633 of the Companies Act.
3. Jurisdiction of the court to grant relief under Section 633(1) and 633(2).

Issue-wise Detailed Analysis:

1. Breach of Section 149(1) of the Companies Act:
The applicants, directors of a limited company, borrowed Rs. 20,00,000 from the Government before the issuance of the commencement certificate on 23rd November 1957, thus committing a breach of Section 149(1) of the Companies Act. They admitted this technical breach but claimed they acted honestly and reasonably.

2. Applicability of Section 633 of the Companies Act:
The applicants sought relief under Section 633 of the Companies Act to avoid prosecution and fines under Section 149(6). Section 633(1) allows a court to relieve an officer of a company from liability if it appears they acted honestly and reasonably. Section 633(2) allows an officer to apply for relief if they apprehend a claim against them for negligence, default, breach of duty, misfeasance, or breach of trust.

3. Jurisdiction of the court to grant relief under Section 633(1) and 633(2):
The Registrar of Companies argued that Section 633(1) applies only if proceedings are pending and that Section 633(2) applies only to apprehended civil claims, not criminal prosecutions. The court agreed, stating that Section 633(1) is broad and covers both penal and civil liabilities but applies only when proceedings are pending. Section 633(2) is limited to apprehended claims for civil liability and does not cover penal liabilities or prosecutions.

Supporting Case Law:
- In re Barry and Staines' Linoleum Ltd. [1934] 4 Comp. Cas. 196: The court assumed jurisdiction to grant relief against possible prosecution under Section 372 of the English Companies Act, 1929, but this was not thoroughly discussed.
- In re Gilt Edge Safety Glass Ltd. [1940] 10 Comp. Cas. 244: The court held that only the court where proceedings are pending can grant relief under Section 372(1) of the English Companies Act, 1929.
- In re Orissa Jute and Cotton Mills Ltd. [1956] 26 Comp. Cas. 218: The court held that relief under Section 281(2) of the Indian Companies Act, 1913, could not be granted for pending prosecutions.
- In re Filmistan Private Ltd. [1959] 29 Comp. Cas. 34: The court held that Section 633(2) could apply to possible prosecutions, but this reasoning was not persuasive to the present court.

Conclusion:
The court concluded that:
1. Section 633(1) covers all liabilities but applies only when proceedings are pending.
2. Section 633(2) applies only to apprehended civil claims, not criminal prosecutions.
3. Relief against possible criminal prosecutions cannot be granted in anticipation; it can only be claimed once prosecution starts.
4. Relief for possible civil liabilities can be granted in advance under Section 633(2).

Since the applicants did not claim relief for an apprehended civil claim, Section 633(2) was not applicable. No proceedings were pending, so relief under Section 633(1) could not be granted. The application was thus dismissed with costs.