1970 (3) TMI 81 - HC - Companies Law

Summary

Issues Involved:
1. Applicability of Section 633(2) of the Companies Act, 1956.
2. Allegations of criminal offences under Sections 420 and 471 of the Indian Penal Code.
3. Honesty and reasonableness of the applicants' actions.
4. Discretionary power of the court under Section 633 of the Companies Act.

Issue-wise Detailed Analysis:

1. Applicability of Section 633(2) of the Companies Act, 1956:

The applicants, directors of Radha Govind Industries Ltd., sought relief under Section 633(2) of the Companies Act, 1956, against apprehended proceedings. The court clarified that Section 633(2) allows officers of a company to apply for relief from liability for negligence, default, breach of duty, misfeasance, or breach of trust if they acted honestly and reasonably. The court emphasized that motives of other persons or authorities in taking action against the applicants are irrelevant in determining the applicability of this section.

2. Allegations of criminal offences under Sections 420 and 471 of the Indian Penal Code:

The court noted that the police were investigating alleged offences by the directors under Sections 420 (cheating) and 471 (using a forged document as genuine) of the Indian Penal Code. The court categorically stated that it could not interfere under Section 633(2) of the Companies Act in matters involving criminal offences outside the purview of the Companies Act. The court emphasized that offences under Sections 420 and 471 IPC are entirely outside the ambit of Section 633 of the Companies Act.

3. Honesty and reasonableness of the applicants' actions:

The applicants argued that they acted honestly and reasonably, citing that the accounts of the company were audited annually and that the unsigned balance sheet was mistakenly filed with the Registrar of Companies. They claimed that they believed the auditors would eventually sign the documents. However, the court found that the applicants were fully aware that the auditors had not signed the balance sheet and still proceeded to file it. The court noted that the applicants' explanations and regrets were insufficient to establish their honesty and reasonableness.

4. Discretionary power of the court under Section 633 of the Companies Act:

The court highlighted that its power to grant relief under Section 633(2) is discretionary and should be exercised only on judicially sound grounds. The court stated that it could not reasonably exercise this power when it is impossible to separate facts constituting lapses or offences falling within the purview of Section 633 from those falling outside its scope. The court concluded that it could not arrive at satisfactory conclusions regarding the honesty or reasonableness of the applicants' actions based on the material on record. Therefore, the court declined to interfere under Section 633(2) but left the applicants free to apply under Section 633(1) if and when proceedings are instituted against them.

Conclusion:

The court dismissed the application under Section 633(2) of the Companies Act, 1956, with costs and vacated the interim order. The court emphasized that the applicants could seek relief under Section 633(1) if proceedings are initiated against them in the future.