1970 (6) TMI 28 - HC - Companies Law

Summary

Issues Involved:
1. Whether the petitioner contravened the provisions of Section 299(1) of the Companies Act.
2. Whether the petitioner is entitled to relief under Section 633(2) of the Companies Act.
3. The extent of relief that can be granted under Section 633(2) of the Companies Act.
4. Whether the cessation of directorship under Section 283(1)(i) can be relieved under Section 633(2).

Issue-Wise Detailed Analysis:

1. Contravention of Section 299(1) of the Companies Act:
The petitioner, a director of Thomas Stephen & Co. Ltd., was alleged to have failed to disclose his interest in the business of P. Oommen & Sons, which had transactions with the company. The petitioner argued that his interest was well-known to all directors and had been recorded in the minutes of board meetings on August 31, 1968, and April 7, 1969. However, the Registrar of Companies contended that the petitioner should have disclosed his interest at the first board meeting of the financial year ending December 31, 1969, held on January 9, 1969. The court held that the petitioner contravened Section 299(1) by failing to disclose his interest at the appropriate time, as required by the statute.

2. Entitlement to Relief under Section 633(2) of the Companies Act:
The court examined whether the petitioner could seek relief under Section 633(2) without confessing or admitting guilt. It was determined that the petitioner did not need to admit guilt to seek relief. The court noted that the petitioner had a reasonable apprehension of proceedings being taken against him due to the Registrar's directions to recover remuneration and notify the cessation of directorship. Thus, the petition was maintainable under Section 633(2).

3. Extent of Relief under Section 633(2) of the Companies Act:
The court identified the consequences of contravening Section 299(1) as:
- Liability to be prosecuted under Section 299(4).
- Cessation of office under Section 283(1)(i).
- Liability to be prosecuted under Section 283(2A).
- Liability to refund remuneration received as a director after cessation.

It was established that relief could be granted from consequences (1), (3), and (4) under Section 633(2). However, the court held that the cessation of directorship under Section 283(1)(i) was a statutory consequence and not a liability from which relief could be granted under Section 633(2).

4. Relief from Cessation of Directorship under Section 283(1)(i):
The court concluded that cessation of directorship is not a liability but a statutory consequence of failing to disclose interest under Section 299(1). Therefore, the High Court could not relieve the petitioner from this consequence under Section 633(2). This interpretation was supported by precedents such as Pothen v. Registrar of Companies and In re Tolaram Jalan, which clarified that Section 633(2) does not empower the court to restore the office of directorship once vacated.

Conclusion:
The court found that the petitioner had indeed contravened Section 299(1) by failing to disclose his interest at the first board meeting of the financial year. However, considering that the petitioner acted honestly and reasonably, and the arrangement with P. Oommen & Sons was well-known and beneficial to the company, the court relieved the petitioner from liabilities arising from the contravention, except for the statutory consequence of vacating the office of directorship. The petition was allowed to the extent of relieving the petitioner from prosecution and financial liabilities but dismissed concerning the cessation of directorship. No order as to costs was made.