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TMI Blog1988 (10) TMI 258X X X X Extracts X X X X X X X X Extracts X X X X ..... the hands of Regional Director, Employees' State Insurance Corporation, for the alleged contravention of the ESI Act and the Scheme framed thereunder and/or any contravention of the Income-tax Act with reference to the tax deducted at source in respect of the company and its employees ; ( c )relieve the petitioners from all pending actions which are likely to be converted into criminal prosecutions and/or pass such other orders as may be deemed fit under the facts and circumstances of the case after giving notice to the Registrar of Companies as required under law. The facts briefly stated in the petition are that the company was originally started with the technical collaboration of Prestolite International, Ohio, U.S.A., in the year 1962 by the Maharaja of Patiala and since then the company has been regularly engaged in the manufacture of electrical automobile and electrical part components. It is a supplier of electrical automobile components to all the manufacturers of automobiles such as : ( i )Hindustan Motors Ltd. ; ( ii )Bajaj Auto Ltd. ; ( iii )Premier Automobiles Ltd. ; ( iv )Mahindra and Mahindra Ltd.; ( v )Automobile Products of India Ltd. ; ( vi )Enfie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lakhs were stolen from the pledged godown of the company under the lock and key of the Union Bank of India. On the basis of the report of the commission, the company filed a suit for recovery of Rs. 5 lakhs against the Union Bank of India and also impleaded the insurance company as one of the parties. The action of the company was taken with a pinch of salt by the Union Bank of India and they created obstacles in the smooth working of the company. They placed liquidity constraints by squeezing the working capital and caused hardships in not presenting the documents of title negotiated through the bank to third parties for realization of the amounts as per the instructions of the company. Extraordinary margins, unheard of in the banking history, were imposed by the bank on the company so much so that on an average sale of goods worth Rs. 100, the bank would retain margin of approximately 35 to 45 % which gradually resulted in the choking of the liquidity assets of the company. The bank stopped releasing the goods lying in the godown at their pledged value and started making flimsy demands of interest on the pledged value of the goods in the year 1979. The company's imported and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso been referred to the Industrial Tribunal, Haryana, for adjudication. It was also alleged that the Collector, Faridabad, is constantly threatening the directors and officials of the company to cause arrest and detention for non-deposit of employer's share of provident fund, E.S.I. and other sundry dues. It was also pleaded that the Registrar of Companies has also launched criminal prosecutions against the company as well as its directors and officials on the ground that the company has not filed the annual returns. The failure to file the annual returns was attributed to the failure of the Union Bank of India and New. Bank of India to supply the statement of accounts to the company. The accounts could not be squared up and balance-sheets could not be prepared beyond the year 1980 and, thus, could not be filed before the Registrar of Companies The company was facing difficulties, but since it claims special expertise in the field of automobile and electrical components, it has vast scope in future years. The company can have a minimum turnover of Rs. 5 crores per annum considering the pending orders and in view of the substantial expansion programme of the automobile industry d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1952, for non-deposit of provident fund dues payable by it. The company and the directors were named as accused in the complaints and they have been summoned. Respondent No. 4 in their written statement pleaded that the petitioner defaulted in the payment of contributions payable under the Employees' State Insurance Act and the Employees' State Insurance Corporation launched three prosecutions against Shri Surjit Singh Sahni, managing director of the company, under section 85 of the Employees' State Insurance Act and these were pending in the Court of the Chief Judicial Magistrate, Chandigarh, relating to the contribution for the period January, 1981, to March, 1981, and in the Court of the Chief Judicial Magistrate, Faridabad, relating to the periods January, 1982, to March, 1982, respectively, and the accused have been summoned. It was further pleaded that the Corporation had levied damages under section 85B of the Employees' State Insurance Act and issued recovery certificates to the Collector for recovery of Rs. 3,66,017.40 for the period November, 1975, to March, 1982. The petitioner-company filed a special leave application in the Supreme Court of India against the levy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich was filed on December 22, 1983, and the complaints are still pending. I have heard learned counsel for the parties. Issues Nos. 1 to 4.- Issues Nos. 1 to 4 will be discussed by me together. Section 633 of the Companies Act (for short, referred to as "the Act") invoked by the petitioners runs thus : "633. (1) If in any proceedings for negligence, default, breach of duty, misfeasance or breach of trust against an officer of a company, it appears to the court hearing the case that he is or may be liable in respect of the negligence, default, braech of duty, misfeasance or breach of trust, but that he has acted honestly and reasonably, and that having regard to all the circumstances of the case, including those connected with his appointment, he ought fairly to be excused, the court may relieve him, either wholly or partly, from his liability on such terms as it may think fit: Provided that in a criminal proceeding under this sub-section, the court shall have no power to grant relief from any civil liability which may attach to an officer in respect of such negligence, default, breach of duty, misfeasance or breach of trust. (2) Where any such officer has reason to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts are under an obligation to call a general meeting in every calendar year and they were under a statutory duty to lay the balance-sheet and the profit and loss account of the company before that meeting. The statute further provides that the company and its directors shall forward copies of the balance-sheet and profit and loss account laid before the general meeting to the Registrar of Companies within the stated time. Failure to do either has been made punishable and is treated as a company offence. No reasonable explanation has been furnished for not holding the annual general meeting of the company. The averment made in the petition that the bank will not furnish them with a statement of accounts is no ground for not holding the meeting of the company. Even if that was so, it could not have prevented the petitioners from inspecting the documents with the permission of the court. I am not satisfied that the petitioners took any steps to get the balance-sheet and the profit and loss account prepared as required by the Companies Act. The duties attaching to the office of director of a company required him to call an annual general meeting and to see that the requisite balance-s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct and observed as under (at page 287 of 55 FJR) : "Briefly and broadly and lopping off aspects unnecessary for this case, the scheme of the Act is that each employer and employee in every 'establishment' falling within the Act do contribute into a statutory fund a tithe, viz., 6 % of the wages to swell into a large fund wherewith the workers who toil to produce the nation's wealth during their physically fit span of life may be provided some retiral benefit which will 'keep the pot boiling' and some source wherefrom loans to face unforeseen needs may be obtained. This social security measure is a humane homage the State pays to articles 39 and 41 of the Constitution. The viability of the project depends on the employer duly deducting the workers' contribution from their wages, adding his own little and promptly depositing the mickle into the chest constituted by the Act. The mechanics of the system will suffer paralysis if the employer fails to perform his function. The dynamics of this beneficial statute derives its locomotive power from the funds regularly flowing into the statutory till. The pragmatics of the situation is that if the stream of contributions were frozen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onably and honestly, but a general statement that the company is passing through financial crisis or is a sick industry is certainly no answer. The court has to relieve the petitioners in respect of each default on its satisfaction that the petitioners acted honestly and reasonably. The petitioners gave no particulars and led no evidence for the court to relieve them of the liability incurred thereby. Further, there are different considerations for the defaults committed under different Acts. The provisions of sub-section (2) of section 633 of the Act are exceptional as these relieve an officer of the company from the consequences of a default, whether penal or otherwise, before he is asked to face the proceedings of either levying penalty or of prosecution. The court has, therefore, to be cautious in its approach before exercising discretion in favour of the delinquent officer though, no doubt, the discretion has to be a judicial one. Before exercising any such discretion, the court has to be reasonably satisfied that the requirements of the section have been met. In this case, I do not think that this has been done. Consequently, I decide these issues against the petitioners. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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