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TMI Blog1991 (11) TMI 193X X X X Extracts X X X X X X X X Extracts X X X X ..... PPEAL NOS. 3012, 3117, 3118 AND 3738 OF 1990 AND S.L.P. NO. 8081 OF 1990 - - - Dated:- 19-11-1991 - RANGANATH MISRA, CJI. KULDIP SINGH AND S. MOHAN, JJ. K. K. Venugopal, Dr. Shankar Ghosh, Kapil Sibal, Pramod Dayal, Vivek Gambhir, Surinder Karnail and S.K. Gambhir for the Appellant. Aruneshwar Gupta and Ms. Sushma Suri for the Respondent. JUDGMENT S. Mohan, J. All these matters can be dealt with under a common judgment since the question which arises for consideration is the scope of section 633 of the Companies Act, 1956. It is enough if we refer to the facts in Civil Appeal No. 3012 of 1990. The short facts are as follows : Eastern Manufacturing Co. Ltd. ("the company" in short) is the owner of a jute mill in West Bengal. The appellants were appointed directors between April 10, 1981, and June 15, 1984. There was a lock-out in the jute mill on June 2, 1982. By a notification dated October 26, 1983, the Government of West Bengal declared the said jute mill as a relief undertaking under the provisions of the West Bengal Relief Undertakings (Special Provisions) Act, 1972. However, on November 24, 1983, the lock-out was lifted. Thereafter the mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Regional Provident Fund Commissioner. On an elaborate consideration with reference to decided cases, it was held that "any proceeding" referred to in section 633 of the Act would mean only proceedings under the provisions of the Act. Reference was also made to section 14A of the Provident Funds Act inserted by Amending Act 37 of 1953 and it was concluded : "If the contention that section 633 applied in respect of liabilities arising also under the provisions of any Act other than the said Act, is accepted, then and in that case a peculiar situation will arise, a person who is otherwise liable in view of the provisions of section 14A would be entitled to relief under section 633 if he is employed by or connected with a company which is covered both by the Provident Funds Act and the Companies Act but a person shall not be so entitled to such relief if he is not an employee of a body corporate covered by the Companies Act though he is an employee of a company within the meaning of the Explanation to section 14A. Besides if the contention that proceedings would include proceedings under other Acts also is accepted, all the statutory provisions made for the welfare of weaker s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns were catalogued under subsection (3) of the said section, presently section 633 has employed the words "an officer of a company", the object being to see that directors or a director who rarely take part in the affairs of the company are not unduly harassed for offences which may arise under other acts, of which these directors may not have any knowledge at all. He also draws our attention to section 32 of the Industrial Disputes Act, which talks of offences by companies under the said Act. That is a sweeping provision where the burden is upon the person concerned to prove that the offences were committed without his knowledge or consent and but for that proof, the statute deems him to be guilty. If under section 633 the protection is not so afforded against such a provision like section 32 of the Industrial Disputes Act, the entire purpose of section 633 would be rendered nugatory. The result of the Division Bench judgment of the Calcutta High Court referred to in the impugned judgment will be that these directors (the appellants) are exposed to prosecution ; certainly that could not have been the intention of the law maker. Mr. Kapil Sibal, learned counsel appearing for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tance by this court. Otherwise, the consequences will be disastrous. The penal provisions of all other Acts would be rendered ineffective by the interpretation pressed for acceptance. The further submission of learned counsel is if one looks at section 14 of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, lays down the penalty for the offences by companies and is dealt with in section 14A. The Explanation to the said section also talks of what a company would mean for the purpose of this section. Therefore, where an elaborate procedure is contemplated under those sections for recovery of these dues and the Provident Funds Act being a social welfare legislation, that cannot be rendered illusory by extending the benefit under section 633 of the Companies Act. Similarly under the Employees' State Insurance Act, section 86 which talks of prosecution and which came to be introduced by the Amending Act of 1989 also deals with companies. The Explanation under that section specifically states as to what would be a company or director for the purpose of that section. Hence it is submitted that no interference is called for. Having regard to the above arguments, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Companies Act, 1956. It reads thus : "633. Power of court to grant relief in certain cases. (1) If in any proceeding 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, breach 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 apprehend that any proceeding will or might be brought against him in respect of any negligence, default, breach of duty, misfeasance or breach of trust, he may apply to the High Court for relief and the High Court on such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer of a company for breach of the provisions of the Companies Act. Sub-section (2) cannot apply to proceedings instituted against the officer of the company to enforce the liability arising out of violation of provisions of other statutes. Reference could also be made to sub-section (3) where notice is required to be given to the Registrar of Companies. This is an indication that the powers under sub-section (2) must be restricted in respect of proceedings arising out of the violation of the Companies Act. We will now refer to the corresponding provisions in English law. Section 448 of the Companies Act, 1948, is replaced by section 727 of the Companies Act, 1985. Section 727 reads thus : "727. Power of court to grant relief in certain cases. (1) If in any proceedings for negligence, default, breach of duty or breach of trust against an officer of a company or a person employed by a company as auditor (whether he is or is not an officer of the company) it appears to the court hearing the case that that officer or person is or may be liable in respect of the negligence, default, breach of duty or breach of trust, but that he has acted honestly and reasonably, and that havin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter hearing the evidence, may, if he is satisfied that the defendant ought to be relieved either in whole or in part from the liability sought to be enforced against him, withdraw the case in whole or in part from the jury and forthwith direct judgment to be entered for the defendant on such terms as to costs or otherwise as the judge may think proper. If any such officer or person has reason to apprehend that any claim will or might be made against him in respect of any negligence, default, breach of duty or breach of trust, he may apply to the court for relief ; and the court on any such application has the same power to relieve him as it would have had if it had been a court before which proceedings against that person for negligence, default, breach of duty or breach of trust had been brought. The application to the court is made by way of petition. The application is made to the court having jurisdiction to wind up the company. In cases in the High Court of Justice the proceedings are assigned to the Chancery Division. The petition and all affidavits, notices and other documents in the proceedings under it must be entitled in the matter of the company and in the matter of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be stated that though Stephenson L.J. referred to Palmer's Company Law, he also made reference to Pennington's Company Law (fourth edition, 1979, page 548), it is stated thus : "Under the statutory provision relief can be given against any of the criminal penalties imposed by the Companies Acts, 1948, and 1976, but not, it would seem, against civil liability to anyone other than the company and so apparently no relief may be given in the rare cases where a member or auditor of a company has a personal right to sue its directors". We will now refer to Palmer's Company Law, 23rd edition, 1982, volume I, page 881. It is stated thus : " Statutory relief (section 448). Section 448 (which is referred to in section 205, proviso ( b )) is a protective section for directors on lines similar to that accorded to trustees. It provides that in any proceedings against, inter alia , a director for negligence, default, breach of duty or breach of trust, if a director who is or may be liable has in the opinion of the court acted honestly and reasonably, and if, having regard to all the circumstances of the case, including those connected with his appointment, he ought fairly to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be invoked for offences under section 32 of the Industrial Disputes Act. We are dealing with a case arising under the Employees' Provident Funds Act. The total arrears due from the company are Rs. 1,77,22,000. Section 14 of the Employees' Provident Funds Act specifically provides for penalties with reference to contravention of the provisions of the Act. Section 14A speaks of offences by companies. We will now extract that section : "14A. (1) If the person committing an offence under this Act, the Scheme or the Family Pension Scheme or the Insurance Scheme is a company, every person who at the time the offence was committed was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly : Provided that nothing contained in this sub-section shall render any such person liable to any punishment, if he proves that the offence was committed without his knowledge or that he exercised all due diligence to prevent the commission of such offence. (2) Notwithstanding anything contained in sub-section (1), where ..... 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