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TMI Blog2013 (10) TMI 1580X X X X Extracts X X X X X X X X Extracts X X X X ..... titioners containing a similar prayer, with the only difference that the prayer in C.P. No. 296 of 2013 was for relieving the petitioners from the acts of default alleged by the third respondent Registrar of Companies in their letter dated 31.7.2013. 2. Both the main company petitions, C.P. Nos. 296 and 297 of 2013 came up for hearing, along with miscellaneous applications in Comp. A. Nos. 995 and 996 of 2013 for interim stay of criminal prosecution. 3. On 19.9.2013, I ordered notice in the main petitions and granted an interim stay of further proceedings before the criminal court. 4. After service of notice, the first respondent in the main company petition, namely, Vis-ram Financial Services, has come up with the above application in Comp. A. No. 1072 of 2013, seeking the dismissal of the main company petition, on the short ground that while Section 633(1) of the Companies Act empowers only the criminal Court which has taken cognizance of a complaint, to relieve the officers of a company, Section 633(2) empowers the High Court to relieve the officers of the company only in cases of apprehension of proceedings and not where a complaint had already been filed and taken cognizanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice served in the manner specified by it, required the Registrar and such other person, if any, as it thinks necessary, to show cause why such relief should not be granted. 8. From a plain reading of sub-section (1) and the proviso thereunder, sub-section (2) and sub-section (3) of Section 633, the following emerge: (i) The Court hearing a case of negligence, default, breach of duty, misfeasance or breach of trust against an officer of a company, can relieve such officer from criminal liability, if such officer is found to have acted honestly and reasonably, though he is liable in respect of such negligence, default and breach of duty, misfeasance or breach of trust. (ii) The relief granted by the Court can only be from criminal liability and not from civil liability. (iii) The High Court has the same power to relieve an officer of a company, on an application filed by him, if such officer has reason to apprehend that any proceeding will or might be brought against him in respondent of any negligence, default and breach of duty, misfeasance or breach of trust. For the said purpose, the High Court will be deemed to be a Court before which a proceeding against such officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against an apprehended claim, but also against a possible prosecution, was rejected by the learned Judge. In the operative portion of the judgment, the learned Judge held that if proceedings have already been initiated, whether for enforcement of criminal or civil liability, relief can be granted only by the Court in which the proceedings are pending. 13. In Re: Muktsar Electric Supply Co. Ltd. in Liquidation v. State (High Court of Punjab & Haryana); 1965 a learned Judge of the Punjab and Haryana High Court expressed a similar view. 14. In Auto Link Finance Private Ltd. v. Registrar of Companies (1971 (41) CC 63), a learned Judge of the Delhi High Court also held that the High Court is not possessed of jurisdiction to grant relief under sub-section (2), after the institution of criminal proceedings. 15. In Om Prakash Khaitan v. Keshariya Investments Ltd. (1978 (48) CC 85), another learned Judge of the Delhi High Court held that the High Court has no jurisdiction with regard to the criminal liability arising out of defaults and breaches which have already become the subject matter of prosecution. 16. In Sri Krishna Parshad v. Registrar of Companies, Delhi ( 1978 (48) CC 397 De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ach of duty, misfeasance or breach of trust against an officer of the company, it would be a valid defence that he as acted honestly and reasonably and that having regard to all the circumstances of the case he should be excused from the liability. (b) Such exercise can be done even by this Court and person need not be relegated to the Court where the proceedings are filed. 22. The said decision of the Delhi High Court may not go to the rescue of the respondents, in view of the fact that the Court followed its earlier decision in P.S. Bedi. What actually happened in that case was that the application under Section 633 was filed even before the complaint was lodged by the Registrar of Companies, but it came up for hearing later. Therefore, the learned Judge did not go into the question as to whether a petition under Section 633 is maintainable, at the instance of an officer who had already received summons from the criminal Court or not. 23. Mr. Karthik Seshadri, learned counsel for the respondents also relied upon a decision of the Calcutta High Court in Srikumar Menon & Others v. The Registrar of Companies (164 CC 182). Though the facts of the above case are not very clear fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the court hearing the case that the officer or person is or may be liable but that he 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 in part, from his liability on such terms as it thinks fit. (2) If any such officer or person has reason to apprehend that a claim will or might be made against him in respect of negligence, default, breach of duty or breach of trust (a) he may apply to the court for relief, and (b) the court has the same power to relieve him as it would have had if it had been a court before which proceedings against him for negligence, default, breach of duty or breach of trust had been brought. (3) Where a case to which subsection (1) applies is being tried by a judge with a jury, the judge, after hearing the evidence, may, if he is satisfied that the defendant (in Scotland, the defender) ought in pursuance of that subsection to be relieved either in whole or in part from the liability sought to be enforced against him, withdraw the case from the jury and forthwith direct judgment to be en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(2) creates a deeming fiction, making the High court also a court before which a proceeding for negligence, breach of trust etc are brought. This is why, the scope of jurisdiction of the High court has come up again and again for consideration before various courts. 30. Having seen the definitions of the important expressions, let us now take a look at the penal provisions and the remedial provisions. The Act contains several penal provisions, which can be tabulated as follows for easy reference: Sl. No Section Subject matter 1 59(1) Fine upto Rs.50,000/- for issuing prospectus in contravention of Section 57 or 58. 2 62(1) Civil liability for payment of compensation to a person who suffers loss or damage due to an untrue statement contained in the prospectus. 3 63(1) Criminal liability for imprisonment upto 2 years or fine upto Rs.50,000/- or both, for a person who authorised the issue of a prospectus containing an untrue statement. 4 68 punishment with imprisonment extending upto 5 years or fine upto Rs.1 lakh, or both, for fraudulently inducing persons to invest money. 5 68A(1) punishment upto 5 years for applying for acquisition of shares of a company in a f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riate directions for termination of disproportionately excessive voting rights. 21 97(3) criminal liability with fine extending upto Rs.500/- per day, for not filing with the Registrar, notice of increased capital or notice of increase of members. 22 105 criminal liability with imprisonment upto one year or fine, for concealing the name of any creditor entitled to object to the reduction of share capital or for misrepresenting the nature of the debt. 23 107(5) criminal liability with fine extending upto Rs.500/- for failure to forward to the Registrar, the decision of the Court on an application by dissentient shareholders. 24 108 I criminal liability with imprisonment upto 3 years or with fine extending upto Rs.50,000/-,for acquisition or transfer of shares in contravention of Sections 108A to 108D. 25 111(9) criminal liability with fine extending up to Rs.10,000/-, with a further fine of Rs.1,000/- per day for the period of default, for violating the orders of the Court relating to refusal of the company to register any transfer or transmission of shares. 26 113(2) criminal liability with fine extending upto Rs.5,000/- per day, for failure to issue share certif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with fine extending upto Rs.500/- per day, for not keeping a register of members and not entering therein, the relevant particulars. 41 151(4) criminal liability with fine extending upto Rs.500/-, for not keeping an index of members. 42 152(3) criminal liability with fine extending upto Rs.500/-, for not maintaining a register of debenture holders and not entering therein, the relevant particulars. 43 153B(3) criminal liability with fine extending upto Rs.5,000/-, with further fine of Rs.100/- per day during which failure continues, for failure to make a declaration about the shares held in trust and criminal liability for the trustee with imprisonment for a false declaration. 44 154(2) criminal liability with fine extending upto Rs.5,000/- per day, for closing the register of members without giving notice. 45 157(3) criminal liability with fine extending upto Rs.500/- per day, for failure to keep foreign register of members. 46 158(9) criminal liability with fine extending upto Rs.500/-, for failure to transmit to the Registered Office in India, of a copy of every entry made in the Foreign Register. 47 162 criminal liability with fine extending upto Rs.500/- p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 203(7) criminal liability with imprisonment for a term up to 2 years, or fine extending upto Rs.50,000/-, or both, if any person restrained from managing company acts in contravention as director or directly or indirectly takes part in the promotion, formation or management of any company. 61 205A(8) criminal liability with fine extending upto Rs.5,000/- per day, for failure to pay dividend or to transfer the amount to the special dividend account. 62 207 criminal liability with imprisonment for a term up to 3 years, and with fine extending upto Rs.1,000/- per day, for failure of the Director to distribute dividends within 30 days to the shareholders. 63 209(5) criminal liability with imprisonment for a term up to 6 months, or with fine extending upto Rs.10,000/-, or with both, for failure by the company to keep at its registered office proper books of account. 64 209A(8) criminal liability with fine extending upto Rs.50,000/-, and with imprisonment for a term up to 1 year, for failure of every Director, other officer or employee to produce books of account, other books and papers of the company for inspection. 65 210(5) & (6) criminal liability with imprisonme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng upto Rs.5,000/-, for failure to give notice to the Central Government of the fact no auditors are appointed or re-appointed. 75 232 criminal liability with fine extending upto Rs.5,000/-, for noncompliance of the provisions contained in Sections 225 to 231 such as passing resolutions in appointment or removal, qualifications, powers and duties of the auditors, auditing of accounts of branch office, signing auditor's report, etc 76 233 criminal liability with fine extending upto Rs.10,000/-, if any person other than the auditor signs the report or authenticates the document which is not in conformity with the requirements under Section 227 and 229. 77 233A(5) criminal liability with fine extending upto Rs.5,000/-, for failure to furnish to the special auditor the information required for special audit. 78 233B (11) criminal liability with fine extending upto Rs.50,000/-, in case of company and criminal liabilitywith imprisonment for a term up to 3 years, or with fine extending up to Rs.50,000/-, in case of officer of the company, for failure to comply with the requirements for audit of cost accounts of the company. 79 234(4) criminal liability with fine e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he annual report or to to record the reasons for not accepting the recommendations of the audit committee. 90 293A(5) criminal liability with imprisonment upto 3 years and fine in case of officer and fine of three times of the amount in case of company, for making contribution without authorisation by resolution of the Board of Directors. 91 294(8) criminal liability with fine extending upto Rs.50,000/-, with further fine of Rs.500/- per day, for failure to to produce books and papers or to assist the person appointed to investigate and report on the terms and conditions of the appointment of sole selling agent. 92 295(4) criminal liability with fine extending upto Rs.50,000/- or with simple imprisonment up to six months, if a person is a party to make any loan or to give guarantee or to provide any security in connection with loan made by any other person, without the approval of the central Government. 93 300(4) criminal liability with fine extending upto Rs.50,000/-, if a director knowingly participates or votes in Board's proceedings knowingly, when he has an interest in the contract or arrangement. 94 301(4) criminal liability with fine extending upto Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riminal liability with fine extending upto Rs.500/-and with further fine of Rs.50/- per day, for failure to keep a register containing the names of all bodies corporate, loan made, guarantee given or security provided, within 3 days before the commencement of Act, 1960 or within 3 months after the commencement of the Act, 1960. 104 371 criminal liability with fine extending upto Rs.50,000/- or with simple imprisonment for 6 months, if a person is a party to making of any loan or to give guarantee or provide any security , without the authorisation by a special resolution of the lending company. 105 372(8) criminal liability with fine extending upto Rs.500/- and with further fine of Rs.50/- per day, for failure to keep a register of all investments in shares of any other body corporate or to enter in the register within 7 days before the commencement of the Act, 1960 or within 6 months after the commencement of the Act, 1960. 106 372A(9) criminal liability with imprisonment up to two years or with fine extending upto Rs.50,000/-, if a company make any loan to any other body corporate or give any guarantee or provide security in connection with a loan made by any other per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all directors or to file the memorandum before the Board of directors in the meeting. 117 420 criminal liability with imprisonment for term up to six months or with fine extending upto Rs.10,000/-, for failure to deposit the money of any employee or to deposit provident fund contributed by the employees or to refuse to show the bank receipt to the employee for deposit of provident fund or securities. 118 423 criminal liability with fine extending upto Rs.2,000/-, for failure to file an abstract of receipts and payments with the Registrar or to mention about the appointment of receiver in the voices or business letter of the company. 119 426 civil liability of contributories in the event of winding up 120 427 civil liability of managers and directors with unlimited liability in case of winding up 121 454(5) criminal liability with imprisonment for a term up to two years or with fine up to Rs.1,000/- per day, for failure to furnish statement to the Official Liquidator, in the prescribed form containing the particulars of the assets of the company, debts and liabilities, details of creditors or to submit within 21 days from the relevant date. 122 481(3) criminal li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar the notice of resolution passed at creditors meeting within ten days. 131 508(2) criminal liability with fine extending upto Rs.1,000/-, for failure of the liquidator to call general meeting of the company and meeting of the creditors every year after winding up or to lay before meeting an account of his acts and dealings, with a statement in the prescribed form with particulars of the proceedings in, and position of, the winding up. 132 509(7) criminal liability with fine extending upto Rs.5,000/-, for failure of the liquidator to call a general meeting of the company or meeting of the creditors, after the dissolution of the company. 133 513(2) criminal liability with fine extending upto Rs.10,000/-, if any body corporate acts as liquidator of a company in a voluntary winding up. 134 514(b) criminal liability with fine extending upto Rs.10,000/-, if a person secures appointment as the liquidator or prevents others from securing appointment as liquidator, by giving or agreeing to give any gratification. 135 516(2) criminal liability with fine extending upto Rs.500/- per day, for failure of the liquidator to publish in the Official Gazette and to deliver to the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State Government if they are members or refusing the creditor to inspect the statement and to receive a copy or extract therefrom. 146 559(2) criminal liability with fine extending upto Rs.500/- per day, for failure of any person, on whose application the dissolution was declared void, to file certified copy of the order with the Registrar. 147 598 criminal liability with fine extending upto Rs.10,000/- and in case of continuing offence, with an additional fine up to Rs.1,000/- per day, for failure of any foreign company to comply with the provisions relating to documents, return, balance sheet and profit and loss account to be delivered to Registrar, etc. 148 606 criminal liability with imprisonment for a term up to 6 months or with fine up to Rs.50,000/- or with both, if any person issues, circulates or distributes in India any prospectus or form for subscription of shares or debentures of a company outside India. 149 607 civil liability for mis statement in prospectus relating to shares in company incorporated outside India 150 614A(2) criminal liability with imprisonment for a term up to 6 months, or with fine, or with both, for failure of an officer or employee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re to discharge the obligations to the members (shareholders); (c) failure to discharge the obligations towards outsiders such as applicants for allotment of shares, debentures, etc; and (d) failure to comply with the obligations to the creditors. 32. Persons, who could be prosecuted for the above categories of offences are (i) the company, (ii) the promoters, (iii) the contributories, (iv) the directors or (v) managers or (vi) persons, who subscribed to certain statements or reports. Apart from these persons, who could be prosecuted under the above categories of cases, there are also other persons, who could be prosecuted under different other categories. The Act makes even the Official Liquidator liable for punishment in respect of certain acts of omission and commission. Persons, who make false claims with the Official Liquidator are also made liable for punishment. 33. Keeping in mind the broad scheme of the penal provisions of the Act, let us now take a look at the courts, which can take cognizance of the above offences and prosecute any of the above categories of persons: (i) Under Section 454(5A), the court, which makes the winding up order, is itself entitled to take co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Companies Act, 1956 contains a special provision under Section 625, for award of compensation in cases of frivolous or vexatious prosecution. This section supersedes the provisions of Section 250 of the Code of Criminal Procedure. 34. Apart from the above provisions, there are two interesting and important provisions in the Act. They are Sections 626 and 627. Under Section 626, the court imposing any fine under the Act can direct that the whole or any part thereof shall be applied in or towards payment of the costs of the proceedings or in or towards the rewarding of the person, on whose information, the fine is recovered. Along with the words "the court", the words "or tribunal" were inserted by the Companies (Second Amendment) Act, 2002. This gives a clue that the expression "the court" found in Section 626 indicates only the High Court. The expression "the court" appearing in Section 626, if taken to mean only the Court of a Magistrate of First Class, then the words "or tribunal" could not have been inserted by the 2002 Act. 35. Section 627 is of more importance and hence, it is extracted as follows: 627. Production and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Companies Act, 1956, is in section 621-A. This section confers power upon the Company Law Board and even the Regional Director, to compound any offence punishable under this Act, provided that the offence is not punishable with imprisonment only or with imprisonment and fine. This power can be exercised, both before and after the institution of prosecution in the court. This is notwithstanding anything contained in the Code of Criminal Procedure. Therefore, to say that a Regional Director or the Company Law Board is competent to compound an offence against the Act, even after the institution of prosecution, but the High Court, despite being a Special court, would not have the power to relieve a person under section 633(2) after such institution, is antithetic to the scheme of the Act. 38. Keeping the above provisions in mind, if we now get back to Section 633, the plain language of Section 633(1) would indicate the following: (i) the power to grant relief under Sub-Section (1) of Section 633 is conferred only upon "the court" hearing the case in relation to any proceeding for negligence, default, breach of duty, misfeasance or breach of trust against an officer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore which, such proceedings are pending, could either be the Courts of Magistrates or the District Court/High Court, as the case may be. Therefore, Sub-Section (1) of Section 633 confers jurisdiction upon all these three courts in respect of matters that are actually pending. But, in respect of matters, which are apprehended, the intention behind Sub-Section (2) is to confer an exclusive jurisdiction upon the High Court. 44. Consequently, a proper reading of Section 633(1) and (2) would be to say that the distinction between these two sub-sections is not court-centric, but only status-centric. In other words, the sub-sections maintain a distinction only with respect to the stage of the proceeding, whether it be at the stage of contemplation or at the stage of actual pendency. The distinction has nothing to do with court, especially the High Court. 45. To put it differently, the jurisdiction of a Magistrate of First Class or the jurisdiction of a District Court, to grant relief, is confined only to cases, which are actually pending before them. These courts do not have the jurisdiction to grant relief in respect of the apprehended proceedings. But, the High Court is conferred wi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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