Exceptional discretionary relief under company law is unavailable for continuing statutory defaults, except for officers uninvolved in day-to-day management.

Section 633(2) of the Companies Act, 1956 is an exceptional discretionary relief provision, available only where the officer shows with particulars that the default was committed honestly and reasonably. Non-deposit of employees' provident fund and ESI contributions, and tax deducted at source, was treated as a continuing statutory default; financial stringency, recession, labour unrest, or expected subsidies did not justify withholding amounts deducted from employees' wages or taxes collected at source. The use of certificates showing deduction while the corresponding sums were not deposited undermined the claim of honesty and reasonableness. Relief was available only to nominee and alternate directors with no role in day-to-day management or responsibility for the defaults.

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Issues: Whether relief under section 633(2) of the Companies Act, 1956 could be granted to company officers for defaults in payment of provident fund, employees' state insurance and tax deducted at source, and whether the petitioners acted honestly and reasonably so as to be fairly excused from liability.

Analysis: The statutory defaults related to employees' contributions to provident fund and employees' state insurance, and to tax deducted at source under the Income-tax Act, 1961. The Court held that employees' contributions deducted from wages are held in trust by the employer, and non-deposit of such amounts cannot be justified by financial stringency, recession, labour unrest, or expectation of future subsidies. The defaults were treated as distinct and continuing in nature, and the petitioners were required to explain each default with particulars showing why payment could not be made when due. The Court also found that the petitioners had claimed benefits under the Income-tax Act, 1961 on the basis of certificates showing tax deduction and provident fund deductions while the corresponding amounts had not been deposited, which negatived honesty and reasonableness. At the same time, the Court accepted that petitioners who were not connected with the day-to-day management and had no responsibility for the defaults could not be saddled with liability.

Conclusion: Relief was granted to the nominee and alternate directors who were not responsible for the company's day-to-day affairs, but the remaining petitioners were not entitled to be excused from liability or prosecution for the statutory defaults.

Ratio Decidendi: Section 633(2) of the Companies Act, 1956 is an exceptional discretionary provision, and relief under it can be granted only when the officer shows by particulars that the default was committed honestly and reasonably; financial difficulty alone does not excuse non-deposit of employees' statutory contributions or tax deducted at source.

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