2003 (3) TMI 604 - HC - Companies Law

Directors granted relief from prosecution under Companies Act for acting in good faith and remedying contravention

The court allowed the company petitions, granting relief to the petitioners-directors from the prosecution initiated by the respondent. The court ... Court - Power of, to grant relief Issues Involved:1. Whether the petitioners have made out a case for interference under section 633(2) of the Companies Act, 1956Rs.2. Whether the objections raised by the respondent are sustainable under lawRs.3. To what relief are the petitioners entitledRs.Detailed Analysis:Issue 1: Whether the petitioners have made out a case for interference under section 633(2) of the ActRs.The petitions were filed under section 633(2) of the Companies Act, 1956, seeking relief from liability following show-cause notices issued by the respondent for alleged violations of section 207 of the Act. The company, originally incorporated as Pentagon Consultancy & Agency (P.) Ltd., declared a 30% equity dividend on 20th July 2001. However, a complaint from a shareholder, Mr. Ashok Kumar Verma, led to the issuance of show-cause notices due to a ten-day delay in sending the dividend warrant. The petitioners argued that they acted reasonably and ensured the company remedied the contravention by paying the dividend with interest for the delay. They sought relief from prosecution, asserting they acted bona fide and reasonably.Issue 2: Whether the objections raised by the respondent are sustainable under lawRs.The respondent contended that the petitioners failed to demonstrate they acted honestly and reasonably. Despite reminders, the company delayed responding to the complaint and did not provide specific payment dates. The respondent argued that section 207 aims to protect investors and deter directors from non-compliance. The show-cause notice was based on the observation that the company transferred the unclaimed dividend amount after 49 days, contravening section 207. The respondent also noted selective prosecution, as not all involved directors were prosecuted, raising questions about the bona fides of the prosecution.Issue 3: To what relief are the petitioners entitledRs.The court noted that section 633(2) allows officers to seek relief if they apprehend proceedings for negligence, default, breach of duty, misfeasance, or breach of trust. The court found the petitioners acted reasonably, paying the dividend with interest for the delay. The prosecution was launched selectively, and no material indicated the petitioners knowingly caused the delay. The court referenced several precedents supporting relief under section 633(2) when the alleged offence ceased to be an offence by the time of the show-cause notice or petition filing. The court concluded that the petitioners should be relieved from prosecution, as they remedied the contravention before the prosecution was launched, making the prosecution unnecessary.Conclusion:The company petitions were allowed, and the petitioners-directors were relieved from the prosecution launched by the respondent. The court found that the petitioners acted bona fide and reasonably, and the selective prosecution by the respondent lacked bona fides.