Section 633(2) relief for statutory dues defaults depends on honest, reasonable conduct and actual control over company affairs.

Relief under section 633(2) of the Companies Act, 1956 was treated as discretionary and dependent on a clear showing that each default was committed honestly and reasonably. The Court held that non-deposit of employees' provident fund contributions, ESI contributions and tax deducted at source involved statutory dues payable within time, and financial hardship, recession, labour unrest or expected subsidy did not excuse withholding those amounts. It further held that nominee and alternate directors not shown to be in charge of day-to-day affairs could not be fastened with personal liability for the defaults. Relief was therefore declined to the petitioners responsible for the defaults, while the nominee and alternate directors were exempted.

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Issues: (i) Whether relief under section 633(2) of the Companies Act, 1956 could be granted to the petitioners for defaults in depositing provident fund, Employees' State Insurance and income-tax deducted at source, and whether the petitioners other than petitioners Nos. 6, 7 and 8 had acted honestly and reasonably; (ii) Whether petitioners Nos. 6, 7 and 8, being a nominee director and alternate directors not shown to be in charge of day-to-day affairs, were liable for the alleged defaults.

Issue (i): Whether relief under section 633(2) of the Companies Act, 1956 could be granted to the petitioners for defaults in depositing provident fund, Employees' State Insurance and income-tax deducted at source, and whether the petitioners other than petitioners Nos. 6, 7 and 8 had acted honestly and reasonably.

Analysis: The defaults concerned employees' contributions deducted from wages and tax deducted at source, both of which were treated as monies held in trust or as Government revenue payable within the prescribed time. Financial difficulty, recession, labour unrest, expected subsidy, or sickness of the company did not justify withholding such statutory dues. The Court held that non-deposit of each monthly contribution or tax deduction constituted a distinct default, and the petitioners had not given specific material showing why each default occurred or why they should be excused. The conduct disclosed use of the deducted amounts for business purposes and even claims for tax refund on the footing that tax had been deposited when it had not been deposited. On these facts, the petitioners other than Nos. 6, 7 and 8 failed to satisfy the requirement of honest and reasonable conduct.

Conclusion: Relief under section 633(2) was refused to the petitioners other than petitioners Nos. 6, 7 and 8, and they were not excused from liability for the defaults.

Issue (ii): Whether petitioners Nos. 6, 7 and 8, being a nominee director and alternate directors not shown to be in charge of day-to-day affairs, were liable for the alleged defaults.

Analysis: The uncontroverted position was that these petitioners were not connected with the day-to-day functioning of the company and were on the board in limited representative capacities. No material was shown to fasten responsibility on them for the statutory defaults under the three enactments. In the absence of such responsibility, the statutory basis for personal liability was not made out against them.

Conclusion: Petitioners Nos. 6, 7 and 8 were relieved from liability in respect of the alleged defaults.

Final Conclusion: The petition succeeded only in part: petitioners Nos. 6, 7 and 8 were exempted from liability, while the petition was dismissed as regards the remaining petitioners with costs.

Ratio Decidendi: Relief under section 633(2) is discretionary and can be granted only on a clear showing that the officer acted honestly and reasonably in relation to each default; mere financial hardship does not excuse withholding of employees' contributions or tax deducted at source, and directors not shown to be in charge of the company's affairs are not personally liable for such defaults.

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