1940 (3) TMI 6 - HC - Companies Law

Directors Granted Relief from Liability under Companies Act; Consideration of Honesty and Reasonableness

The Court granted relief to the petitioners under Section 372(2) of the Companies Act, relieving them from prospective liability for their conduct as ... Directors – Power of and Powers of court to grant relief in certain cases Issues:Director's liability under Section 372 of the Companies Act, 1929 for events leading to disqualification and breach of duty.Analysis:The judgment involved two petitions by directors of a company seeking relief under Section 372 of the Companies Act, 1929 from liability due to certain events. The petitions aimed to be relieved from fines or penalties incurred under Section 141 of the Act or other liabilities resulting from negligence, default, breach of duty, or breach of trust. The company in question, Gilt Edge Safety Glass, Ltd., underwent changes in share capital and directorship due to acquisitions and capital reduction. The petitioners, directors of another company, were elected as directors of Gilt Edge in 1936 and received shares as director's qualification. However, a subsequent capital reduction left all directors without the required share value, leading to their disqualification. The petitioners later resigned in 1939 amid legal proceedings and claims for repayment of fees received as directors.The judgment delved into the legal provisions governing director qualifications, disqualification, and liability under the Companies Act. It was noted that the petitioners vacated their directorship upon the capital reduction taking effect, as per the company's articles and relevant statutory provisions. The legal proceedings initiated against the petitioners for acting as directors post-disqualification were subject to a time limit under the Summary Jurisdiction Act, 1848. The Court examined Section 372 of the Companies Act, which allows relief for directors from liability for negligence, default, breach of duty, or breach of trust. The Court's jurisdiction under this section was discussed, distinguishing between relief from ongoing proceedings and prospective liability.The judgment emphasized the Court's role in granting relief under Section 372 based on the honesty and reasonableness of the directors' actions. The Court considered whether the petitioners should be excused for their technical breach, which did not cause harm to the company. It was highlighted that the petitioners' lack of awareness of their disqualification and the technical nature of the wrongdoing weighed in favor of granting relief. The Court rejected arguments of negligence or breach of duty, noting that the petitioners' actions did not result in losses for the company. Ultimately, the Court decided to grant relief under Section 372(2) to the petitioners, relieving them from prospective liability for their conduct.In conclusion, the Court ordered relief for the petitioners under paragraph 2 of the prayer in each petition, while no order was made under paragraph 1. The petitioners were directed to pay the costs of the company and the Board of Trade. The judgment highlighted the importance of considering all circumstances and the technical nature of the wrongdoing in determining liability and granting relief under the Companies Act.