TaxTMI 
TaxTMI 
2013 (10) TMI 1580
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....296 of 2013 filed by the very same petitioners 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....
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....nt relief to any officer under sub-section (1) or sub-section (2) unless it has, by 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 th....
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....ent that sub-section (2) is wide enough to enable the Court to relieve the officers not only 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 ....
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....f sub sections (1) and (2) of Section 633 is: (a) In any proceedings for negligence/default/breach 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 M....
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.... (b) a person employed by a company as auditor (whether he is or is not an officer of the company), it appears 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 eit....
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....no difficulty in simply following section 2(11) and section 10. But unfortunately, the second part of section 633(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, fo....
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....pany and with the imprisonment upto 3 years, for violation of the prescription in Section 80A regarding redemption of irredeemable preference shares. 20 89(3) criminal liability with fine extending upto Rs.10,000/-, for failure to apply to Court for appropriate 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....
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....riminal liability with fine extending upto Rs.10,000/-, for failure to mention the subscribed and paid up capital, wherever authorised capital is mentioned in a statement. 39 149(6) criminal liability with fine extending upto Rs.5,000/- per day, whenever a company commences business or exercises borrowing powers in violation of Section 149. 40 150(2) criminal liability 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 th....
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....ne extending upto Rs.5,000/- for circulating or advertising any report of the proceedings of general meetings, if it does not include the matters required by Section 193 to be contained in the minutes. 59 202 criminal liability with imprisonment for a term up to 2 years, or fine extending upto Rs.50,000/-, or both, if an undischarged insolvent discharges any function as director or manager of any company or directly or indirectly takes part in the promotion, formation or management of any company. 60 203(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 shareh....
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....al liability with fine extending upto Rs.500/- per day, for failure to file with the Registrar, copies of balance sheet and profit and loss account. 72 221(4) criminal liability with imprisonment for a term up to 6 months, or with fine extending upto Rs.50,000/-, or both, for failure to furnish particulars or information in the balance sheet or profit and loss account, to the company and the company auditor. 73 223(4) criminal liability with fine extending upto Rs.500/- per day, for failure to publish statement in the Form in Table F. 74 224(4) criminal liability with fine extending 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....
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.... 86 279 criminal liability with fine extending upto Rs.50,000/- in respect of each company, for acting as a director of more than fifteen companies. 87 283 criminal liability with fine extending up to Rs.5,000/- per day, if a person functions as a director when such office has become vacant on account of disqualifications. 88 286(2) criminal liability with fine extending upto Rs.1,000/-, for failure to give notice of meeting of the Board of Directors to every director. 89 292A (11) criminal liability with imprisonment for a term up to 1 year, or with fine extending upto Rs.50,000/-, or with both, for failure to comply with constitution of audit committee or to disclose the composition of committee in the 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.....
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....ne extending upto Rs.50,000/-, for failure to give notice in writing to the company about the disclosure of shareholdings or to read the notice at the meeting of the Board, if it is not given at a meeting. 101 314(2C) civil liability for holding an office of profit in contravention of 314 (1B), to refund the remuneration received 320(3) criminal liability with fine up to Rs.2,000/-, for failure of the Director or any person to take take reasonable steps to secure particulars of the payment proposed to be made by transferees or other person regarding shares. 102 322(3) criminal liability with fine extending upto Rs.10,000/- and also damages, for failure to add statement that the liability of the director is unlimited or to give notice in writing before he accepts office that his liability is unlimited. 103 370(IE) criminal 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 ....
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....hin 30 days of the order. 113 395(4A) criminal liability with fine extending upto Rs.5,000/-, for issuing a circular containing or recommending acceptance of offer, until it is registered. 114 404(4) criminal liability with fine extending upto Rs.50,000/-, for failure to file with the Registrar the certified copy of every order altering or giving leave to alter memorandum of articles within 30 days. 115 407(2) (c) criminal liability with imprisonment for a term up to one year and with fine extending upto Rs.50,000/-, if any person acts as a managing or other director or manager, whose agreement is terminated or set aside, without the leave of the court. 116 416(3) (b) criminal liability with fine extending upto Rs.2,000/-, for failure of the person who enters into a contract, to make memorandum in writing of the terms of the contract or to deliver the memorandum to the company and copies to 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 employe....
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....and dealings and of the conducting of winding up, with statement in prescribed form containing particulars of the proceedings in, and position of, the liquidation. 128 497(3) criminal liability with fine extending upto Rs.500/- per day, for failure of the liquidator to send copy of the account of the winding up to the Registrar and the Official Liquidator and to make a return of the holding of the meeting and of the date thereof, within one week after the meeting. 129 500(6) criminal liability with fine extending upto Rs.10,000/-, for failure of the company to cause meeting of the creditors or to publish notice of meeting of creditors in the Official Gazette and in two newspapers, or failure of the Board of directors to cause a statement of the company's affairs with list of creditors or for failure of the director appointed to preside at the meeting of creditors to attend and preside. 130 501(1) criminal liability with fine extending upto Rs.500/- per day, for failure to give to the Registrar the notice of resolution passed at creditors meeting within ten days. 131 508(2) criminal liability with fine extending upto Rs.1,000....
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....up to one year, for failure to show that proper books of account were kept. 141 542 (3) criminal liability with imprisonment for a term up to two years or with fine extending upto Rs.50,000/- or with both, if the business of the company has been carried on with intent to defraud creditors or others. 142 545 power of company court to order the prosecution of officers and members of the company, who are found, in the course of winding up, to have carried on the business of the company with intent to defraud the creditors 143 547(2) criminal liability with fine extending upto Rs.5,000/-, if the invoice or order for goods or business letter does not contain a statement that the company is being wound up. 144 550(4) criminal liability with imprisonment for a term up to 6 months or with fine extending upto Rs.50,000/- or both, if any person destructs books and papers of wound up company within five years of dissolution. 145 551 criminal liability with fine extending upto Rs.5,000/- per day, for failure of liquidator to file a statement or to forward a copy of such statement to Central Government or State Government if they are members or refus....
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....ending upto Rs.10,000/-, if any officer or employee of the company wrongfully obtains possession of or withholds the property of the company; criminal liability with imprisonment for a term up to 2 years in default to deliver the property wrongfully obtained or withheld. 156 631 criminal liability with fine extending upto Rs.500/-, if a person carry on business under the title including the word Limited or Private Limited, unless duly incorporated with limited liability or as private company. 157 642 criminal liability with fine up to Rs.5,000/- and in case of continuing one, with further fine of Rs.500/- per day, for contravention of any rule made by the Central Government by notification in the Official Gazette, in addition to the powers under Section 641. 31. A careful perusal of all the penal provisions contained in the Companies Act, 1956 listed in the table contained in the preceding paragraph would show that there are different categories of offences, dealt with by the Act. These offences would broadly fall under the following categories, namely (a) failure to comply with the statutory requirements such as holding of meetings, maintenance of books,....
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.... document along with an additional fee. This Section uses the expression "any court trying an offence"; (iv) Under Section 621(1), no court can take cognizance of any offence under the Act allegedly committed by any company or any officer thereof, except on a complaint by the Registrar or a shareholder or a person authorised by the Central Government in that behalf. If the offence relates to the issue and transfer of securities and non payment of dividend, the court can take cognizance of a complaint in writing by a person authorised by SEBI. But, the provisions of Section 621(1) would not apply to any action taken by the Official Liquidator in respect of any offence relating to matters included in Part VII and in respect of matters relating to winding up; (v) Under Section 622, no court inferior to that of a Presidency Magistrate or the Magistrate of a First Class shall try any offence against the Act; (vi) Under Section 623, an offence committed by a person within a presidency town and which is punishable only with fine, can be tried summarily by a Presidency Magistrate; (vii) Section 624 makes every offence against the Act non cognizable, irre....
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....o far as they relate to the company's affairs, as it applies to any books or papers of or under the control of the company, except that no such order as is referred to in clause (ii) thereof shall be made by virtue of this Sub-Section. (3) No appeal shall lie from the decision of a Judge of the High Court or Tribunal, as the case may be under this section. 36. Section 627 appears to be a special provision conferring a special power upon the Company Court. Under this section, an application can be filed before the High court for a direction to produce the books of a company or to have those books inspected, if the Court has reason to believe that an officer has committed an offence in connection with the management of the company's affairs and that evidence of the commission of the offence is to be found in any books. If the power to prosecute any company or officer of the company had been vested only in the Court of a Magistrate of First Class, the power to inspect the books or to obtain evidence of the commission of the offence need not have been conferred upon the High Court. The Court of a Magistrate of First Class would have such powers under the Code of Cri....
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....y, misfeasance or breach of trust. 41. There can be no doubt about the fact that "a proceeding for negligence, default, breach of duty, misfeasance or breach of trust against an officer of a company" can be brought either against a company in liquidation or against other companies. In respect of companies in liquidation, the proceedings for negligence, default, etc., are brought before the Company Court itself. Therefore, in such cases, the question as to whether proceedings are actually pending or proceedings are merely apprehended, loses significance. 42. Similarly, the companies, which are not in winding up, but which file petitions under Sections 391 to 394 for sanctioning some kind of a scheme, also do come up with applications for relieving the officers from criminal liability, either actually pending or merely apprehended. This is despite the fact that no proceeding for negligence, default, etc., as contemplated by Section 633(1) is actually pending before the High Court. 43. It is only on account of the above factors that Section 633 makes a distinction between (i) cases where proceedings for negligence, default, etc., have already been initiated; and (ii) cases in....