Andhra HC (Pre-Telangana)
P. Vaman Rao vs Secretary To Government And Anr. on 7 February, 1997
Equivalent citations: [1998]93COMPCAS486(AP)
JUDGMENT S. Dasaradharama Reddy, J.
1. The petitioner, a former company secretary of Sirsilk Limited (hereinafter referred to as "the company"), in which the Government of Andhra Pradesh is the major shareholder, filed this petition under section 633(2) of the Companies Act, 1956 (for short "the Act"), for relieving him from the default, if any, in not complying with section 233B of the Act. The company petition was admitted on March 13, 1996 and interim direction was granted not to launch prosecution as proposed in the show-cause notice issued by the second respondent. The petitioner states in his petition as follows :
The company was carrying on business in manufacture of cotton textiles, chemicals and rayon. Due to numerous problems, a lock-out was declared by the company on April 26, 1985 and the company remained closed and did not reopen till April 16, 1994. The company approached the Board for Industrial and Financial Reconstruction (BIFR) and pursuant to the order passed by the appellate authority, a new management was constituted and a new managing director was appointed, and the lock-out was lifted on April 16, 1994. The Company Law Board issued earlier an order under section 233B of the Act in respect of cotton textiles and rayon manufactured by the company directing cost audit of the accounts of these two divisions. The company represented to the Company Law Board that it was under continuous closure on account of lock out and therefore it was impossible to get the cost audit done and requested not to insist on the cost audit. The Company Law Board wanted the company to file an affidavit which was filed accordingly sworn to by the directors of the company. Thereupon, the Company Law Board withdrew the demand of cost audit as far as cotton textiles and rayon divisions are concerned. The Company Law Board issued another order on January 7, 1991 requiring the company to get the cost audit done with respect to the chemical division, for the year ending on March 31, 1991 and for every alternate financial year. To this, the company replied on January 30, 1991 stating that the BIFR had already concluded by then that the operations of the company are not viable and that the BIFR is contemplating winding up of the company and accordingly sought exemption from appointment of cost audit. As required by the Company Law Board, an affidavit signed by the two directors seeking exemption from applicability of cost audit was filed. While so, the Director (Cost), Company Law Board, by his notice dated April 17, 1993 required the company to get the accounts for the period ending on March 31, 1994 cost audited in respect of chemicals. Meanwhile, the petitioner submitted his resignation to the board of directors on December 23, 1987. But the decision of the acceptance of his resignation was postponed by the board of directors, for one reason or the other, and the resignation was not accepted till 1994, when there was a change in the management of the company pursuant to the order of the AAIFR. The resignation was communicated to the Registrar of Companies in Form No.-32 on February 17, 1994. Thereafter, the petitioner received a notice from Registrar of Companies on February 16, 1996 wherein it is alleged that for the years ending on March 31, 1991, and March 31, 1993, the accounts were not cost audited which was in violation of the orders of the Company Law Board and the petitioner was directed to show cause why prosecution should not be launched for the alleged default. The petitioner submitted a reply on February 29, 1996 tracing out the fact of his functioning as company secretary of the company, the declaration of the company as a sick unit by the BIFR, his resignation as secretary and absence of production of any chemical by the company which was under lock-out during this period. Apprehending that the Registrar may proceed with prosecution for alleged violation of section 233B, the petitioner has filed this petition, saying that he would be seriously prejudiced, if prosecution is needlessly launched against him.
2. No counter has been filed by the Registrar of Companies in spite of sufficient time having been given.
3. Section 233B, so far as it is relevant, reads as follows :
"Sub-section (1). Where in the opinion of the Central Government it is necessary so to do in relation to any company required under clause (d) of sub-section (1) of section 209 to include in its books of account the particulars referred to therein, the Central Government may, by order, direct that an audit of cost accounts of the company shall be conducted in such manner as may be specified in the order by an auditor who shall be a cost accountant within the meaning of the Cost and Works Accountants Act, 1959 ...
Sub-section (2) : The auditor under this section shall be appointed by the board of directors of the company in accordance with the provisions of sub-section (1B) of section 224 and with the previous approval of the Central Government ....
Sub-section (11) : If default is made in complying with the provisions of this section, the company shall be liable to be punished with fine which may extend to Rs. 5,000 and every officer of the company who is in default, shall be liable to be punished with imprisonment for a term which may extend to three years or with fine which may extend to Rs. 5,000 or with both."
4. It is contended by S. Ravi, learned counsel for the petitioner, that as the company was under lock-out from April 26, 1985, to April 16, 1994, there was no production and the matter was also pending during this period before BIFR and hence the question of cost audit for chemicals for the year ending with March 31, 1991, March 31, 1993, and March 31, 1994, does not arise and as the company itself is not liable to be prosecuted, prosecution of the petitioner does not arise. The Company Law Board keeping in view these circumstances, by its letter dated November 10, 1989, has exempted the company from cost audit for the year ending on March 31, 1990, in relation to cotton textiles. In view of the same circumstances existing even in the subsequent years, the company claimed exemption from cost audit in respect of the chemical division for the year ending on March 31, 1991, and subsequent years and affidavit of two directors was filed as required by the first respondent. He further submits that for the year 1994-95, when the lock-out was lifted, even assuming that there is default, the petitioner is not liable to be prosecuted as he resigned as secretary with effect from February 16, 1994, as per Form No. 32 submitted to the Registrar of Companies.
5. For the year 1989-90, the company was granted exemption from cost audit in respect of cotton by letter of Company Law Board issued on November 10, 1989. As far as the financial year 1990-91 is concerned, the company sought exemption on January 30, 1991 and filed affidavits of two directors. Evidently, the first respondent was satisfied with the claim though no formal order was passed granting exemption as was passed for the year 1989-90 in respect of cotton. Hence notice dated April 17, 1993, as far as the year 1990-91, is concerned, is not legal. As far as the alternate year 1992-93 is concerned, it was included in the earlier notice issued by the first respondent on January 7, 1991. No doubt, the company in its reply dated January 30, 1991 has referred only to the year 1990-91. But the reasons that are applicable for exemption for the year 1990-91 apply equally to the year 1992-93 and hence no action can be taken for default for the year 1992-93. As far as the year 1993-94 is concerned, no doubt, the company ought to have replied to the notice issued by the first respondent on April 17, 1993. Mr. Ravi contended that as the company was under the impression that the first respondent was satisfied with the explanation given on January 30, 1991, no formal reply was given. As contended by Mr. Ravi, as the lock-out continued till April 16, 1994 and as the matter was pending till then before the BIFR, the reasons that are applicable to the exemption for the earlier years, apply to this year also. Thus, the company cannot be said to be guilty of non-compliance of the order directing cost audit in respect of chemicals for the years 1990-91, 1992-93 and 1993-94 and consequently, the petitioner who was former secretary is entitled to claim relief.
6. As regards the year 1994-95, as already seen, there was no lock-out. Even assuming without deciding, that the company has violated section 233B of the Act for this year, the petitioner cannot be said to be guilty, as he has admittedly resigned as company secretary with effect from February 16, 1994, and he was not company secretary during this. period, i.e., commencing from April 1, 1994.
7. Thus, the petitioner is entitled to succeed and accordingly, the petition is allowed. No costs.