Bombay High Court
H. Nanjundiah vs V. Govindan, Registrar Of Companies, ... on 21 March, 1985
Equivalent citations: [1986]59COMPCAS356(BOM)
JUDGMENT
Parekh J.
1. This is a petition filed by the petitioner for relief under section 633 of the Companies Act, 1956. The same is resisted by the respondents.
2. The facts that give rise to this petition are that the petitioner is a director of Fuel Injection Ltd. It is the case of the petitioner that he is not a managing director of the company or, for that matter, he is not even a shareholder of the company, and he is not concerned with the day-to-day work of the company. That the company seems to have exceeded its limits of borrowings. That on this position being ascertained, a meeting of the board of directors was held on February 4, 1983. At this meeting, a resolution came to be passed that an application should be made to the Central Government under section 58A of the Companies Act, 1956, seeking exemption concerning the excess deposit. That pending this application, the respondent issued two notices, both dated June 14, 1984, inter alia, calling upon the company to show cause why action should not be taken against the company and its officers for having accepted deposits exceeding the limits prescribed by the rule 3(2)(i) and 3(2)(ii), during the period stated in the notices. The company answered these two notices. However, in view of the said notices and apprehending institution of proceedings against him personally, the petitioner has filed this petition for relief under section 633 of the Companies Act, 1956.
3. At the hearing of this matter, Mr. Mehta, the learned counsel for the petitioner, urged that the petitioner is neither the managing director nor a full time director. That he is just a director and for that matter not even a shareholder of the company. That he is not concerned with the day-to-day management of the company. that it appears that the company came into difficulties and indulged in borrowings, and whilst doing so, happened to exceed the limits prescribed under section 58A of the Companies Act. That on this coming to light, the company passed a resolution dated February 4, 1983, that the necessary exemption be obtained, and an application for obtaining an exemption was accordingly made. That it is only thereafter that the respondent purported to serve the two notices in question on the company. Mr. Mehta, the learned counsel for the petitioner, urged that the petitioner was and is in no way directly concerned with the borrowings nor had he any personal knowledge of the same nor has he done any act wilfully acquiescing in these borrowings. On the other hand, the financial position of the company being ascertained, a meeting of the board of directors was held on February 4, 1983, and a decision was taken to make an application to the Central Government under section 58A so as to ensure that the requirement of the law were met with. That none the less from the attitude of the respondent, it appears that the respondent would take action against the petitioner holding him liable as "an officer in default", and it is in these circumstances that the petitioner has filed the present petition for relief under section 633 of the Companies Act.
4. Mr. Bulchandani. the learned counsel for the respondent, urged that the petitioner is admittedly a director of the company. That he is deemed to know the day-to-day working of the company and cannot plead ignorance of facts. That admittedly, the company had received deposits in excess of the limits under section 58A, and if this be so, the petitioner cannot be heard to say that he did not know anything about this. The petitioner would clearly be liable for a breach of the provisions of law and cannot now seek relief under section 633 of the Companies Act. On the other hand, he would be liable as "an officer of the company in default."
5. Considering the rival contentions, it is an admitted position that the company has exceeded its limits of borrowings and, perhaps, the company would be liable on this count. But the question in this petition is as to whether the petitioner, who is one of the directors, would be liable as "an officer who is in default". Now, section 5 of the Companies Act, 1956, reads as follows :
"Meaning of 'Officer who is in default'. - For the purpose of any provisions in this Act which enacts that an officer of the company who is in default shall be liable to any punishment or penalty, whether by way of imprisonment, fine or otherwise, the expression 'officer who is in default' means any officer of the company who is knowingly guilty of the default, non-compliance, failure, refusal or contravention mentioned in that provision, or who knowingly and wilfully authorises or permits such default, non-compliance, failure, refusal or contravention".
6. In view of this, I had asked Mr. Bulchandani, the learned counsel for the respondent, to point out any resolution of the company to which the petitioner was party which allowed the company to make borrowings in excess of the limits or to point out any act of the petitioner wherein the petitioner had knowingly subscribed to the borrowing beyond the limits, or of the petitioner having wilfully authorised or permitted someone to borrow the monies in excess of the limits. Mr. Bulchandani was unable to point out a singly act to satisfy this position or even indicate remotely as to how the petitioner could be said to be "an officer in default".
7. In view of this discussion, what emanates is that whilst the company may be liable for breaches of the provisions of s. 58A, there is no material placed before this court even to indicate as to how the petition could be said to be "an officer in default". In the circumstances, the petitioner would be entitled to relief as against the penal action contemplated.
8. In the result, there will be an order in terms of prayer (a) of the petition save and except that the words "all liabilities" will be substituted by the words "criminal liability". There will be no order as to costs.