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2010 DIGILAW 1453 (RAJ)

Sharad Kumar Singh v. Registrar of Companies

2010-08-12

AJAY RASTOGI

body2010
JUDGMENT 1. - Instant company petition has been filed under section 633(2) of the Companies Act, 1956 ("the Companies Act") seeking direction to relieve the petitioners from prosecution for any alleged defaults or breach of provisions of the Companies Act, if any having been committed during the period prior to management of Shri Ganpati Fertilizers Ltd. ("the company") being taken over by the petitioners. 2. As alleged, the petitioners are professionals being full time employees of M/s. DCM Shriram Consolidated Ltd. ("DSCL"), which was the sole secured creditor of the company. It has been alleged that the company since its incorporation in the year 1994, was solely under the control and management of its original promoters/directors (Mr. R.K. Joshi, the then managing director, his family members and close relatives). In 2005, the company being in serious financial crisis, was indebted to the Punjab National Bank for a sum of Rs. 1,044 lakhs ; thereby the bank initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the entire plant, machinery, factory land and other assets of the company were attached ; in such circumstances, the company approached DSCL seeking financial aid, promising to sell its products to DSCL in turn and repaying the loan amount in accordance with the agreements dated January 31, 2006 and other related agreements. As alleged, the DSCL disbursed Rs. 300 lakhs, for being utilised by the company for settling its dues with PNB ; and that apart, further working capital of Rs. 442 lakhs was also provided by DSCL for revival of the operation of plant of the company being closed since long time. 3. As alleged, after borrowing the amount from DSCL and settling its account with PNB, the original promoters (Mr. R.K. Doshi and Associates) of the company became negligent and did not take appropriate steps for revival and operation of the company ; rather committed a number of defaults on account of negligence on the part of the then promoters (Mr. R.K. Joshi) who were directors and were having exclusive control over the affairs of the company ; and only after detailed correspondence and notices, calling upon them to ensure legal compliance and for revival of the operation of the plaint in terms of agreements executed by them, the DSCL was constrained to invoke clause 12 of the agreement and nominated petitioners Nos. 1 to 4 on the board of directors of the company with a view to protect its interest under the loan agreement. 4. It has averred in paragraph 7 at page 12 of the petition that petitioner No. 5 being nominee on the board of directors of the company appointed by DSCL on February 22, 2006, gave notice of the board meeting and petitioners Nos. 1 to 4 were inducted its nominee directors on the board of the company on March 27, 2008, pursuant to which Form No. 32 and its challan were filed on May 14, 2008, before the Registrar of Companies. 5. However, in the extraordinary general meeting convened on June 11, 2008, the original promoters (Mr. R. K. Jain the then managing director and other directors) in terms of provisions of section 284 of the Companies Act were removed. It has further been alleged that since the ex-management of the company was not co-operating and because of their attitude, present management of the company (petitioners) is not in a position to fulfil requirements provided under the Companies Act. It has come on record that with regard to the defaults committed by the company under sections 159, 160, 166, 210 and 220 of the Companies Act ; show-cause notices were issued by the Registrar of Companies. On June 12, 2008 and August 20, 2008, for non-filing of Form No. DIN-3 in respect of director identification number as provided under section 266E of the Companies Act, 1956. 6. The main thrust of the submissions made on behalf of the petitioners is that the petitioners have acted throughout in a reasonable and prudent manner in discharge of duties as officers of the company without causing any default wilfully or otherwise and they cannot be held responsible for the defaults having been committed and the defaults existing before taking over the management of the company by the petitioners cannot be attributed to the petitioners and accordingly they may be exempted from any prosecution, if initiated by the respondent in regard to statutory breach or violation of provisions of the Companies Act and may be granted exemption from all kinds of prosecution for defaults, misfeasance or negligence committed during the period of ex-management of the company. 7. 7. Reply to the petition has been filed by the Registrar of Companies, and it has been averred in paragraph I(i) of preliminary objections that petitioners Nos. 1 to 4 were appointed as directors of the company with effect from March 27, 2008 and petitioner No. 5 with effect from February 22, 2006 and the management was taken over on June 11, 2008 and prior thereto, it was under control and supervision of ex-management (Mr. R. K. Jain and his associates). It has also been averred that as per various penal provisions of the Companies Act, only those officers of the company being in default within the meaning of section 5 of the Act are liable to be prosecuted for such default, breach, negligence, misfeasance etc., and since in the instant case, the contravention having been allegedly committed was of prior date of appointment of petitioners, the petition deserves to be dismissed. 8. It has been informed by the respondent-Registrar of Companies, that compliance in reference to notices dated June 12, 2008 and August 20, 2008, has been made and there is no notice thereafter being issued by the Registrar of Companies and no proceedings at present having been initiated under any of the provisions of the Companies Act against the company or its directors including petitioners Nos. 1 to 5 herein pending consideration. 9. Paragraph I(i) of the reply filed by the Registrar of Companies being relevant in examining the issue herein is reproduced ad infra : "(i) Because petitioners Nos. 1, 2, 3 and 4 were appointed as directors of the company, Shri Ganpati Fertilizers Ltd. (for the sake of brevity hereinafter referred to as 'SGF') with effect from March 27, 2008 and petitioner No. 5 was appointed as director of the said company with effect from February 22, 2006. It has also been claimed by the petitioner that till June 11, 2008, the entire management was in control and supervision of Mr. R.K. Joshi, the then managing director and other directors of the said company, who were his wife, father, mother and friends, etc. It has also been claimed by the petitioner that till June 11, 2008, the entire management was in control and supervision of Mr. R.K. Joshi, the then managing director and other directors of the said company, who were his wife, father, mother and friends, etc. As per the various penal provisions con tained in the Companies Act, 1956, the officer(s) of the company who is in default with the meaning of section 5 of the said Act are liable to be prosecuted for any default, breach of trust, negligence, misfeasance etc., and on those persons/officers who are liable for any such omission/default, etc., and further that they exist honestly and reasonable having regard to all the circumstances of the case are only entitled to file petition under section 633(2) of the Companies Act, 1956. In the instant petition, the petitioners have approached this Hon'ble court for grant of exemption from the compliance of those provisions of the Companies Act, 1956, contravention of which were committed prior to the date of their appointment." 10. From a bare reading of section 633 it emerges that under section 633(1) of the Companies Act, if any proceedings arises out of negligence, default, breach of trust and duty, misfeasance and it appears to the court that an officer has acted reasonably in the facts and circumstances of the case, he may fairly be relieved partly or wholly from his liability. However, at the same time, under sub-section (2) of section 633 of the Companies Act, without there being any proceedings if the officer of a company has reason to apprehend that proceedings might be brought against him in respect of any negligence, default, breach of duty, misfeasance or breach of trust, he may apply to the High Court for relief. But, in the instant case, it is not a case where any proceedings are pending. From the reply, it is clearly manifest that petitioners Nos. 1 to 4 who became nominee directors of the company with effect from March 27, 2008, prior to which default, breach or misfeasance, if committed, cannot be attributed for making them liable for prosecution under the Companies Act. As regards petitioner No. 5, who became nominee director with effect from February 22, 2006, it has been averred by the Registrar of Companies that for defaults, if any committed, whatever action provided under law would be initiated. As regards petitioner No. 5, who became nominee director with effect from February 22, 2006, it has been averred by the Registrar of Companies that for defaults, if any committed, whatever action provided under law would be initiated. From the material on record, it reveals that the apprehension having taken note of by the petitioners appears to be without any foundation. In regard to the defaults or breach or violation of certain provisions of the Companies Act, notices dated June 12, 2008 and dated August 20, 2008 (exhibits A and B) were issued to the company however, it has been informed that the petitioners have made full compliance in response to the notices and no further proceedings have been initiated by the Registrar of Companies in regard to the defaults, if any, committed prior to the petitioners being inducted as nominee directors of the company. It has also been informed that neither any proceedings are contemplated nor initiated with regard to default or breach of provisions of the Companies Act against either of the directors including petitioners Nos. 1 to 5 nor are pending. 11. From the material having come on record and taking note of the averments made by the respondents in their reply, there appears to be no reason for an officer of the company to apprehend for initiating proceedings in future in regard to alleged default, etc., as provided under section 633(2) of the Companies Act, 1956, seeking absolute exemption from any action being initiated against either of the officers or petitioners in case of any breach of violation of provisions of the Companies Act, which cannot be granted by this court in isolation ; and as such apprehension raised by the petitioners in the facts and circumstances appears to be ill-founded. 12. Consequently, the company petition fails and is hereby dismissed. No costs. *******