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2012 DIGILAW 3708 (MAD)

T. T. Srinivasaraghavan v. Registrar of Companies

2012-08-27

K.B.K.VASUKI

body2012
ORDER This petition is filed by the Managing Director of M/s.Sundaram Finance Limited, to relieve him wholly or partly from the alleged liability, pursuant to show cause notices bearing F.Nos.2429/209A/ STA-RRR/2011 and 2429/209A/STA- RRR/2011 dated 21.10.2011. 2. The facts stated in the petition are as follows: The petitioner is the Managing Director of M/s.Sundaram Finance Limited. The authorised capital of the company is Rs.100,00,00,000/- divided into 10,00,00,000 equity shares of Rs.10/- each. The issued and paid up capital of the company i s Rs.55,55,19,300/- divided into 5,55,51,930 equity shares of Rs.10/- each. The company was inspected by the Regional Director under Section 209 A of the Companies Act, in the course of which, non-compliance of certain provisions of the Companies Act, were noted and the same was intimated to the company on 9.9.2010 and the same was, by reply letter dated 20.9.2010, replied in detail by the company. However, without reference to such reply, the company received another letter dated 21.10.2011 and show cause notice from the respondent-Registrar of Companies, calling upon the company to file compounding application in respect of offence alleged under Section 289 and the same was replied in detail by the company, thereby denying any violation. The petitioner has not thereafter, received any prosecution notice in respect of alleged offence. However, the petitioner is compelled to file this petition by invoking Section 633(2) seeking his discharge from liability for and consequences of non compliance if any. 3. According to the petitioner, the company and its board of Directors complied with statutory requirement in all aspects governing the company and they always acted honestly and reasonably and there is no violation much less deliberate violation of any of the provisions or provision of the law under Section 289. Non-compliance as referred to in the show cause notice does not exist and all the requirements under the law are fully complied with in the manner of conduct of meeting and the show cause notice issued is without any basis. 4. Whereas, the learned counsel for the respondent, both in the counter and in the arguments advanced before this court, opposed the relief sought for herein, by reiterating its stand regarding non-compliance of the statutory requirements. 5. Heard the rival submissions made on both sides. 6. 4. Whereas, the learned counsel for the respondent, both in the counter and in the arguments advanced before this court, opposed the relief sought for herein, by reiterating its stand regarding non-compliance of the statutory requirements. 5. Heard the rival submissions made on both sides. 6. The statutory requirements, in respect of which non-compliance is alleged, are (i) Board resolutions during the period from 2007-08, 2008-09 and 2009-10 are passed without circulating the same in draft together with all necessary papers to all the directors or all the members of the committee as contemplated under the Act and (ii)auditors, internal auditor if any and the director in-charge of finance did not attend the meetings of the Audit Committee, held on the specified dates during May, June, July and October 2007, January, March, April, May, July, September, October and December 2008, January, April, May, July, September, October and December 2009 and January and March 2010 respectively in compliance of Section 292A (5) of the Act. 7. Non compliance of the statutory requirements as mentioned above, by the petitioner along with few others, according to the Office of the Regional Director, Ministry of Corporate Affairs, amounts to an act of violation, contravention and irregularity under the relevant provisions of the Act and the same is followed by letter dated 9.9.2010 calling upon the company to offer detailed reply on the points raised in the same. The company, on receipt of the letter, sent a detailed reply on 20.9.2010 in respect of the alleged violation, among other factors stating that all the Directors were circulated with the resolutions' draft together with necessary papers for approval and only after the approval by the requisite majority of the Directors, it becomes resolutions and what is omitted to be mentioned therein is the word 'draft' and irrespective of the failure to do so, the same remains 'draft proposal' and the same became resolution only on approval by requisite number of Directors. It is further stated therein that there is no statutory requirement under the Companies Act to appoint or designate some person as director in-charge of finance and the company has a qualified Chief Financial Officer and Secretary and Executive Director and Head -Treasury (in-charge of finance and accounts) and their presence in the audit committee meetings amounts to compliance of the statutory provisions. In the same reply, the company offered to make an application to compounding under section 621A of the Act for the alleged violation of the section. Thereafter, the company received further communication dated 21.10.2011 and in proceedings no.F.2429/209A/STA-RRR/2011 in and under which, the company is advised to file compounding application within 10 days and the company and its Directors are called upon to show cause as to why prosecution shall not be launched against them under Section 292A(11) of the Companies Act. While non compliance mentioned in the letter dated 21.10.2011, is of the provisions under Section 289 of the Companies Act, non compliance mentioned in the show cause notice is in respect of the provisions under Section 292A(5) of the Act, to which, a reply dated 31.10.2011 is sent, wherein, the company reiterated the same stand as taken earlier in its reply dated 20.9.2010. The company also requested the Registrar of Companies, Southern Region, Chennai to accept its explanation and treated the case as closed or else to offer personal hearing before further step is taken. In the meanwhile, the petitioner, having apprehended criminal prosecution, approached this court for the relief as stated above. 8. For better appreciation of the issue involved herein, the relevant provisions of law to be looked into herein are Sections 289, 292-A (5), 292-A (11) and 424(L) do fall under Part-VIA of the Companies Act and the same are extracted hereunder: "Section 289. Passing of resolutions by circulation: No resolution shall be deemed to have been duly passed by the Board or by a committee thereof by circulation, unless the resolution has been circulated in draft, together with the necessary papers, if any, to all the directors, or to all the members of the committee, then in India (not being less in number than the quorum fixed for a meeting of the Board or committee, as the case may be) and to all other directors or members at their usual address in India and has been approved by such of the directors as are then in India, or by a majority of such of them, as are entitled to vote on the resolution. Section 292A(5): The auditors, the internal auditor, if any, and the director-in-charge of finance shall attend and participate at meetings of the Audit Committee but shall not have the right to vote. Section 292A(5): The auditors, the internal auditor, if any, and the director-in-charge of finance shall attend and participate at meetings of the Audit Committee but shall not have the right to vote. Section 292A(11): If a default is made in complying with the provisions of this section, the company and every officer who is in default, shall be punishable with imprisonment for a term which may extend to one year, or with fine which may extend to fifty thousand rupees, or with both. Section 424L. Penalty for certain offences: (1) Whoever violates the provisions of this Part or any scheme, or any order of the Tribunal or the Appellate Tribunal or makes a false statement or gives false evidence to the Tribunal or the Appellate Tribunal and attempts to tamper the records of reference or appeal filed under this Act, he shall be punishable with simple imprisonment for a term which may extend to three years or shall be liable to fine not exceeding ten lakh rupees. (2) No court shall take cognizance of any offence under sub section (1) except on a complaint in writing of an officer of the Tribunal or the Appellate Tribunal or any officer of the Central Government authorised by it or any officer of an operating agency as may be authorised in this behalf by the Tribunal or the Appellate Tribunal as the case may be." 9. While Sections 289, 292A(5)and 292A(11) require the company to comply with certain formalities, Section 424(L) is the penal section for violation of any of the provisions of law under this part. 10. This application is filed under Sections 633(1)&(2) under which the court is empowered to relieve the officer of the company of his liability either in part or wholly in certain cases. 10. This application is filed under Sections 633(1)&(2) under which the court is empowered to relieve the officer of the company of his liability either in part or wholly in certain cases. For easy understanding, Sections 633(1)&(2) are reproduced hereunder: "Section 633 (1) -- If in any proceeding for negligence, default, breach of duty, misfeasance or breach of trust against an officer of a company, it appears to the Court hearing the case that he is or may be liable in respect of the negligence, default, breach of duty, misfeasance or breach of trust, but that he has 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 partly, from his liability on such terms as it may think fit: (Provided that in a criminal proceeding under this Sub-section, the Court shall have no power to grant relief from any civil liability which may attach to an officer in respect of such negligence, default, breach of duty, misfeasance or breach of trust.) (2) Where any such officer has reason to apprehend that any proceeding will or 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 and the High court on such application shall have the same power to relieve him as it would have had if it had been a Court before which a proceeding against that officer for negligence, default, breach of duty, misfeasance or breach of trust had been brought under sub section (1)." 11. The petitioner, in this petition, sought to be relieved wholly or partly from any criminal liability arising out of the so called non compliance of Sections 289, 292-A(5) & 292A(11) of the Act on the ground that the company and its directors have acted honestly and reasonably. It is held by the Delhi High Court at para 13 of its judgment reported in 1992 (23) DRJ 527 in Ashok Bhatia and others v. Registrar of Companies, Delhi &... decided the basis for invoking the power of the Court under Section 633 and the factors to be taken into consideration, while dealing with the conduct of the officer of the company against whom criminal liability is alleged. decided the basis for invoking the power of the Court under Section 633 and the factors to be taken into consideration, while dealing with the conduct of the officer of the company against whom criminal liability is alleged. It is held therein as follows: "For the purpose of present case, this court is mainly concerned with the question as to whether the said Directors and the Secretary of the company who have petitioned to this court have acted honestly and reasonably having regard to all the circumstances of the case and as to whether they in the given circumstances apprehend that any proceedings are likely to be brought against them in respect of the alleged default, breach of duty etc. As already held herein above that, in the circumstances of the case, the apprehension of the said Directors cannot be stated to be baseless. I have also held above that the Directors acted with ordinary prudence and had taken reasonable care to ensure that there was no conscious violation of the provisions of law. In the circumstances, I am of the considered opinion that petitioners 1 to 8 in C.P.211/90 and Mr.F.R.Vevaina, petitioner no.1 in C.P.13/91 have acted honestly and reasonably and that having regard to all the circumstances of the case they ought fairly to be excused and are hereby relieved from their liability in any action that may be brought by the Company Law Board or any other authority under the Companies Act, subject however to the condition that the said petitioners will render full co-operation to the authorities in investigation prior to the initiation of action against the company. As regards the company, I am of the view that the protection under Section 633 of the Companies Act is not available to the company and is confined only to the officer/officers of the company. For that reason, the petition to the extent seeking relief in favour of the company is dismissed." 12. On merits, the contention raised on the side of the petitioner before this Court in so far as the alleged violation of Section 289 of the Act concerned is that the expression 'resolutions' is wrongly mentioned in the notice and what is circulated is only the draft copy of the proposed resolutions and the same will be treated as resolutions only on approval of the same by the Directors. The resolutions that are passed by circulation is enclosed at pages 169 to 231 of the typed set of papers. The reading of the same would to greater extent support the contention raised on the side of the petitioner. The subject matter, which is sought to be circulated among the directors for approval is only by way of suggestion and more in the form of draft, but by referring it as 'resolutions' and not as 'draft'. The very fact that it is mentioned in the circulation note that the same be approved and passed by circulation if approved as 'resolutions', would manifestly reveal the nature of the circulation and the purpose for which the same is sent for circulation, as such, the allegation that there is non compliance of Section 289, is not well founded. 13. Regarding the alleged non compliance of Sections 292-A (5) & 292-A(11), it is true that the audit committee meetings is required to be attended by the auditor, internal auditor, if any and director in-charge of finance. As rightly pointed out by the learned counsel for the petitioner, there is no relevant provisions of law under the companies Act or in the Memorandum and Articles of Association for appointment of any director as director in-charge of finance. The reading of Memorandum and Articles of Association enclosed at pages 1 to 155 of the typed set of papers reveals that the number of Directors shall be not less than 3 and not more than 12 and one among whom, be appointed as Managing Director of the Company and on such terms and conditions as the Board of Directors may deem fit and on such remuneration as may be determined by the Company in General Meeting, and Deputy Managing Director. There is no such designation as director in-charge of finance and no director is individually appointed as director in charge of finance. 14. The relevant provisions of law under the companies Act does not define the duties and responsibilities of director in-charge of finance. There is no such designation as director in-charge of finance and no director is individually appointed as director in charge of finance. 14. The relevant provisions of law under the companies Act does not define the duties and responsibilities of director in-charge of finance. It is contended on other hand by the learned counsel for the petitioner that the meetings are attended by the Managing Director and the Deputy Managing Director, who are in-charge of financial matters and their participation in the meetings does satisfy the requirement laid down under Section 292-A(5), as such, there is no default on the part of the petitioner company for complying with the relevant provisions of law under Section 292-A(5), which is punishable under Section 292-A(11) of the Companies Act. 15. As a matter of fact, the petitioner company has, in their reply sent to the letter and show cause notice referred to in this petition, clearly explained in detail about their consistent stand in this regard. Despite of due receipt of the same, the respondent herein issued impugned letter and notice, thereby calling upon the petitioner to offer explanation, failing which to initiate appropriate criminal action. Both the letter and show cause notice do not refer to the explanation offered by the petitioner company in their replies dated 20.09.2010 and 31.10.2011. The same discloses total non application of mind on the part of the authority concerned in issuing the letter and show cause notice referred to in this petition. On the other hand, the petitioner and his company through out offered consistent explanation, which would, in the given circumstances, satisfy this Court that the petitioner company and its directors have acted honestly and reasonably and acted with ordinary prudence and had taken all reasonable care to ensure that there was no conscious violation of the provisions of law and their apprehension that any proceedings are likely to be proceeded against them in respect of the alleged default, breach of duty etc. which is reasonably explained of, cannot be said to be baseless. 16. which is reasonably explained of, cannot be said to be baseless. 16. The power of this Court to relieve the person concerned from the prosecution in appropriate cases is also upheld by His Lordship Mr.Justice P.Sathasivam as His Lordship then was the Judge of this Court, in the judgment reported in (2002) 112 Comp Cas 450 (Mad) in M.Meyappan v. Registrar of Companies , by applying the decisions made in the following authorities; (i) In the case of Muktsar Electric Supply Co. Ltd. In re (In Liquidation); (ii) East India Hotels Ltd., In re ; (iii) G.M.Mohan v. Registrar of Companies (1984) 56 Comp Cas 265 (Karn); and (iv) P.Vaman Rao v. Secretary to Government , upheld the jurisdiction of this court in granting the relief as claimed in the petition. His Lordship is, in the factual premises of the case dealt with in the authority cited above and also in the light of the relevant statutory provisions, pleased to grant the relief. The facts and circumstances and the conduct of the parties involved in the present case would compel this court to apply the conclusion arrived at therein. 17. This court is of further view that having regard to such conduct on the part of the petitioner company and its directors, they deserve to be fairly excused and relieved from liability or any action that may be brought by the Company Law Board or by any other authority under the Companies Act and the respondent is directed, not to initiate any prosecution against the petitioner, for any offence mentioned in the show cause notice. 18. In the result, the company petition is ordered as prayed for. Consequently, Comp.A.838 of 2011 is closed.