Satish Batra and Another vs Registrar of Companies and Another

C.M. No. 554 of 2008 and C.M. No. 555 of 2008:

Heard learned Counsel appearing for the parties on these applications filed by the appellants praying for condonation of delay in filing and refiling the appeal. For the reasons stated in these applications, delay in filing and refiling the appeal stands condoned.

The applications stand disposed of.

Co. App. No. 1 of 2008 and C.M. No. 552 of 2007:

The appellants are the directors of M/s. Vimal Plast (India) P. Ltd. In an inspection carried out u/s 209 of the Companies Act, 1956, it was observed that the company has accepted huge amounts from the directors, shareholders, corporate bodies (companies) and from public ever since 1999. It was observed that there is no resolution of the board passed at any point of time authorising the management, i.e., the managing director and the whole-time director (WTD) to receive the application money. It was observed that the allotment of shares in the company cannot be done by the managing director or WTD as only the board of directors can allot the shares as provided under the Companies Act, 1956 and also under Article 7 of the articles of association of the company. It was observed that the managing director or WTD was not authorised by the board resolution to receive application money for allotment of shares, but they had received application money on behalf of the company from various parties including the directors, shareholders, public and body corporates. Neither any information regarding receipt of share application money was given to the board nor the proposal for allotment was put up before the board by the management. A show-cause notice came to be issued u/s 628 of the Companies Act, 1956, to which the company furnished its reply/explanation and stated, inter alia, that the amount shown under the head share application money during the periods March 31, 2000 to March 31, 2005, in fact was a current account transaction. It was stated that as there is no provision in the Companies Act, or in Schedule VI to reflect the current account balances, the same had been reflected under the head share application money. The competent authority came to the conclusion that the company has violated the provisions of Section 628 of the Companies Act and every officer of the company who is in default is liable to be prosecuted u/s 629A of the Act and directed the office to launch prosecution for the aforesaid violation.

The appellant moved Company Petition No. 53 of 2007 before the learned company judge for an order excusing the appellants from any liability for the alleged default as specified in Sections 628 and 629A of the Companies Act, 1956. Before the learned company judge it was contended that as against the share application money which was received by the directors, the company as on date has allotted shares to almost all applicants. A defence was also taken that unsecured loans were in fact friendly and temporary loans based on the oral agreements and, therefore, no interest was payable thereon and the acceptance of share application money from various companies during the periods March 31, 2000 to March 31, 2005, were current account transactions and as such no specific disclosure requirement has been prescribed in Schedule VI.

Repelling this argument, the learned single judge observed as under:

From the averments made and considering the facts and totality of circumstances, it is difficult to infer that the petitioners have acted reasonably and that considering all the circumstances, it will be appropriate to excuse the petitioners.

Merely on the basis of the bald averments made by the petitioners, it will be difficult to infer that the amounts received were temporary loans based on oral agreements and no interest was payable thereon.

In the totality of the facts and circumstances, it will not be appropriate to excuse the petitioners. The petitioners are also unable to show prima facie that they have acted in good faith and they have justifiable reasons to escape from the liability.

We do not see any infirmity in the reasoning of the learned single judge. It is well-settled that the court''s power to relieve the accused of an offence is exercised only when the court is satisfied that though technically the person may be liable in respect of negligence, default, breach of duty, misfeasance or breach of trust, yet he acted honestly and reasonably. In the facts of the present case it is not possible to conclude that the directors have acted honestly and reasonably. Recourse to Section 633 is thus clearly not permissible. The appeal has no merit and is dismissed.