Case Law Companies Act Rabindra Chamria Vs Registrar of Companies West Bengal

Case Law Companies Act

Rabindra Chamria Vs Registrar of Companies West Bengal

PETITIONER:
RABINDRA CHAMRIA AND ORS., ETC., ETC.

Vs.

RESPONDENT:
REGISTRAR OF COMPANIES WEST BENGAL AND ORS., ETC., ETC.

DATE OF JUDGMENT19/11/1991

BENCH:
MOHAN, S. (J)
BENCH:
MOHAN, S. (J)
MISRA, RANGNATH (CJ)
KULDIP SINGH (J)

CITATION:
1992 AIR 398 1991 SCR Supl. (2) 338
1992 SCC Supl. (2) 10 JT 1991 (4) 487
1991 SCALE (2)1021
ACT:
Companies Act, 1956.
Section 633—Scope of–Power of Court to grant relief from liability for default, negligence etc.–Whether relief could be granted for liability under Employees’ Provident Funds and Miscellaneous Funds Act, 1952 Expression “any proceeding “—Meaning of. Employees’Provident Funds and Miscellaneous Provisions Act,
1952. Sections 14 and 14-A–Default in payment of provident Fund clues-Relief from liability–Grant of—Section 633 of Companies Act, 195&’Applicability of
Industrial Disputes Act, 1947.
Section 32–Offence by a Company—Relief from liabili-
ty–Section 633 of Companies Act, 1956–Applicability o17

 

HEADNOTE:
The appellants in Civil Appeal No.3012 of 1990 were
Directors of a Company, which was owning a Jute mill. Due to
lock out and strike in the Jute industry, the Company de-
faulted in the payment of the provident fund dues. The
appellants applied under Section 633 of the Companies Act,
1956 for being relieved of liability for delayed as well as
non-payment of the provident fund and other ancillary dues.
A Single Judge of the High Court passed a consent order,
allowing the outstanding provident fund dues to be paid in
monthly instalments of Rs.50,000 each until the entire
liability was paid oH. As the Provident Fund authorities
accepted this course, summons were not served on the Regis-
trar of Companies, since what was sought to be recovered
were the dues under the Provident Fund Act. The Single Judge
also granted an injunction restraining the respondents from
initiating any criminal procccdings against
339
the appellants or any of them for non-payment or delayed
payment of the provident fund.
On appeal by the Regional Provident Fund Commissioner,
the Division Bench held that any proceeding referred to in
section 633 of the Act would mean only under the provisions
of the Act, and that section 633 of the Act had no applica-
tion in respect of any liability under any other Act. Hence
the appeal.
Applications claiming relief under section 633 were
dismissed in the connected cases also, resulting in the
appeals, and Special Leave Petition, being filed before this
Court.
On behalf of the appellants in Civil Appeal No. 3012 of
1990, it was contended that section 633 was very wide in its
amplitude and there was no justification to restrict its
application to only proceedings arising under the Act, that
when proceedings were taken in relation to breach of trust,
which was an offence under Indian Penal Code, against an
officer of a company, it would be opentn him to plead before
the concerned Magistrate that he had acted honestly and
reasonably, and if the Court came to the conclusion that he
should fairly be excused it would relieve him; that under
sub-section (2), it was an anticipatory action, and the High
Court also exercised a similar power as it was exercising
power under subsection (1), and if it was restricted only in
respect of any liability under the Companies Act, then the
protection extended under section 633 was last, and that
similarly, under section 32 of the Industrial Disputes Act,
which dealt with offences by Companies under that Act the
burden was upon the person concerned to prove that the
offences were committed without his knowledge or consent
and, but for that proof, the statute deemed him to be
guilty; therefore, if protection was not afforded against
such a sweeping provision, the entire purpose of Section 633
would be rendered nugatory.
On behalf of the appellants in one of the connected
appeals it was contended that the definition of “Court”
contemplated with respect to any matter relating to a compa-
ny, and that the Court having respective jurisdiction as
provided under Section 2(11) was with respect to any offence
under the Act, the Court of a first class Magistrate or, as
the case may be, a Presidency Magistrate having jurisdiction
to try such offence, that this section would show that where
like the appellants they were not working directors, they
could not be subject to prosecution and that was where
Section 633 stepped in and afforded protection, even if it
were a liability arising
340
under any other Act, for instance, like delayed payment or
nonpayment of provident fund.
On behalf of the respondent – Regional Provident Fund
Commissioner it was contended that any proceeding occurring
under Section 633 could not relate to a proceeding other
than one arising out of Companies Act, that each one of the
other Acts not only defined penalty but also laid down the
penalty, and therefore, merely because the appellants were
officers of the company, it could not mean that section 633
could be availed of; otherwise, the consequences would be
disastrous and the penal provision of all other Acts would
be rendered ineffective, that Section 14 of the Employees’
Provident Funds and Miscellaneous Provisions Act, 1952 laid
down the penalty for the offences of companies and was dealt
with in Section 14-A, and the explanation to the said sec-
tion also talked of as to what a company would mean for the
purpose of the section, and, therefore, where an elaborate
procedure was contemplated under those sections for recovery
of the dues and the Provident Fund Act, being a social
welfare legislation, that could not be rendered illusory by
extending the benefit under Section 633 of the Companies
Act; similarly, Section 86 of the Employees’ State Insurance
Act, providing for prosecution also dealt with Companies,
and, the explanation under that Section specifically stated
as to what would be a Company or Director for the purpose of
that section and hence, no interference was called for.
Dismissing the cases, this Court,
HELD: 1.1 Under Section 633 of the Companies Act, 1956,
relief cannot be extended in respect of any liability under
any Act other than the Companies Act. [354 C]
1.2 The expression ‘any proceeding’ occurring under
Section 633 cannot be read out of context and treated in
isolation. It must be construed in the light of the penal
provisions. Otherwise, the penal clauses under the various
other Acts would be rendered ineffective by application of
Section 633. Again, if Parliament intended Section 633 to
have a coverage wider than the Act, it would have specifi-
cally provided for it. Moreover, it is a sound rule of
construction to confine the provisions of a statute to
itself. [349 D-E]
1.3 While referring to any proceeding under sub-section
(2) of Section 633 the Parliament intended to restrict it
only to the proceeding arising out of negligence, default,
breach of trust, misfeasance or breach of duty in respect of
dutics prescribed under the provi-
341
sions of the Companies Act. Further, examining the sub-
section with reference to the context and the placement of
the sub-section, the only conclusion that is possible is the
proceedings for which relief under this sub-section could be
claimed or the proceedings against the officer of a company
for breach of the provisions of the Companies Act. Sub-
section (2) cannot apply to proceedings instituted against
the officer of the company to enforce the liability arising
out of violation of provisions of other statutes. [349 F-G]
1.4 Sub-section (3) requires notice to be given to the
Registrar of Companies. This indicates that powers under
sub-section (2) must be restricted in respect of proceedings
arising out of the violation of the Companies Act 1349 H]
1.5 Merely because section 32 of the Industrial Disputes
Act contains a stringent provision, it cannot be held that
Section 633 of the Companies Act could be invoked for of-
fences under Section 32 of the Industrial Disputes Act. 1354
D]
Customs and Exicise Comrs. v. Hedon Alpha LId., (1981)
QB 818(1981) 2 ALL ER 697 CA. referred to.
Halsbury’s Laws of England, (Fourth Edition)
7(1) Companies, para 652; Pennington’s Company law. 4th
Edn., 1979, P.548, 23rd Edn. 1982, Vol. I p. 881 and 5th
Edn. 1985 p.679-680, referred to.
2.1 The authority to take action under the Provident
Fund Act as seen from Section 14 of the said Act is a Com-
missioner while the procedure so far as the Companies Act is
concerned, under Section 621 it is on a complaint in writing
of the Registrar or of a shareholder of a company, or of an
officer authorised by the Central Government in this behalf
that action can be taken.
Since ii is mandatory for the Court to givc notice to
the Registrar of Companies or such other person, if any, as
it thinks necessary. as required under sub-section (3) of
Section 633, if Section 633 is interpreted so as to include
proceedings under Acts other than the Companies Act it will
be open to the Court to give such relief under this Section
without giving notice to the authority competent to prose-
cute in respect of liabilities under the other laws or upon
giving notice to other concerned and not the Registrar.
Thus, the mandatory requirement of sub-section (3) can
easily be bye-passed. Further, if relief under Section 633
is extended, officers who would be deemed to have committed
the offence under Section 14-A of the
342
Provident Fund Act, because sub-section (1) states that
every person who was responsible to the company as well as
the company shall be deemed to be guilty of the offence and
liable for such offence would get the benefit and escape the
rigour of Scction 14-A. The explanation also makes it abun-
dantly clear that all companies covered by the Companies Act
would be companies within the meaning of explanation. On the
contrary, those companies failing under the explanation to
Section 14-A would not be companies under the Companies Act.
[355 C-F]
2.2 Thus in the case of a company falling under the
explanation to Section 14-A of the Provident Fund Act which
does not come within the purview of the Companies Act, the
liability of the persons would be governed only by section
14A(1) and (2) of the Provi dent Fund Act. They will not be
entitled to any relief under Section 633. The benefit avail-
able under a social welfare legislation, namely, the Employ-
ees’ Provident Fund Act cannot be defeated in this manner.
1355 G-HI

 

JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3012
of 1990.
From the Judgment and Order dated 13.3.1900 of the
Calcutta High Court in Appeal No. 266 of 1987
WITH
Civil Appeal Nos. 3117.3118, and 3738 of 1990 and SLP
No. 8081 of 1990.
K.K. Venugopal. Dr. Shankar Ghosh, Kapil Sibal, Ajay
K. Jain, Pramod Dayal, Vivek Gambhir, Surinder Kamail and
S.K. Gambhir for the Appellants.
Aruneshwar Gupta and Ms. Sushma Suri for the Respondents.
The Judgment of the Court was delivered by
S. MGHAN, J. All these matters can be dealt with under
a common judgment since the question which arises for con-
sideration is the scope of Section 633 of the Companies
Act, 1956.
It is enough if we refer to the facts in Civil Appeal
No. 3012 of 1990. The short facts are as follows:
Eastern Manufacturing Company Ltd. (“The Company” in
short) is the owner of a jute mill in West Bengal. The
appellants were appointed
343
Directors between 10.4.1981 and 15.6.1984. There was a lock
out in’the Jute Mill on 2.6.1982. By a notification dated
26.10. 1983, Government of West Bengal declared the said
jute mill as a relief undertaking under the provisions of
West Bengal Relief Undertaking (Special Provisions) Act,
1972. However, on 24.11. 1983, the lock out was lifted.
Thereafter the mill resumed its manufacturing operation
between 16.1.1984 and 8.4.1984. There was a strike in the
Jute Industry throughout West Bengal. Between 7.3.1985 and
3.8.1985 there was a lock out due to labour unrest. As a
result of all these the company defaulted in the payment of
the provident fund dues. On 28.1. 1986, a petition was moved
on behalf of the appellants under Section 633 of the Compa-
nies Act, 1956 (hereinafter referred to as ‘the Act’) for
being relieved of liability for delayed as well as non-
payment of the provident fund dues and other ancillary dues.
On 21.8. 1986 a consent order was passed by the learned
Single Judge allowing the outstanding provident fund dues to
be paid in monthly instalments of Rs. 50,000 commencing from
April, 1986, until the entire liability is paid off.
Since this course was accepted by the provident fund
authorities it was not considered necessary to serve summons
on the Registrar of Companies because what was sought to be
recovered were the dues under the Provident Fund Act. It was
further ordered concerning Prayer-B that an injunction shall
issue restraining the respondents from initiating any crimi-
nal proceedings against the appellants or any of them for
non-payment or delayed payment of the provident fund.
Aggrieved by this order, the first respondent before us,
namely, the Regional Provident Fund Commissioner filed
appeal No. 286 of 1987. The Division Bench which heard the
matter rendered its impugned judgment on 13.3. 1990. The
sole point which came up for determination was, whether the
learned Single Judge was right in granting relief under
Section 633 of the Act in respect of offences committed
under the Employees Provident Fund and Miscellaneous Provi-
sions Act of 1952 (hereinafter referred to as “The Provident
Fund Act”).
It was argued on behalf of the appellants that the
relief under Section 633 of the Act could be granted only in
respect of offences committed under the Companies Act and
not in respect of offences under any other law. It is also
submitted that in respect of violations of the provisions of
the Act, it is the Registrar of Companies or any one autho-
rised on his behalf who could initiate criminal cases. On
the contrary, in respect of offences committed under the
Provident Fund Act the appropriate authority to initiate
such action would be the Regional Provident Fund Commission-
er. On an elaborate consideration with reference to decided
cases, it
344
was held that any proceeding referred to in Section 633
of the Act would mean only under the provisions of the Act.
Reference was also made to Section 14A of the Provi-
dent Fund Act inserted by Amending Act 37 of 1953 and it was
concluded:
“If the contention that Section 633
applies in respect of liabilities arising also
under the provisions of any Act other than the
said Act, is accepted, then and in that case a
peculiar situation will arise, a person who is
otherwise liable in view of the provisions of
Section 14-A would be entitled to relief under
Section 633 if he is employed by or connected
with a company which is covered both by
Provident Fund Act and the Companies Act but a
person shall .not be so entitled to such
relief if he is not an employee of a body
corporate covered by the Companies Act though
he is an employee of a company within the
meaning of explanation to Section 14A. Besides
if that contention that all proceedings would
include proceedings under other Act also all
the statutory provisions made for the welfare
of weaker sections of the community stand
modified automatically to the extent
sepecified in Section 633 for all time to
come, even for all future legislation. This
would frustrate the object of welfare legisla-
tions.”
Accordingly it was held that Section 633 of the Act has no
application in respect of any liability under any other Act.
In the result, the order of the learned Single Judge was set
aside and the application under Section 633 was dismissed.
We do not think worthwhile to refer to certain preliminary
objections raised by the Division Bench in relation to
maintainability as that is not argued before us. It is
against this judgment that the appeal by special leave has
been preferred.
An application was moved before the Company Court
claiming relief under Section 633 and the same was dismissed
applying judgment of Civil Appeal No 286 of 1987. Similar
application was dismissed by the learned Single Judge by
order dated 24.4.1988 in Civil Appeal Nos. 3117
& 3118 of 1990. In Civil Appeal No. 3738 of 1990 Company
Petition No. 312 of 1989 for relief under Section 633 too
was dismissed.
In Special Leave Petition No. 8081 of 1990 also the
Company Petition for similar relief has been dismissed.
Mr. Venugopal, learned Counsel for the appellants
urged that Section 633 is very wide in its amplitude and
there is no justification to
345
restrict its application to only proceedings arising under
the Act. He draws our attention to Sections 420 and 423 and
submits that when proceedings are taken in relation to
breach of trust, for instance, which is an offence under
Indian Penal Code, against an officer of a company it would
be open to him to go before the concerned Magistrate and
plead a defence that he has acted honestly and reasonably.
In such a case should the Court come to a conclusion he
ought fairly to be excused. the Court will relieve him.
While this is the submission as far as sub-section (1)
is concerned, under sub-section (2) it is maintained to be
an anticipatory action. The High Court also exercises a
similar power as that Court is exercising power under sub-
section (1). Otherwise if it is restricted only in respect
of any liability under the Companies Act then the protection
extended under Section 633 is lost.
Under the Companies Act of 1913 the corresponding provi-
sion was Section 281. Though certain categories of persons
were catalogued under sub-section (3) of the said section,
presently Section 633 has employed the words “an officer of
a company’ the object is to see the Directors or a Director
who rarely takes part in the affairs of the Company are not
unduly harassed for offences which may arise under other
acts, of which these Directors may not have any knowledge at
all.
He also draws our attention to Section 32 of the Indus-
trial Disputes Act, which talks of offences by Companies
under the said Act. That is a sweeping provision where the
burden is upon the person concerned to prove that the of-
fences were committed without his knowledge or consent and
but for that proof, the statute deems him to be guilty. If
under Section 633 the protection is not so afforded against
such a provision like Section 32 of the Industrial Disputes
Act the entire purpose of Section 633 is rendered nugatory.
The result of the Division Bench .judgment of the Calcutta
High Court referred to in the impugned judgment will be that
these directors (the appellants) are exposed to prosecution;
certainly that could not have been the intention of the law
maker.
Mr. Kapil Sibal, learned counsel appearing for the
appellants in Civil Appeal No. 3117 refers to Section 2(11)
of the Act and submits that the definitions of “Court”
contemplates with respect to any matter relating to a compa-
ny. The Court having respective jurisdiction as provided
under Section 2(11) is with respect to any offence under the
Act, the Court of a Magistrate of the First class or, as the
case may be, a Presidency Magistrate, having jurisdiction to
try such offence.
346
This section will show that where like the appellants
they are not working directors, they cannot be subject to
prosecution. That is where Section 633 steps in and affords
protection, even if it is a liability arising under any
other Act, for instance, like delayed payment or non-payment
of provident fund. In other respects, he adopts the argu-
ments of Mr. Venugopal.
Learned counsel for the Regional Provident Fund Commis-
sioner would urge that any proceeding occurring under Sec-
tion 633 cannot relate to a proceeding other than one aris-
ing out of Companies Act. If the arguments of the appellants
are accepted it would amount to treating Section 633 as a
panacea for all the ills for offences committed in respect
of various other enactments. It might even include not only
the existing enactments but enactments which are yet to
come. Insofar as each one of the other Acts not only defines
penalty but also lays down the penalty; therefore merely
because the appellants are officers of the company it cannot
mean Section 633 could be availed of. This provision is in
pari materia with Section 448 of the English Companies Act,
1948, However, as on today Companies Act of 1985 has incor-
porated a similar provision under Section 727 In a leading
case reported in 1981 (2) All Eng. Law Reportes 697, (Cus-
toms and Excise Commissioners v. Hedon Alpha Ltd. & Ors),
the scone of Section 448 of the 1948 Act came up for con-
sideration. It was held that although Section 448 (1) of
the 1948 Act was expressed in wide terms, in’ its true
construction the only proceeding for which relief under
Section 448 could be claimed were proceedings against a
director by, on behalf of or for the benefit of his company
for the breach of his duty to the company as a director or
penal proceedings against a director for breach of the 1948
Act. It was this line of reasoning which found favour with
the Division Bench of the Calcutta High Court which view is
commended for acceptance by this Court. Otherwise the conse-
quences will be disastrous. The penal provision of all other
Acts would be rendered ineffective by the interpretation
pressed for an acceptance. The further submision of learned
counsel is if one looks at Section 14 of the Employees’
Provident Funds and Miscellaneous Provisions Act, 1952 that
lays down the penalty for offences of companies and is dealt
with in Section 14-A. The explanation to the said Section
also talks of as to what a company would mean for the pur-
pose of this Section. Therefore, where an elaborate proce-
dure is conternplated under those sections for recovery of
these dues and the provident Fund Act being a social welfare
legislation that cannot be rendered illusory by extending
the benefit under Section 633 of the Companies Act. Similar-
ly under Employees State Insurance Act, Section 86 talks of
prosecution which came to be introduced by Amending Act of
1989 also deals with Companies. The explanation under that
Section specifically states as
347
to what would be a company or Director lot the purpose of
that section. Hence it is submitted that no mterference is
called for.
Having regard to the above arguments, the only’ point
that arises for determination is as to the scope of Section
633.
The Companies Act was enacted in the year 1956. As the
Preamble itself says it is an Act to cossolidate and amend a
law relating to companies and certain other associations. As
to definition of Company, it is found under Section
3(1)which consists of the
(i) Company
(ii) Existing Company
(iii) Private Cornpany
(iv) Public Company
Section 664 of this Act reads as follow’s:
The enactments mentioned in Schedule XII are
hereby repealed”.
Schedule XII that is referred to under the Section
refers to previous Companies Act of 1913 also under certain
other Acts by way of ordinance or amendments.
Section 281 office old Act of 1913 which talks of power
of the Court to ,,rant relief in certain cases reads as
under:
“281: Power of Court to grant relief in cer-
tain cases: (1) if in any proceedings tot
negligence, defaul breach of duty or breach of
trust against a person to whom this Section
applies, it appears to the Court hearing the
case that that person is or may be liable in
respect of the negligence, defaut breach of
duty or breach of trust, but that he has acted
honestly and reasonably, and that having
regard to all the circumstances of the case,
including (hose connected with his appoint-
ment, he ought fairly to be excused for the
negligence, default, breach of duty or breach
of trust, that Court may relieve him either
wholly or partly, from his liability on such
terms as the Court may think
fit.
(2) Where any person to whom this section
applies has reason to apprehend that any claim
will or might be made against him m respect of
any negligence, default breach of duty or
breach
348
of trust, he may apply to the Court for
relief. and the Court on any such application
shall have the same power to relieve him as
under this Section it would have had if it had
been a Court before which proceedings against
that person for negligence, default, breach of
duty or breach of trust had been brought.
(3) The persons to whom this section
applies are the following:-
(a) directors of a company;
(b) managers and managing agents of a
company;
(c) officers of a company;
(d) persons employed by a company as
auditors whether they
are or are not officers of the
company?’
With this background of law, we will go on to Section
633 of the Companies Act, 1956. It reads thus:
633: Power of Court to grant relief in certain
cases:
(1) If 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 beliable in respect of the negli-
gence, 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 re-
spect of such negligence, default, breach of duty. misfea-
sance of 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, misfea-
sance 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).
349
(3) No Court shall grant any relief to any officer under
subsection (1) or sub-section (2) unless it has, by notice
served in the manner specified by it, required the Registrar
and such other person, if any, as it thinks necessary, to
show cause why such relief should not be granted”.
On a comparison of the two sections two important features
emerge to be noticed. The Court under Section 633 has no
power to grant relief from any civil liability. Under sub-
section (3) of Section 281 only four categories of persons
were entitled to seek relief while under Section 633 it will
be an officer of the Company.
Under the Companies Act of 1956 (similarly under the Old
Act of 1913) various duties and liabilities have been im-
posed; equally offences have been created for the non-per-
formance of such duties. These offences are offences in
relation to the performance of certain duties under the Act.
the various offences are mentioned under Sections 59, 62,
63, 68, 142, 162, 207, 218,272, 374,420,423,538 to 545 &
606.
The expression ‘any proceeding’ occurring under Section
633 cannot be read out of context and treated in isolation.
It must be construed in the light of the penal provisions.
Otherwise what will happen is the penal clauses under the
various other Acts would be rendered ineffective by applica-
tion of Section 633. Again, if parliament intended Section
633 to have a coverage wider than the Act, it would have
specifically provided for it as, otherwise, it is a sound
rule of Construction to confine the provisions of a statute
to itself.
We are also of the view while referring to any proceed-
ing under sub-section (2) the Parliament intended to re-
strict it only to the proceeding arising out of negligence,
default, breach of trust, misfeasance or breach of duty in
respect of the duties prescribed under the provisions of the
Companies Act. Further examining the sub-section with refer-
ence to the context and the placement of the sub-section the
only conclusion that is possible is the proceedings for
which relief under this sub-section could be claimed or the
proceedings against the officer of a company for breach of
the provisions of the Companies Act. Sub-section (2) cannot
apply to proceedings instituted against the officer of the
company to enforce the liability arising out of violation of
provisions of other statutes. Reference could also be made
to sub-section (3) where notice is required to be given to
the Registrar of Companies. This is an indication that the
powers under sub-section (2) must be restricted in respect
of proceedings arising out of the violation of the Companies
Act.
350
We will now refer to the corresponding provisions in
English Law. Section 448 of the Companies Act, 1948 is
replaced by Section 727 of the Companies Act, 1985. Section
727 reads thus:
“727: Power of Court to grant relief in cer-
tian cases:
(1) If in any proceeding for negligence,
default, breach of duty or breach of trust
against an officer of a company or a person
employed by a company as auditor (whether he
is or is not an officer of the company) it
appears to the court hearing the case that
that officer or person is or may be liable in
respect of the negligence, default, breach of
duty 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 appoint-
ment) he ought fairly to be excused for the
negligence, default, breach of duty or breach
of trust, that court may relieve him either
wholly or partly, form his liability on such
terms as it thinks fit.
(2) If any such officer or person as above-
mentioned has reason to apprehend that any
claim will or might be made against him in
respect of any negligence, default, breach of
duty or breach of trust, he may apply to the
Court for relief; and the court on the appli-
cation has the same power to relieve him as
under this section it would have had if it had
been a court before which proceedings against
that person for negligence, default, breach of
duty or breach of trust Had been brought.
(3) Where a case to which sub-section (1)
applies is being tried by a Judge with a Jary,
the Judge, after hearing the evidence, may, if
he is satisfied that the defendant or defender
ought in pursuance of that sub-section to be
relieved either in whole or in part from the
liability sought to be enforced against him
withdraw the case in whole or in part from the
Jury and forthwith direct judgment to be
entered for the defendant or defender on
such terms as to costs or otherwise as the
Judge may think proper”.
Halsbury’s Laws of England (Fourth Edition) 7
(1) Companies, para 652 on this aspect states
as follows:
“POWER OF COURT TO GIVE RELIEF AGAINST LIABIL-
ITY:
If in any procedings for negligence, default,
breach of duty or breach of trust against an
officer of a company or a person
351
employed by the company as auditor (whether or
not he is an officer of the company), it
appears to the Court hearing the case that
that officer or person is or may be liable in
respect of the negilgence, default, breach of
duty or breach of trust, but that he has acted
honestly and reasonably, and that having
regard to all the circumstances of the cases,
including those connected with his appoint-
ment, he ought fairly to be excused for the
negligence, default, breach of duty or breach
of trust, that court may relieve him, either
wholly or partly, from his liability on such
terms as the court thinks fit. The power to
grant relief applies to personal breaches of
duty; it does not extend to claims by third
parties.
Where a case within the above provision is
being tried by a judge with a jury, the judge,
after hearing the evidence, may if he is
satisfied that the defendant ought to be re-
lieved either in whole or in part from the
liability sought to be enforced against him,
withdraw the case in whole or in part from the
jury and forthwith direct judgment to be
entered for the defendant on such terms as to
costs or otherwise as the judge may think
proper.
If any such officer or person has reason to
apprehend that any claim will or might be made
against him in respect of any negligence,
default, breach to duty or breach of trust, he
may apply to the court for relief; and the
court on any such application has the same
power to relieve him as it would have had if
it has been a court before which proceedings
against that person for negligence, default,
breach of duty or breach of trust had been
brought.
The application to the court is made by way of
petition. The application is made to the court
having jurisdiction to wind up the company. In
cases in the High Court of Justice the .pro-
ceedings are assigned to the Chancery Divi-
sion. The petition and all affidavits, notices
and other documents in the proceedings under
it must be entitled in the matter of the
company in the matter of the Companies Act,
1985.
Under the above provisions a director may be
relieved against liability in respect of a
transaction wholly ultra rites the company or
against the penalties imposed by the Act where
he has acted without obtaining or after ceas-
ing to hold his qualification shares.
352
The leading decision on Section 448 is reported in
Customs and Excise Comrs. v. Hedon Alpha Ltd. (1981) QB 818,
(1981) 2 All ER 697, CA. That related to the interpretation
to be placed on Section 448 of the Companies Act of 1948. In
that case a Director of a company was carrying on business
as a bookmaker. The liability of the Director for general
betting duty was not paid by the company. The Director was
acting honestly and reasonably, and, therefore, was found
not guilty of misconduct. Under these circumstances, the
question arose whether the Director was entitled to relief
from claim for civil liability by a stranger to the company.
Claim to recover betting duty would amount to default
against Director within the meaning Of Section 448. Stephen-
son, LJ stated on this aspect as follows:
“Furthermore, the language of Section 448 was
apt to describe the area in which a company
director might be in breach of his duties to
the company, and the ambit and concern, the
context or matrix, of the section was company
law and the relation of the officer or auditor
of a company to the company and not to third
persons. The proceedings which qualified for
the statutory relief were claims made by
companies, or on their behalf or for their
benefit by, e.g. liquidators, the Board of
Trade, private prosecutors including penal
proceedings for the enforcement of the Compa-
nies Act, but not proceedings for the recovery
of debts or the enforcement of civil liability
to strangers.”
Griffiths, LJ. was of the following view:
“In my judgment section 448 has no application
to the present claim. Although the section is
expressed in wide language it is in my view
clearly intended to enable the court to give
relief to a director who, although he has
behaved reasonably and honestly, has neverthe-
less failed in some way in the discharge of
his obligations to his company of their share-
holders or who has infringed one of the numer-
ous provisions in the Companies Acts that
regulate the conduct of directors.”
It requires to be stated that though Stephenson, LJ
referred to Palmer’s Company Law, he also made reference to
Pennington’s Company Law (4th Edn., 1979 P. 548). It is
stated thus:
“Under the statutory provision relief can be
given against any of the criminal penalties
imposed by the Companies Act, 1948 and 1976,
but not, it would seem, against civil liabili-
ty to
353
anyone other than the company and so apparent-
ly no relief may be given in the rare cases
where a member or auditor of a company has a
personal right to sue its directors.”
We will now refer to Palmer’s Company Law. 23rd Edn.
1982 Vol. 1 page 881. It is stated thus:
“Statutory relief (S.448),
Section 448 (which is referred to in Section
205, proviso (b) is a protective section for
directors on lines similar to that accorded to
trustees. It provides that in any proceedings
against. inter alia, a director for negli-
gence, default, breach of duty or breach of
trust, if a director who is or may be liable
has in the opinion of the Court acted honestly
and reasonably, and if having regard to all
the circumstances of the case, including those
connected with his appointment, he ought
fairly to be excused, the Court may wholly or
partly relieve him from his liability; the
court has a discretion in the matter, and may
impose terms (Section 448) (1). In spite of
the wide words of the section it has been held
that the section applies only to actions
brought by or on behalf of the company against
its directors for breach of duty and to penal
proceedings for the enforcement of the Com-
paines Act .”
The 5th Edn. of Pennigton’s Company Law,
1985 at page 679 and 680 contains the follow-
ing observations:
“However, if a director is sued for breach of
any of his duties, he may apply to the Court
for relief from liability, and if the Court is
satisfied that he acted honestly and reasona-
bly, and that in all the circtumstances he
ought fairly to be excused, it may relieve
him from liability on such terms as it thinks
fit. This provision is identically worded to
the provision in the Trustees Act, 1925 which
enables the court to relieve defaulting trus-
tees, and the Courts, jurisdiction wilt proba-
bly be exercised in the same way as under that
Act. The Court is reluctant to relieve remu-
nerated trustees and will only do so if they
show that they have taken all reasonable steps
and to make good their breach of trust; the
same criterion has been applied when a de-
faulting liquidator sought relief, and it
would no doubt also be applied in the case of
a director. On the other hand, the court can
give relief, even though the director has used
the company’s money for ultra vires purposes,
and even though the members oppose relief
being given.
354
Under the statutory provision, relief can be
given against any
of the criminal penalties imposed by the
Companies Act, 1985, but not against criminal
liability under any other statute, or against
civil liability to anyone other than the
company whether the liability arises by stat-
ute or otherwise, and so apparently no relief
may be given in the rare cases when a member
or creditor of a company has a personal right
to sue its directors. Reference was made to
the Court of Appeal decision.”
(emphasis supplied)
Thus we are clearly of the view that under Section 633
of the Act relief cannot be extended in respect of any
liability under any Act other than the Act.
May be the Industrial Disputes Act under Section 32
contains a stringent provision but that is no answer to hold
that Section 633 of the companies Act could be invoked for
offences under Section 32 of the Industrial Disputes Act.
We are dealing with a case arising under Employees Provident
Fund Act. The total arrears dues for the Company are Rs.
1,77,22,000. Section 14 of the Employees Provident Fund Act
specifically provides for penalties with reference to con-
travention of the provisions of the Act. Section 14A speaks
of offences by the companies. We will now extract that
section-
“14-A :(1) If the person committing an offence
under this Act, the Scheme or the Family
Pension Scheme or the Insurance Scheme is a
company, every person who at the time the
offence was committed was in charge of, and
was responsible to, the company for the con-
duct of the business of the company. as well
as the company, shall be deemed to be guilty
of the offence and shall be liable to be
proceeded against and punished accordingly:
Provided that nothing contained in this sub-
section shall render any such person liable to
any punishment, if he proves that the offence
was commited without his knowledge or that he
exercised all due diligence to prevent the
commission of such offence.
355
(2) Notwithstanding anything contained in
sub-section (1), where an offence under this
Act, the Scheme or the Family Pension Scheme
or the Insurance Scheme has been committed by
a company and it is proved that that the
oiffence has been committed with the consent
or connivance of, or is attributable to, any
neglect on the part of, any director or manag-
er, secretary or other officer of the company,
such director, manager secretary or other
officer shall be deemed to be guilty of that
offence and shall be liable to be proceeded
against and punished accordingly .”
The authority to take action trader Provident Fund Act
as seen from Section 14 is a Commissioner while the proce-
dure so far as the Companies Act is concerned under Section
621 is on a complaint in writing of the Registrar or’of a
shareholder of a company or of an officer authorised by the
Central Government in this behalf action can be taken. As
already noted under sub-section (3) of Section 633, the
Court has to give notice to the Registrar of Companies or on
such other person, if any, as it thinks necessary .There-
fore, giving of notice is mandatory. That being so, if
Section 633 is interpreted as to include proceedings under
Acts other than the Companies Act it will be open to the
Court to give such relief under Section 633 without giving
notice to the authority competent to prosecute in respect of
liabilites under the other laws or upon giving notice to
other concerned and not the Registrar. Thus the mandatory
requirement of subsection (3) of Section 633 can easily be
bye-passed. Then again under Section 14A of the Provident
Fund Act. officers who are talked of under this section
would be deemed to have cormmitted the offence because
subsection (1) states that every person who was responsible
to the company as well as the company shall be deemed to be
guilty of the offence. If therefore, the relief under Sec-
tion 633 is extended. such officers or persons who are
otherwise liable for such offence would get the benefit of
Section 633 and escape the rigour of Section 14A. The expla-
nation arise makes it abundantly clear that all compaines
covered by the Companies Act would be companies within the
meaning of explanation. On the contrary, those companies
falling under the explanation to Section 14A would not be
companies under the Companies Act. To put it in other words,
a company failing under the explanation to Section 14A of
the Provident Fund Act which does not come within the pur-
view of the Companies Act, the liability of the persons
would be governed only by Section 14A (1) and (2) of the
Provident Fund Act. They will not be entitled to any relief
under Section 633. The benefit available under a social
welfare legislation namely the Employees Provident Fund Act
cannot be defeated in this manner. We may also add if the
interpretation suggested by the appellants
356
is accepted it would cover not only ,the existing. laws but
all legislations to be enacted in future.
In the result we find no merit in this appeal and it is
dismissed.
In view of the dismissal of appear No. 3012 of 1990 the
other appeals and the special leave petition where the same
question arose, are so dismissed.
However, looking to the ‘facts and circumstances of the
case, there will be no order as to costs.
Appeals dismissed.
357

 

 

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