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Thakur Dan Singh Bist and ors. Vs. Registrar of Companies - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtAllahabad High Court
Decided On
Case NumberCompany Case No. 2 of 1959
Judge
Reported inAIR1960All160; [1960]30CompCas405(All)
ActsCompanies Act, 1956 - Sections 633(1)(2)
AppellantThakur Dan Singh Bist and ors.
RespondentRegistrar of Companies
Appellant AdvocateN.D. Pant, Adv.
Respondent AdvocateK.B. Asthana, Junior Standing Counsel
DispositionApplication dismissed
Excerpt:
.....of court to provide relief - section 633 (1) and (2) of companies act, 1956 - courts in which claim filed and proceedings pending - such court has power to grant relief - no other court - relief also not possible against probable criminal offences - in case of probable civil offences relief may be obtained even before prosecution. - - 7. it is not disputed on behalf the applicants that if proceedings of the nature contemplated by sub-section (1) of section 633 have been initiated the court in which they are pending will be the only court which will have jurisdiction to give relief for the acts and omissions complained of. in respect of some of these acts and omissions the officer concerned may be liable in addition to being prosecuted for the refund of the amounts misappropriated..........with penal proceedings therefore the officer must wait till the proceedings are started and then claim relief from the court which is seized of the proceedings. he cannot claim relief in advance. in respect of civil proceedings, however he can either claim relief under sub-section (2) of section 633 before the proceedings are started or wait till the proceedings have been initiated and claim relief from the court in which they are pending.9. in the present case the applicants do not suggest that they apprehend any claim to be made against them for the breach which they have committed of sub-section (1) of section 149 of the companies act. they do not suggest that there is any danger of the company or its share-holders claiming any amount from them or making any attempt to enforce any.....
Judgment:
ORDER

A.P. Srivastava, J.

1. The Bist Industrial Corporation is a limited company of which the three applicants are directors. The applicants Nos. 1 and 2 are also partners in the firm Messrs, D. S. Bist and Sons, who are managing agents of the company for 15 years. The Registrar of Companies, Uttar Pradesh, granted a commencement certificate to the company of the applicant on the 23rd of November, 1957. The company had been registered on the 20th of March, 1957. On the 26th of March, 1957 the applicants on behalf of the company borrowed a sum of Rs. 20,00,000/- from the Government.

In the application the applicants have set out the circumstances in which the amount was borrowed before the certificate of commencement was issued and their case is that in borrowing the amount as they did, they acted honestly and reasonably. They Conceded, however, that they committed a technical breach of Section 149 of the Companies Act and were on that account liable to be prosecuted and fined under Sub-section (6) of that section. Apprehending such a prosecution they have made the present application under Section 633 of the Companies Act of 1956 praying that they may be relieved in respect of the breach of the provisions of Section 149(1) of the Act.

2. Notice was issued to the Registrar of Companies. He has not filed any counter-affidavit, but on his behalf the learned Junior Standing Counsel has appeared and has raised the point that the application is not maintainable under Section 633 of the Companies Act and this Court has therefore no jurisdiction to grant relief to the applicants as claimed by them.

3. For the purpose of this application therefore we may assume without deciding that

1. the applicants have in borrowing the sum of Rs. 20,00,000/- before the issue of the certificate of commencement committed a breach of Sub-section (1) of Section 149 of the Companies Act, and

2. their allegation that they have acted hodestly and reasonably in that connection is correct.

4. The objection raised on behalf of the Registrar is based on the terms of Section 633 which provides as follows :

'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.

2. Where any such officer has reason to apprehend that any claim will or might be made against him in respect of any negligence, default, breach of duty, misfeasance or breach 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 it would have had under this section if it had been a Court before which proceedings against the person for negligence, default, breach of duty, misfeasance or breach of trust had been brought.'

5. The contention is that Sub-section (1) of Section 633 cannot apply because it will come into play only if a proceeding contemplated by the sub-section has been initiated. It is pointed out that that subsection confers jurisdiction for 'granting relief to the person concerned only on the Court before which the proceedings contemplated by the sub-section are pending. No proceedings have as yet been initiated against the applicants and therefore no question of applying the provisions of Sub-section (1) of Section 633 arises.

6. In respect of Sub-section (2) of Section 633 it is point-ed out that that sub-section applies only to 'apprehended claims' and in the application or the affidavit filed on behalf of the applicants it is not stated anywhere that they apprehend that any claim will be made against them. That sub-section does not authorise this Court to grant relief against a possible prosecution. It is pointed out that though the word used in Sub-section (1) is 'liability', that used in Sub-section (2) is 'claim', 'Liability', it is urged, is wider than 'claim'. Liability can be civil or crimi-nal but a claim can only be in respect of money.

7. It is not disputed on behalf the applicants that if proceedings of the nature contemplated by Sub-section (1) of Section 633 have been initiated the Court in which they are pending will be the only Court which will have jurisdiction to give relief for the acts and omissions complained of. It is, however, contended that before any proceedings are initiated relief can be claimed from this Court under Sub-section (2) of Section 633 and that the provisions of that subsection are wide enough to enable this Court to relieve the applicants not only against an apprehended claim but also against a possible prosecution.

Reliance in support of this contention is placed on Re Barry and Staines Linoleum Ltd., (1934) 150 LT 254; In re, Gilt Edge Safety Glass, Ltd., (1940) 1 Ch 495; In the matter of, Orissa Jute and Cotton Mills Ltd., AIR 1956 Orissa 205 and In re, Tolaram Jalan, AIR 1959 Bom 245.

8. The reply of the learned counsel for the Registrar is that Section 633 provides for proceedings in respect of negligence, default, breach of duty, misfeasance or breach of trust committed by an officer of a company. In respect of some of these acts and omissions there are provisions in the Companies Act which make the guilty officers liable to be prosecuted and fined.

Instances of such provisions will be found in Sections 63, 70(5), 75(4), 142, 143, 144, 146, 147(4), 149(6), 151(3), 157(3) and various other sections of the Companies Act. In respect of some of these acts and omissions the officer concerned may be liable in addition to being prosecuted for the refund of the amounts misappropriated or illegally retained or for making good the loss, if any has been caused to the company.

For instance, if the officer has committed the breach of Section 69 of the Companies Act he will be liable under Sub-section (5) of that section to repay the money with interest at the rate of six per cent. per annum unless he succeeds in proving that the default in the repayment of the money was not due to any misconduct or negligence on his part. The former kind of liability is criminal or penal in nature. The latter is of a civil kind. For enforcing the former kind of liability the officer concerned will be produced before a Magistrate who will convict him and impose a fine upon him. The fine realised goes to the coffers of the State. The money realised as a result of the enforcement of the latter kind of liability will go to the company and its share-holders and the State will have no concern with the same.

Learned counsel pointed out that the way in which Section 633 has been framed shows that Sub-section (1) was intended to cover both kinds of liabilities and empowered the Court in which the proceedings for the enforcement of the liability were pending to grant relief to the person who was being sought to be made liable if it was satisfied that he had acted honestly and reasonably. Of course, while granting such relief the Court could impose any terms it thought fit.

The operation of Sub-section (2) of the section was, however, confined to apprehended claims and that section did not apply to apprehended prosecutions. For apprehended civil claims therefore the officer committing the default could approach the Court in advance and claim to be relieved of future liability even before the proceedings for the enforcement of the liability had started. The section did not contemplate interference with possible prosecutions and did not empower the Court to grant relief in anticipation of prosecution and to declare that the officer concerned would not be liable to be prosecuted at all.

In connection with penal proceedings therefore the officer must wait till the proceedings are started and then claim relief from the Court which is seized of the proceedings. He cannot claim relief in advance. In respect of civil proceedings, however he can either claim relief under Sub-section (2) of Section 633 before the proceedings are started or wait till the proceedings have been initiated and claim relief from the Court in which they are pending.

9. In the present case the applicants do not suggest that they apprehend any claim to be made against them for the breach which they have committed of Sub-section (1) of Section 149 of the Companies Act. They do not suggest that there is any danger of the company or its share-holders claiming any amount from them or making any attempt to enforce any civil liability which they may have incurred on account of the breach.

There is therefore no question of granting any relief in respect of any apprehended claim. The only thing they are afraid of is that they may be prosecuted under Section 149(6) of the Companies Act and be punished with fine which may extend to Rs. 500/- for every day for which the contravention continues. It is this possible prosecution against which they want to be relieved in the present case. The prosecution has admittedly not yet been initiated.

10. The terms of Section 633 and the way in which it has been framed appear to support the contention of the learned counsel for the Registrar. Sub-section (1) of Section 633 which confers jurisdiction for granting relief on the Court before which a proceeding is pending appears to have been very widely worded. It covers all kinds of proceedings and relief under it can be granted in respect of every kind of liability -- penal as well as civil. That sub-section can, however, apply only when the proceedings become pending because it is only that Court in which the proceedings are pending which has power to grant relief under that sub-section.

11. Sub-section (2) of the section does not appear to be so wide. In the very beginning of that sub-section we find the words 'has reason to apprehend that any claim will or might be made against him'. Thus We find that instead of the word 'liability' which has been used in the preceding sub-section the Legislature has used the word 'claim' in Sub-section (2).

The two words do not appear to be co-extensive in their meaning. 'Liability' appears to be of wider connotation as it includes civil as well as penal liability. The word 'claim' cannot cover penal Stability. According to the Shorter Oxford English Dictionary the word 'claim' when used as a noun means

'A demand for something as due; an assertion of a right to something; right of claiming; right or title; that which is claimed.'

The meaning attributed to the word in the Webster's New International Dictionary is

'A demand of a right or supposed right; a calling of another for something due or supposed to be due; a right to claim something; a title to any debt, privilege or other thing in possession of another; also, a title to anything which another should give or concede or in conformity with provisions of a Workmen's Compensation Law.'

Keeping these meanings of the word 'claim' in mind it is not possible to accept the contention that itsconnotation is wide enough to include criminal prosecutions. The Legislature must be presumed to have known that the word 'claim' could not cover all kinds of liability. If therefore it had the intention of making the scopes of the two sub-sections of Section 633 co-extensive there appears to be no reason why instead of using the word 'liability' in subsection (2) of the section it should have used the word 'claim' there.

12. Learned counsel for the applicants referred to the case Thangia v. Hanuman Bank Ltd., AIR 1958 Mad 403. Under the Banking Companies (Amendment) Act all claims by or against a Bank in liquidation have to be considered by the High) Court which orders the winding up. The question that therefore arose in that case was whether actions in tort were also 'claims' which could be considered by the High Court alone.

In that connection the meaning of the word 'claim' was considered in paragraph 17 of that judgment. It was conceded that the word was a word of very extensive signification embracing every specie of legal demand. Keeping in view the fact that the word signified

'a right of demand or supposed right; a calling of another to pay something due or supposed to be due as a claim for wages or services'

it was held that the word 'claim' was comprehensive enough to embrace actions founded On torts as well as actions founded on contracts. This case does not therefore support the contention that the word 'claim' could include proceedings for criminal prosecution also.

In (1934) 150 LT 254 (supra), Maugham J., had before him a petition under Section 372 of the English Companies Act of 1929 which corresponds to Section 633 of the Indian Companies Act of 1956. A certain director of the company in that case had acted as a director and performed the duties of that officer without possessing the required qualifications. During the period in which he had so acted he had received 1,000/- per annum as remuneration in accordance with the provisions of the Articles of Association of the company.

By acting as a director without possessing the necessary qualifications he had also made himself liable to a fine not exceeding 5/- for every day on which he had acted in that way under Sub-section (5) of Section 141 of the Companies Act of 1929. He therefore moved the High Court for being relieved of his liabilities and prayed that he be relieved not only of the liability for fines and penalties which he might have incurred under Section 141 but also of any liability which he might be under to the company in respect of his act or default.

The counsel for the director contended that S, 372 of the Act empowered the Court to relieve the director of both the kinds of liabilities. The learned counsel for the company apparently did not seriously object and submitted that the company would act as the Court should direct. Maugham J., conceded that the petition was of a somewhat unusual nature and that there was no precedent to guide him on the point. Without discussing the matter or considering its various aspects, at the very start he acceded to the view which had been put forward on behalf of the petitioner:

'That Section 372, Sub-section (1) of the Companies Act, 1929, applies (inter alia) to a proceeding against an officer of a company under Section 275 (the misfeasance section). It is beyond doubt that it applies also where proceedings are being taken in a court of summary jurisdiction to recover one of the penalties imposed on directors and others under the Act and accordingly, it includes power to relieve against the penalty imposed under Section 141 of the Act on directors who act as such without having obtained their qualification shares within two months of their appointment as directors or within such shorter time as may be fixed by the articles of association.

I also accept the contention that Section 372, subsection (2), gives power to the court to grant relief to cases where application is made for it by a director who, although no proceedings such as are described in Sub-section (1) are being taken against him, apprehends that a claim may be made against him under that sub-section.'

He proceeded to make a distinction between, proceedings before a Court of summary jurisdiction for a fine or penalty and proceedings either by a company to recover moneys due to the company as a going concern from one of its officers, or by a liquidator or share-holder for misfeasance. He noted that in the former kind of proceedings the company or its share-holders were not intended to have any say and the concern was mainly of the Exchequer.

In the latter kind of proceedings, however, the company or the liquidator or the share-holders were the persons mainly concerned. Under Sub-section (1) of Section 372 be relieved the director who was the petitioner before him wholly from his liability to the fine which could be imposed upon him under Section 141 of the Act but refused to grant relief under Section 372, Sub-section (2), for civil liabilities because he did not have before him the opinion of the company or its share-holders.

In this case therefore the learned Judge practically assumed that under Sub-section (1) of Section 372 he had jurisdiction to grant relief against a possible prosecution. He also overlooked that under Sub-section (1) of Section 372 under which he was granting relief jurisdiction to grant relief vested only in the Court before which the proceedings were pending and no proceedings under Section 141 were pending in this Court.

13. In 1940-1 Ch 495 (supra), is another case in which Section 372 came up for consideration. In that case two directors of a company had inadvertently continued to act as directors after they had owing to a reduction of capital ceased to hold qualifying shares for value as required by the Articles of Association of the company. Summary proceedings of a criminal nature had been commenced against them under Sub-section (1) of Section 141 of the Companies Act of 1929 for unlawfully acting as directors.

They got the proceedings stayed and applied to the High Court for relief under Section 372. The relief was claimed both against liability for fines and penalties which might have been incurred under Section 141 and also from any liability which the directors might be under to the company in respect of their acts or defaults. Crossman J., who considered the matter, held that proceedings under Section 141 having already been started, under Sub-section (1) of Section 372 the Court in which those proceedings had been started was the only Court which had jurisdiction to give relief in respect of those proceedings.

He therefore refused to relieve the directors from any liability for fine or penalty which they might have incurred under Section 141. As he was of opinion that the directors had acted honestly and reasonably he granted relief to them in respect of liability to the company and its share-holders who were claiming back from the directors the remuneration which they had drawn during the period in which they had acted illegally as directors.

14. In connection with Sub-section (1) of Section 372 the learned Judge after referring to the decision of Maugham J., in (1934) 150 LT 254 (supra), observed:

'But it seems to me that Section 372, Sub-section (1), makes the court which hears the case the only court which has jurisdiction to give relief in respect of proceedings which have already been commenced. Sub-section (2), on the other hand, which is the subsection which was added by this Act, was in my judgment intended to meet the case of proceedings which have not been commenced, but which will or may be commenced, and gives this Court jurisdiction to grant relief from prospective liability.'

The prosecution under Section 141 had already been commenced in that case and the learned Judge was therefore not dealing with a case in which relief under Sub-section (2) of Section 372 was being claimed against a possible prosecution. If therefore he intended to lay down that relief against a possible prosecution could also be granted under Sub-section (2) of the section the observation was obviously an obiter. In any case the distinction between 'claim' and 'liability' was not before the learned Judge when he made the observation.

15. In the case of AIR 1956 Orissa 205 (supra), the directors of a company had committed breaches of Sections 72, 76, 32, 133 and 134 of the Indian Companies Act 1913 and the Registrar had filed a complaint against them before a Magistrate charging them with offences punishable under those sections. The directors then applied to the High Court under Section 281 (2) of the Companies Act, 1913 for relief.

That section corresponded to Section 633(2) of the Companies Act of 1956. The case came up before Balakrishna Rao J. He felt satisfied that the applicants had acted reasonably and honestly but said that he could not grant any relief to them in respect of the pending prosecution because the only Court which could grant relief in that connection was the Court before which the criminal proceedings were pending.

Against a possible claim which could be made on account of the breaches he granted relief under Section 281 (2) of the Act of 1913. In course of the judgment, however, he remarked :

'In this case, unfortunately the petitioners came to this Court not even after the negligence was found out by them to have been committed, but after the institution of the proceedings against them by the Registrar of the Joint Stock Companies'. Had they filed their application before the institution of me prosecution, this Court could have, if it was satisfied with the reasons given by the petitioners, passed an order giving relief to the petitioners against the defaults committed, which would have prevented the prosecution being instituted.'

16. This observation was again in the nature of an obiter because the learned Judge was not considering the case of preventing a future prosecution. No reasons were adduced for the opinion which the learned Judge was expressing and no reference was made to the difference in the phraseo logy of the two sub-sections of Section 281 of the Companies Act of 1913.

17. In the case of AIR 1959 Bom 245 (supra) the directors of the Filmistan Private Limited failed to file with the Registrar of Companies the balance-sheet and the Auditor's report for the year ending 31-8-1956 and had thus committed a breach of Section 220 of the Companies Act, Under Sub-section (3) of that section they were liable to be punished with fines for that default.

They applied to the High Court for relief on the ground that they had acted reasonably and honestly. The application was opposed on the ground that no prosecution having been started no relief could be granted to the petitioners under Section 633(2) of the Companies Act. Shelat J., who considered the matter, held that Sub-section (1) of Section 633 did not apply because under that sub-section the Court hearing the case, meaning the Court in which the proceedings were pending, was the only Court which could grant relief.

No proceedings having been initiated and no proceedings being pending no relief could be granted under that sub-section. He was, however, of opinion that Sub-section (2) of Section 633 was wide enough and empowered the High Court to grant relief in respect of a possible prosecution also. It was urged before him that Sub-section (2) of Section 633 applied to claims only and the word 'claim' did not include a prosecution. He conceded to the force of the contention but based the opinion he was taking on the ground that the words used in Sub-section (2) of Section 633 were

'the Court ............... shall have the same power to relieve him as it would have had under this section if it had been a Court before which proceedings against that person for negligence .................. had been brought.'

These words, in his view, meant that if proceedings had already commenced relief could be Granted by the Court in which it was pending. If, however, the prosecution had not commenced and was not pending relief could be granted under Subsection (2) by the High Court. With due respect, the reasoning does not appeal to me.

The words of Sub-section (2) of Section 633 On which reliance was being placed by the learned Judge meant only this and nothing more that in respect of apprehended claims to which Sub-section (2) applied the powers of granting relief were similar to the powers which the Court in which proceedings were pending had under Sub-section (1) of the section in respect of those proceedings.

The words did not and could not mean that Sub-section (2) of Section 633 could be utilised in respect of proceedings other than apprehended claims also or that the word 'claim' used in this sub-section was wide enough to include all kinds of liabilities including penal liability for being punished with fines.

18. To my mind if Section 633 of the Companies Act is correctly interpreted the conclusions which would follow are:

(1) Sub-section (1) is wide enough to cover all kinds of liabilities, both penal and civil, but Subsection (2) applies only to apprehended claims, i. e., claims for civil liability, and does not cover penal liabilities or prosecutions.

(2) If proceedings have already been initiated whether they be for the enforcement of criminal or civil liability relief can be granted only by the Court in which the proceedings are pending. No other Court has jurisdiction to grant that relief.

(3) The Legislature did not intend to provide and has not provided for grant of relief against possible criminal prosecutions in anticipation of the same. In respect of such prosecutions the person concerned has to wait till the prosecution was started and can claim relief only then from the Court in which the prosecution is pending.

(4) In respect of possible claims or civil liabilities, however, relief can be granted even in advance under Sub-section (2) of the section without the proceedings being started. And

(5) While dealing with cases of apprehended claims the powers of the Court from which relief is claimed are the same as the powers which the Court would have if the proceedings for the enforcement of the claim are actually started before it.

19. As has already been shown, in the present case no relief is being claimed in respect of an apprehended claim. Sub-section (2) of Section 633 is therefore not attracted at all. It does not apply to a case of an apprehended criminal prosecution. As no proceedings are pending against the applicants in this Court no relief can be granted to them by this Court under Sub-section (1) of the section.

20. The application of the applicants thus appears to be misconceived and cannot succeed. It is accordingly dismissed with costs.


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