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Sitaram Biyani and anr. Vs. Registrar of Companies - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKolkata High Court
Decided On
Case NumberCr. Rev. No. 1484 of 1980
Judge
Reported in[1985]58CompCas870(Cal),88CWN894
ActsCompanies Act, 1956 - Sections 211(7), 633, 633(1) and 633(2)
AppellantSitaram Biyani and anr.
RespondentRegistrar of Companies
Appellant AdvocateSatyen Deb, ;S.K. Deb, ;S.R. Sinha Roy and ;R. Chaudhuri, Advs.;Tapas Kr. Middya, Adv.
Respondent AdvocateUma Sanyal, Adv.
Cases ReferredM.O. Varghese v. Thomas Stephen and Co. Ltd
Excerpt:
- .....section 211 of the act for the firsttime twenty years after the incorporation of the company, the learnedmagistrate should have relieved them of their liability. mr. deb; proceeds to argue that the learned magistrate has not given in the impugned order reasons for which he thought the petitioners did not act honestlyor reasonably. he contends that it was no case of the petitioners thatthe complainant had no prima facie case. he contends that when thelearned magistrate took cognisance of the offence after the filing of thecomplaint and issued process, the conclusion is inescapable that there wasa prima facie case against the accused petitioners, mr. deb contends 'thatthere is nothing in the impugned order to show that the learned, magistrate considered the petition of the accused.....
Judgment:

N.G. Chaudhuri, J.

1. This revision petition under Section 397/401 read with Section 482, Cr. PC, is directed against order dated June 27, 1980, passed by the Judicial Magistrate, 9th Court, Alipore, in. Case No. C/813 of 1977 (T. R. No. 496 of 1977) arising out of a petition of complaint made by the Registrar of Companies, West Bengal, under Section 211(7) of the Companies Act, 1956. The petitioners before this court are two directors of a public limited company, namely, Jagadishpur Co. Ltd.

2. The principal allegation made against the petitioner accused in the petition of complaint was to the effect that as per balance-sheet and profit and loss account for the financial year ending March 31, 1976, and filed in the office of the complainant, it transpired that the accounts of the company have been drawn up on cash basis; and, as such, the said accounts without adjustment of the outstanding receipts/payments did not give a true and fair view of the state of affairs of the company and, as such, infringement of Section 211 of the Companies Act was made. The learned Magistrate took cognizance and issued summons. The accused petitioners, after entering appearance, filed a petition under Section 633 pf the Companies Act praying for relieving them wholly from their liability, if any, as alleged in the petition of complaint. They alleged that ever since the incorporation of the company in 1953, the company has been keeping books of account in cash system and they have been filing, the balance-sheet and profit and loss account with the Registrar of Companies every year but, no objection was ever taken. When they received the audit report of the company for the year ending on March 31, 1973, they noticed from the auditor's report that the company has been keeping its books of account in cash system and the Registrar of Companies by its letter dated December 14, 1973, called for a clarification from the company and by a letter dated December 21, 1973, the company replied to the said letter. No further instructions were ^received from the complainant opposite party. The petitioners alleged that cash system is a recognized and accepted system of accounting and was followed by the company since its incorporation in 1953 and they have all along acted honestly and reasonably.

3. After the above petition was filed, the learned Magistrate passed the impugned order. The learned Magistrate has observed in the order that the auditor's report is a qualified one and it is a matter of evidence. If it gives a true and fair view of the financial affairs of the company. The learned Magistrate proceeded to hold that it could not be said that, there was no prima facie case against the accused at this stage. On that view, he rejected the prayer of the accused for quashing the proceeding.

4. Mr. Deb, the learned advocate ior the petitioner, after placing beforeme the petition of complaint and copies of correspondence, contends thatthe learned Magistrate should have held that the accused petitioners allalong acted honestly and reasonably and for that reason they ought to,have been excused by the court and the court would have relieved themwholly or partly from their liability on such terms as the learned Magistrate thought fit in terms of Section 633(1) of the Companies Act. Section 633(1) of the Companies Act is quoted below :

' 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: '

5. Mr. Deb argues that the present proceedings under Section 211 of the Companies Act were for alleged negligence/ default, breach of duty, mesfeasance or breach of trust against the petitioners who were officers of acompany. He proceeds to argue that from the materials produced bythe petitioners and from the petition under Section 633 of the Companies Act,the learned Magistrate should have concluded that the petitioners were ormight be liable in respect of the negligence, default, breach of duty, misfeasance or breach of trust alleged but that they had acted honestly andreasonably.

6. Mr. Deb proceeds to argue that since it transpired that the presentpetitioners were being prosecuted under Section 211 of the Act for the firsttime twenty years after the incorporation of the company, the learnedMagistrate should have relieved them of their liability. Mr. Deb; proceeds to argue that the learned Magistrate has not given in the impugned order reasons for which he thought the petitioners did not act honestlyor reasonably. He contends that it was no case of the petitioners thatthe complainant had no prima facie case. He contends that when thelearned Magistrate took cognisance of the offence after the filing of thecomplaint and issued process, the conclusion is inescapable that there wasa prima facie case against the accused petitioners, Mr. Deb contends 'thatthere is nothing in the impugned order to show that the learned, Magistrate considered the petition of the accused petitioners, the provisions of Section 633 of the Companies Act and the reasons for the applicability or non-applicability of the said section to the facts and circumstances of thepresent case.

7. Mrs. Sanyal, on behalf of the Registrar of Companies, the complainant opposite party, contends that the petitioners had failed to satisfy thecourt below that they had acted honestly and reasonably. She furthercontends that the accused petitioners did not produce any evidence to disprove the prima facie case against them. Her further argument is that onthe basis of a petition under Section 633, prayer for quashing the proceedingscould not be made.

8. I have already indicated that the case before the learned Magistrate arose out of a petition of complaint. As soon as the learned Magistrate by his order dated May 27, 1977, took cognizance under Section 190(1)(a), Cr PC, and ordered issue of summons, he obviously was satisfied as to the prima facie case of the opposite party complainant. The proceedings in the instant case being for violation of Section 211 of the Companies Act, the inescapable conclusion is that the proceedings were for negligence, default, breach of duty, misfeasance or breach of trust against the petitioner accused who were officers of the company. Because of the stand taken in their petition under Section 633 of the Companies Act, the learned Magistrate should have recorded a finding if it appeared to him that the accused petitioners were liable in respect of the Act above mentioned but they had acted honestly and reasonably and that having regard to all the circumstances of the case they ought to be fairly excused. If the learned Magistrate held that the accused petitioners acted in an honest and reasonable way and in consideration of the facts and circumstances they ought to be fairly excused, he could record an order relieving them wholly or partly of their liability on such terms as he thought fit. If, on the other hand, the learned Magistrate arrived at a finding that the accused petitioners had not acted reasonably and honestly or that in view, of the facts and circumstances of the case, the accused petitioners ought not to be excused, the learned Magistrate could record a finding to that effect. In the present case, the learned Magistrate does not appear to have recorded a finding positive or negative as discussed above. It should be mentioned that the accused petitioners at the stage when the petition under Section 633 was filed could not be found not guilty of the offences under Section 211. It should also be borne in mind as held in M.O. Varghese v. Thomas Stephen and Co. Ltd, : AIR1971Ker223 , that under Sub-section (1) of Section 633 of the Companies Act in order to grant relief to a person against whom a proceeding is pending, it is not necessary that he should confess or admit his guilt or that the court must find him guilty. It is sufficient if it appears to the court ' that he is or may be liable'. In other words, the court can relieve him of the liability in a case in which it appears to the court that he may be liable. All that is necessary is a reasonable apprehension of a proceeding referred to in Sub-section (1) of Section 633.

9. In the present case, the learned Magistrate had after taking cognizance ordered issue of process. That clearly indicated that there was a reasonable apprehension of a proceeding against the accused petitioners as contemplated in the section because of the issue of process and the plea taken by the accused petitioners in their petition under Section 633 of the Act; it was for the learned Magistrate to conclude if the accused were or might be liable in respect of the defaults pleaded in the petition of complaint. If the learned Magistrate was satisfied on the above point, the learned Magistrate was to proceed further and to ascertain if the accused petitioners had acted honestly and reasonably and if the facts and circumstances justified that the accused be fairly excused. Even if the learned Magistrate arrived at an affirmative finding on the point noted last, it was for him to relieve the accused petitioner wholly or partly from their liability and on such terms as he thought fit. The learned Magistrate does not appear to have considered all these stages and matters contemplated under Section 633 of the Companies Act in the order impugned. I am reluctant to quash the proceedings straightaway although I am satisfied that the impugned order is illegal and does not conform to legal requirements.

10. So the revisional application will succeed. The order impugned dated June 27, 1980, is set aside. The rule issued be made absolute. The learned Magistrate is directed to consider the application of the accused petitioner under Section 633 of the Companies Act filed before this court on April 21, 1978, in the light of the observations made above and to record his findings on the points noted. While considering the above petition, the learned Magistrate will pay his attention to the copies of correspondence and other documents annexed with the said petition only. The records be sent down to the court below forthwith with direction to consider and dispose of the petition under Section 633 of the Companies Act as early as possible.


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