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High Court Of Calcutta
Sanjib Banerjee, J.
DEBA PRASAD ROY - Appellant
Versus
REGIONAL DIRECTOR, DEPARTMENT OF COMPANY AFFAIRS - Respondent
C. A. 30 Of 2005
Decided On : 05/11/2007
COMPANIES ACT - Active Concealment of Material Facts - Petitioners, directors of SBI Home Finance Limited (Company), applied to Court seeking to be excused for offence, if any, committed by them under Section 628 read with Section 211 of the Companies Act, 1956. Registrar of Companies required petitioners to show cause why penal action should not be initiated against them. Court held that petitioners did not actively conceal any material facts from annual report of Company.
Fact of the Case:
Company, promoted by State Bank of India, ran into financial trouble. Company applied to National Housing Bank (NHB) for relaxation of prudential norms applicable to it. NHB granted relaxation subject to conditions, including infusion of additional equity and preference share capital by promoters. Company obtained relaxation and acknowledged same in its annual report. Registrar of Companies issued show-cause notices to petitioners alleging violation of Section 628 and Section 211 of the Companies Act.
Finding of the Court:
Court found that first show-cause notice, alleging violation of Section 628, was not maintainable as same sentence in same report had been complained of in earlier case and it was held that there was no misdeclaration. Court found that second show-cause notice, alleging violation of Section 211 read with Section 628, was more serious but petitioners' explanation and prayer for being spared humiliation of criminal trial were strenuously contested on behalf of Registrar. Court held that petitioners did not conceal any material nor made any false statement for which consequences under Section 628 of Act should visit them.
Issues: Whether petitioners actively concealed material facts from annual report of Company?
Ratio Decidendi: Court held that NHB's objective was achieved, though not strictly in terms of letter of its requirement. Petitioners were all nominees of State Bank of India on company's board and participated in State Bank of India taking over company's NPAs. Petitioners did not flout NHB condition because they chose to, the limits that State Bank of India was required to restrict its investments to, dictated that. Company and petitioners adopted alternative route to achieve same purpose.
Final Decision: Petitions allowed. Petitioners absolved of all liabilities in respect of alleged offence complained of by Registrar.
( 1 ) THE primary question raised in these applications under section 633 (2) of the Companies Act, 1956 is whether the petitioners actively concealed material facts from the annual report of SBI Home Finance limited (the company) for the financial years ended March 31,2000 and March 31, 2001. The Registrar of companies required the petitioners to show cause why penal action under section 628 read with section 211 should not be initiated against them. The petitioners have replied to the Registrar's letter of December 31, 2004, but upon apprehension that the Registrar may institute criminal proceedings, have applied to the Court seeking to be excused for the offence, if any, committed by them.
( 2 ) THE State Bank of India promoted the company and, along with some other banks and financial institutions held the entire paid-up capital of the company. For reasons not necessary to be gone into, the promoter who was in control through its officers as nominated directors of the company found the home finance business a different kettle of fish than the routine banking business and ran the company a ground. The company applied to the National housing Bank (NHB), the apex body controlling companies engaged in such business, for relaxation of the prudential norms relating to provisioning and capital adequacy applicable to the company. By a letter of April 7, 2000 the company sought divers exemptions and detailed a roadmap that the company proposed to follow during the financial years 1999-2000 to 2003-2004. In the synopsis appended to the letter of April 7, 2000, the company indicated that it proposed to infuse capital for the year 2000-2001: Rs. 25 crore by way of equity and a further Rs. 25 crore by issuing preference shares.
( 3 ) A reminder followed from the company to NHB on April 17, 2000 recording discussions and of NHB having required the company to make further provisioning of about Rs. 9 crore mainly on account of higher provisioning requirement for the existing Non-Performing Assets (NPAs ). The company agreed in such letter that there was need for further finance as suggested by nhb but sought exemption on that score for the year 1999-2000.
( 4 ) NHB accorded its consent to the exemptions sought subject, however, to the following conditions: "1. The promoters shall bring in Equity Share Capital of Rs. 25. 00 crores and compulsorily convertible preference share capital of Rs. 25. 00 crores. 2. The Tier II capital infusion from SBI shall be in the form of compulsorily convertible preference shares, to be converted within three years, rather than optionally convertible preference shares, as proposed in the revival plan. 3. SBIHFL shall furnish to NHB, a quarterly statement in the prescribed format on the status of NPA recovery. 4. SBIHFL shall extend finance for individual housing loans only. 5. The highest rule of interest on public deposits shall not be in excess of what SBI pays on its term deposits. Further, no brokerage shall be payable on renewal of the deposits. 6. SBIHFL will be required to compare the position achieved each quarter with the quarterly projections made and to analyse the reasons for variations, under intimation to NHB. 7. The Managing Director of SBIHFL shall be from SBI, having a tenure of at least 3 years. 8. The Chairman of SBIHFL shall also be from the SBI. 9. In order to ensure effective monitoring of implementation of the revival plan and operations of SBIHFL, an official from NHB may be placed on the board of SBIHFL as an Observer. "
( 5 ) IT is the first of the conditions set by NHB that is relevant for the present proceedings. It is to be recognised at the outset that by the time the initial request for exemption had been made by the company, the financial year 1999-2000 had already run out.
( 6 ) THE company availed of the concession and acknowledged the same in its annual report for the year 1999-2000. In the directors' report for the relevant financial year, the restr
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