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IN THE HIGH COURT OF ORISSA
L. Mohapatra, J.
PRADIP KUMAR KHAITAN AND OTHERS - APPELLANT
Versus
REGISTRAR OF COMPANIES, ORISSA. - RESPONDENT
Copet No. 30 of 2008
Decided On : 04-03-2011
Companies Act - Alleged Violation of Accounting Standards - Section 633(2) - 211(3A), AS-22, AS-13, AS-2, AS-29, AS-28, AS-20, AS-15, AS-6, 292(1), 217(1)(e), 217(2A), 217(2AA) - The court discussed the alleged contraventions of different provisions of the Companies Act, particularly related to non-compliance of Accounting Standards. The court referred to Section 633(2) and emphasized the requirement for honest and reasonable conduct by the officers of the company to be excused from liability. It cited relevant case laws and concluded that the alleged violations were technical in nature and did not affect the true picture of the company's balance-sheet, thus relieving the petitioners from prosecution.
Fact of the Case:
The petitioners, Chairman and Directors of a company, filed an application under Section 633(2) of the Companies Act, 1956, seeking relief from prosecution for alleged violations of accounting standards. The Regional Director alleged contraventions of different provisions of the Act and issued show cause notices to the petitioners, leading to the filing of the application.
Finding of the Court:
The court found that the alleged violations were technical in nature and did not affect the true picture of the company's balance-sheet. It accepted the petitioners' contention that they had acted honestly and reasonably in maintaining the accounts, and therefore, relieved them from prosecution under Section 633(2) of the Companies Act, 1956.
Issues: The main issue was whether the petitioners should be relieved from prosecution for alleged violations of accounting standards under Section 633(2) of the Companies Act, 1956.
Ratio Decidendi: The court emphasized the requirement for honest and reasonable conduct by the officers of the company to be excused from liability under Section 633(2). It considered the technical nature of the alleged violations and the absence of any adverse impact on the company's balance-sheet.
Final Decision: The application was allowed, and the Registrar of Companies was directed not to launch any prosecution against the petitioners for the alleged violation of the accounting standards.
JUDGMENT :
L. Mohapatra, J. - This application has been filed u/s 633(2) of the Companies Act, 1956. Petitioner No.1 is the Chairman of OCL India Limited (hereinafter referred to as "Company") and petitioner Nos.2 to 7 are its Directors. Petitioner No.8 is the Company Secretary of the Company and Petitioner No.9 is the whole time Director and CEO of the Company.
The facts leading to filing of this petition are that during September/October 2007, the Assistant Director (Inspection) conducted inspection of books of accounts and records of the Companies u/s 209-A of the Act by the orders of the Regional Director, Ministry of Company Affairs. After completion of inspection, by letter dated 19.3.2008, the Assistant Director (Inspection) alleged violation of certain provisions of the Companies Act and sought for explanations/ clarifications from the Company. Annexure-1 is the letter written to the Company indicating the alleged contraventions of the provisions contained in the Act. Fifteen instances of contraventions of different provisions of the Act have been indicated in the said letter. The Company submitted its explanation/clarification in response to the said letter but the ROC, Cuttack issued six undated show cause notices in June, 2008 to the petitioners with a view to prosecute them on the basis of the said alleged violations, Apprehending prosecution, at the instance of the ROC, Cuttack, the present application has been filed.
2. Before consideration of the submissions of the learned counsel appearing for both the parties, it is necessary to refer to Section 633 of the Act. The said provision is quoted below:
633. Power of Court to grant relief in certain cases.-(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:
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 respect of such negligence, default, breach of duty, misfeasance or 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, misfeasance 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).
(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.
As is evident from the said Section, sub-section (2) provides that 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, misfeasance 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). Sub-section (3) provides that no Court shall grant any relief to any officer under sub-secti
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