ORDER
1. Petitioners Nos. 1 to 3 are directors of Raghuvanshi Mills Limited, being a company incorporated and registered under the Companies Act. 1956, while petitioner No. 4 is Manager of the company. The company had engaged several workmen in running of the Mills. Under provisions of Section 40 of the Employees ‘State Insurance
Act. 1948 the Company is required to pay in respect of every employee both employer’s contribution and employee’s contribution. The employee’s contribution is paid after deducting the amount from the wages payable to the employees. The company is also required to pay a Deposit-linked Insurance Fund in accordance with S. 60 of Employees’
Provident Funds and Miscellaneous Provi-sions Act. 1952. The company failed to pay its dues both under the Provident Funds Act and Employees’ State Insurance Act. Respondent No. 2, Regional Provident Fund Commissioner, thereupon issued several show-cause notices to the petitioners to show cause as to why action should not be taken for having committed offence under Ss. 14(1A) and 14(2) by contravening provisions of the Provident Funds Act. Respondent No. 4, Regional Director. Employees State Insurance Corporation, also issued notice to show cause why proceedings under S. 85 of the Insurance Act should not be adopted for failing to pay contribution. In pursuance of the notices respondent No. 3. Provident Fund Inspector, filed prosecutions against the petitioners for having committed default and the said prosecutions are pending in the court of Metropolitan Magistrate. Prosecutions were also launched by respondent No. 5 in respect of violation of provisions of Employees’ State
Insurance Act. Respondents Nos. 2 and 4 also passed orders determining the amount due from the company in respect of the contributions to be made under Provident Fund and Insurance Act.
2. The present petition was filed on
April 3, 1989 under S. 633(2) of the Com
panies Act, 1956 claiming that the petitioners
should be relieved in respect of criminal and
civil liabilities. The petitioners claimed that
there is a reasonable apprehension that more
prosecutions would be launched against the
petitioners and the civil liability to pay the
amount would be enforced by concerned
officers. The petitioner claimed that default in
making contribution or payment is not mala
fide but the petitioners have acted honestly
and reasonably and the default had occurred
for reasons beyond their control and there
fore they should be excused. The petitioners
claimed that the company is facing serious
financial difficulties since the year 1982-83
and a reference is made under the Sick
Industrial Companies (Special ;Provisions),
Act, 1985 for being declared as “a sick
company”. The petitioners further claimed
that the Board for Industrial and Financial
Reconstruction has appointed Industrial
Development Bank of India as the Operating
Agency for rehabilitation of the company.
The default, claim the petitioners, is because
of the financial difficulties which are beyond
their control.
3. The respondents raised a preliminary objection to the maintainability of the petition claiming that the petitioners cannot be relieved from criminal prosecutions and civil liabilities in exercise of powers under sub-section (2) of S. 633 of Companies Act in respect of breaches or violations arising under the statutes other than the Companies Act. It is claimed that powers or jurisdiction of High Court under sub-sec. (2) of S. 633 is restricted only in respect of criminal and civil proceedings which are likely to be instituted in respect of any default prescribed under the Com-panies Act. The preliminary objection raised on behalf of the respondents is correct and deserves acceptance.
4. Section 633 of the Companies Act reads as under :
“633. (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 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 offender 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 duly, 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 sub-section (1) or sub-sec. (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”.
. 5. The relief sought in the present petition is not in respect of criminal proceedings already instituted, but only in respect of proceedings which the petitioners apprehend would be instituted hereafter. Shri Tulzapur-kar, learned counsel appearing on behalf of the petitioners, submitted that the ambit of sub-sec. (2) of S. 633 of the Companies Act is very wide and the expression “any proceed-
ing” would include proceedings arising not only out of the default committed under the provisions of Companies Act, but defaults under any statute. It is not possible to accede to the submission of the learned counsel.
Section 621 of the Companies Act provides that no Court shall take cognizance of any offence against this Act except on the complaint in writing of the Registrar, or of a shareholder of the company or of a person authorised by the Central Government in that behalf. Section 622 of the Companies Act provides that no Court inferior to that of a Presidency Magistrate or a Magistrate of the First Class shall try any offence against this Act. Section 524 provides that every offence against the Act shall be deemed to be non-cognizable within the meaning of Code of Criminal Procedure, 1898. The subsequent sections deal with the procedure to be followed in respect of complaints and the penalty to be imposed. The subject of “offence” is dealt with in Part XIII of the Companies Act and Sections 621 to 635AA deal with the offences committed under “the Act and the procedure to be followed for taking action against the offender. While examining ambit of sub-section (2) of Section 633 it must be borne in mind that though the expression “any proceeding” is used in the sub-section, the legislature intended to restrict it only to those proceedings arising out of negligence, default, breach of trust, misfeasance or breach of duty in respect of duties prescribed under provisions of the Companies Act. Although sub-section (2) was expressed in wide language, looking to context and placement of sub-section and on its true construction the only proceedings for which relief under sub-section (2) of Section 633 could be claimed are proceedings against the officer of the company for breach of duty to the company or criminal proceedings for breach of the provisions of the Companies Act. Sub-section (2) cannot apply to proceedings instituted against the officers of the company to enforce liability arising out of violation of provisions of other statutes. There is intrinsic indication in sub-section (3) of Section 633 to hold that exercise of powers under sub-section (2) must be restricted in
respect of proceedings arising out of violation of Companies Act. Sub-section (3) provides that relief under sub-section (2) shall not be granted without notice being served in the manner specified to the Registrar and such other person to show cause why the relief should not be granted. The expression “such other person” would cover shareholders of the company or the person authorised by the Central Government to launch prosecution. Sub-section (3) does not contemplate service of notice on any other authorities who are likely to institute prosecution or enforce civil liability in accordance with statutory provisions other than the provisions under the Companies Act.
Section 14(AC) of the Provident Funds Act provides that no court shall take cognizance of any offence punishable under the Provident Funds Act except on report in writing of the facts constituting such offence made with the previous sanction of the Central Provi-dent Fund Commissioner. Section 86 of the Employees’ State Insurance Act prescribes that no prosecution shall be instituted except by or with the previous sanction of the Insurance Commissioner and except on a complaint made in writing within six months of the date on which the offence is alleged to have been committed. The prosecution proposed to be launched under Provident Funds and Miscellaneous Provisions Act and Employees’ Slate Insurance Act, are not at the behest of the Registrar of Companies or the shareholders of the Company or by a person authorised by Central Government in that behalf. It is therefore obvious that such prosecution to be instituted by the officers appointed under provisions of the statutes other than the Companies Act cannot be prevented by resort to provisions of subsection (2) of Section 633 of the Companies Act.
6-7. An identical provision as Section 633 of the Companies Act came up for consideration before Court of Appeal in decision
reported in (1981) 2 All ER 697 Customs and Excise Commr. v. Hedon Alpha Ltd. The
Company in that case carried on business of offcourse bookmaker. The company failed to
pay general betting duty due underage, Sec. 2(1) of the Betting and Gaming Duties Act, 1972, and thereupon the Commissioner of Customs and Excise brought proceedings under Sec-tion 2(2) of the 1972 Act to recover duty from the company, from director who was holder of the bookmaker’s permit and betting office licence and from another director of the company suing them jointly and severally. The director claimed that he had acted honestly and reasonably and should be excused and relieved from liability pursuant to Section 448(1) of the Companies Act, 1948 Section 448(1) of the Companies Act, 1948, inter alia, provided that the Court may relieve the officer of the Company in respect of negligence, default, breach of duty or breach of trust if he has acted honestly and reason-ably. The director sought relief under Sec-tion 448 and the Appeal Court refused to accede to the request. Lord Justice Stephen-son presiding over the Appeal Court ob-served : “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 Companies Act, but not proceedings for the recovery of debts or the enforcement of civil liability to strangers.”
Lord Justice Griffiths observed in his judgment:
“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 nevertheless failed in some way in the discharge of his obligations to his company or their shareholders or who has infringed one of
the numerous provisions in the Companies
Acts that regulate the conduct of directors.”
I am in respectful agreement with the
decision of the Appeal Court.
8. Shri Tulzapurkar heavily relied upon the decision of the Delhi High Court reported in (1983) 53 Com Cas 918 : (1982 Tax LR 2401) (In re. Beejay Engineers Pvt. Ltd. and in
re. Satinder Sandhu and others). The Divi-sion Bench of Delhi High Court heard a reference made by single Judge expressing doubt as to whether sub-section (2) of Section 633 of the Companies Act enables the Court to grant relief against prosecutions under other Acts. The Division Bench held that the protection is sought to be given to an officer of a company, which necessarily implies that the liability arises on account of negligence or default in relation to the affairs of the company which he is required to conduct honestly and reasonably, and the protection will not extend to and cover acts of misfeasance or breach of trust etc. which have no connection whatsoever with his status or duties as an officer of the company. The Division Bench then observed (2403 of Tax
LR):
“The expression “any proceeding” occur-
ring in the section is of wide amplitude and
comprehensive enough to include all kinds of
proceedings, i.e. civil as well as criminal.
There is nothing in the language or the
context in which this section is laid to limit, restrict or confine its operation to a liability arising out of negligence, default, breach of duty, misfeasance of breach of trust under the Act alone. In our opinion, protection under
this section will be equally available to an officer of a company against liability to be proceeded against for negligence, default, breach of duty. etc. even under other Acts so
long as it is with regard to the affairs and
functioning of the company.
I am afraid, that it is not possible to agree with the view taken by the Division Bench. The Division Bench, with respect, has not examined the context and the placement of sub-section (2) as well as sub-section (3) of Section 633 of the Companies Act, and which in my judgment, clearly indicates that the
Legislature desired to restrict the powers to proceedings to be instituted for violation of provisions of only Companies Act. Mr. Justice D. P. Wadhwa of Delhi High Court in the later case reported in (1987)_62 Com Cas 571 : (1987 Tax LR 1742) Jagannath Prasad Jhalani v. Regional Provident Fund Com-missioner (Haryana) felt doubt about the
correctness of the decision of Division Bench.
Shri Tulzapurkar also made reference to the decision reported in (1966) 36 Com Cas 144 S.P. Chopra & Co. (Muktsar Electric Supply Co., Ltd.), where single Judge of Punjab High Court held that High Court can grant relief under sub-section (2) as the subsection is wide enough to cover criminal prosecution. There cannot be any quarrel with the proposition, but the sub-section is not wide enough to cover criminal prosecutions commenced under Acts other than the Companies Act. In my judgment, the preli-minary objection raised on behalf of the respondents that the petitioners cannot be relieved of civil and criminal liabilities arising out of violation of the Provident Fund and Employees Insurance Act by resort to sub-section (2) of Section 633 of the Companies Act is required to be upheld and the petition must fail.
9. Accordingly, petition is dismissed with costs.
10. Petition dismissed.