2010 (8) TMI 774 - HC - Companies Law

Power of to grant relief - Petitioners were employees of DSCL which was sole secured creditor of company G

Summary

Issues involved:
Petition seeking direction under section 633(2) of Indian Companies Act, 1956 for exemption from prosecution for alleged defaults or breach of provisions of the Act prior to management takeover.

Analysis:

1. Background and Allegations: The petitioners, professionals from M/s. DCM Shriram Consolidated Ltd., took over the management of a company in financial crisis after the original promoters failed to revive operations despite financial aid from DSCL. The petitioners were nominated on the Board to protect DSCL's interests due to the ex-management's negligence and defaults.

2. Appointment and Removal of Directors: The petitioners were appointed as Directors in 2008, and the original promoters were removed in a meeting. The present management faced challenges in fulfilling statutory requirements due to the ex-management's non-cooperation, leading to show-cause notices for non-compliance under various sections of the Co. Act.

3. Petitioners' Defense: The petitioners argued that they acted prudently and should not be held responsible for defaults predating their management takeover. They sought exemption from prosecution for any defaults, misfeasance, or negligence attributed to the ex-management.

4. Registrar's Response: The Registrar of Companies contended that only officers in default under the Act could be prosecuted. Since the alleged contraventions occurred before the petitioners' appointment, the petition lacked merit and should be dismissed.

5. Court's Decision: The Court analyzed section 633 of the Co. Act, emphasizing that relief from liability could be granted if officers acted reasonably. However, in this case, no pending proceedings existed against the petitioners for pre-appointment defaults. The Court found the petitioners' apprehension of future proceedings unfounded, as they had complied with notices, and no further action was initiated against them. Consequently, the company petition was dismissed, and no costs were awarded.

In conclusion, the Court dismissed the petition seeking exemption from prosecution for alleged defaults or breaches predating the petitioners' management takeover. The judgment highlighted the importance of officers' liability under the Co. Act and the need for reasonable actions to avoid prosecution. The Court found no grounds for the petitioners' apprehension of future proceedings, as compliance had been made, and no pending actions existed against them.