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TMI Blog1988 (7) TMI 332X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant time, full time directors of the company. The former was the chairman of the company. The petitioners in Company Petitions Nos. 528 of 1984, 529 of 1984 and 530 of 1984, were appointed as directors of the company on January 11, 1984. They were not directors of the company on the date on which the winding-up order was made. The petitioners in Company Petitions Nos. 526 of 1984 and 527 of 1984 were directors in their capacity as professional men and were not full-time directors of the company. Company Applications Nos. 322 of 1984 (in Company Petition No. 502 of 1984), 323 of 1984 (in Company Petition No. 506 of 1984), Company Application No. 33 of 1984 (in Company Petition No. 528 of 1984), Company Application No. 334 of 1984 (in Company Petition No. 529 of 1984), Company Application No. 335 of 1984 (in Company Petition No. 530 of 1984), Company Application No. 332 of 1984 (in Company Petition No. 527 of 1984), and Company Application No. 331 of 1984 (in Company Petition No. 526 of 1984), are for interim orders to the effect that the applicants be relieved from any criminal proceedings arising out of their default in compliance with section 58A of the Act and the Rules ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , they cannot be held responsible for any act leading to criminal proceedings. (3)There were special circumstances beyond the control of the company which caused loss of production and strained the economy of the company. There was a strike and "go slow" by the workers between 1981 and December 27, 1982, when the company commenced production. (Paragraph 2 of the petition). However, the period during which the textile workers' strike affected the sales has not been stated. These factors caused losses and drove the company to invite deposits. (4)For the reasons stated in (3) above, the petitioners should be held to have acted honestly and reasonably within the meaning of section 633 of the Act. Mr. Rele, appearing for the Regional Director of the Company Law Board, drew my attention to the provisions of the Act and the Rules, and urged that in law there is no distinction between the liability of full-time directors and directors appointed by virtue of their professional skill. Having regard to the facts of the case, the directors cannot be said to have acted honestly and reasonably. In view of the admitted violation of section 58A of the Act and Rule 3 of the Rules, it is not nec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts and things, as the company is authorised to exercise and do : Provided that the board shall not exercise any power or do any act or thing which is directed or required, whether by this or any other Act or by the memorandum or articles of the company or otherwise, to be exercised or done by the company in general meeting Provided further that in exercising any such power or doing any such act or thing, the board shall be subject to the provisions contained in that behalf in this or any other Act, or in the memorandum or articles of the company, or in any regulations not inconsistent therewith and duly made thereunder, including regulations made by the company in general meeting). Here again no distinction founded on part-time participation as member of the board is discernible. A meeting of the board of directors shall be held at least once in three months. (285. Hoard to meet at least once in every three calendar months.-In the case of every company, a meeting of its board of directors shall be held at least once in every three months and at least four such meetings shall be held in every year). In such meeting, every member participates in voting and takes decisions withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctor-call him a part-time director or a full time director. The rules of construction do not call for any modification or qualification of this meaning. Therefore, every petitioner herein is a director of the company. Any distinction based on part-time performance of duties is unrealistic, opposed to the usage of English prose and would lead to absurd results. Mr. Nain sought support to his argument from Trisure India Ltd., In re [1983] 54 Comp. Cas. 197 (Bom). The directors were accused of a conspiracy to manipulate the accounts and intentional misstatements in the prospectus. It was found subsequently that the books of the company were fabricated and falsified to show a false picture. The figures of profits and sales shown in the prospectus were based on the fabricated records. The decision of the trial court not to relieve the directors from the liability to prosecution was based on events discovered subsequently. This was the main reason why the Division Bench decided to relieve the directors from liability for criminal action. The conclusions of the Division Bench on the facts may be summarised as under : (a)The directors who were in America did not approve of the method by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... newed the deposits. The judgment in Trisure India Ltd. [1983] 54 Comp. Cas. 197 (Bom), does not assist the petitioners at all. This is not to suggest that none of the petitioners herein should be relieved from criminal proceedings. The point is whether, as a matter of law, the part-time directors carry no responsibilities which may lead to criminal proceedings. If they are liable, the question of relief from criminal action becomes part of the court's discretion. In the matter of proceedings for negligence, default, breach of duty, misfeance and breach of trust, the Act and the rules admit of no distinction between members of the board of directors based on their part-time or full-time performance of duties. Their liability for any proceedings for such acts is equal. The next question is whether, in accepting the deposits in breach of the Act and the Rules, the petitioners acted honestly and reasonably. Even if the production suffered due to go-slow tactics of the workers and the strike, this situation ended on December 27, 8982, or early in 1983. There is no explanation as to why new deposits to the tune of Rs. 2,94,000 were accepted after July, 1983. It is not the case of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n principle, between the case of a full-time director and the case of a part-time director of a company. Cases like Trisure India Ltd. [1983] 54 Comp. Cas. 197 (Bom.), are in a different category. The distinction made in that case was based on the fact that the petitioning-directors were sought to be held liable because of events discovered subsequently, and the court, found that, on the date on which the prospectus was signed, there was nothing which could attribute, to the directors, knowledge of the fraud. So far as the petitioners in Company Petitions Nos. 502 of 1984 and 506 of 1984 are concerned, they were associated personally with the management of the company and were, therefore, not only cognizant of, but are liable for, the acceptance of the deposits contrary to the provisions of law. (Official Liquidator, Supreme Bank Ltd. v. P. A. Tendulkar [1973] 43 Comp. Cas. 382 (SC). ) Notwithstanding the pressure on the company's finances, they cannot be permitted to shut their eyes to what was obvious to everyone who examines the affairs of the company even superficially. Even if all the directors are, in law, liable for their acts, the question of relieving them is still one of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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