TMI Blog2001 (11) TMI 955X X X X Extracts X X X X X X X X Extracts X X X X ..... stered under the Companies Act, 1956. The said company is promoted by M/s. Electronics Corporation of Tamil Nadu (ELCOT), an undertaking of the State Government and New Era Technologies Pvt. Ltd., a company promoted and owned by Thiagaraj S. Chettiar. According to the petitioner the affairs of the company were managed by the then director in charge, Thiagaraj S. Chettiar from its inception till the date of his removal from the directorship. At the instance of ELCOT a management audit was conducted during November/December, 1996, which disclosed several irregularities and the company initiated civil and criminal proceedings against the said Thiagaraj S. Chettiar. The petitioner was served with show-cause notices under sections 299, 301, 211, 292(1)( c ), 113,193( b ), 17 and 58A(2) of the Companies Act. The violations alleged were said to have been committed during the period when the affairs of the company were managed by the said Thiagaraj S. Chettiar, who was completely in charge of and responsible for the day-to-day management and affairs of the said company. The said Thiagaraj S. Chettiar was also in charge of M/s. New Era Technologies Ltd., which holds 25 per cent. of the equi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the ex officio nominee directors cannot be made liable. The petitioner is not responsible for any of the acts mentioned in the notice and, therefore, he must be relieved from liability in respect of the alleged violations on such terms as this court may deem fit. Pursuant to the notice, the Registrar of Companies may proceed against the petitioner for alleged negligence, default, breach of duty, misfeasance or breach of trust on the basis of the show-cause notices. Assuming without admitting that the allegations set out in the notices are true, no action could be initiated against the petitioner as they have been committed without his knowledge and he was not a party to any of those irregularities. The petitioner was not involved in the day-to-day activities of the company and only attended the board meetings intermittently. Hence the present petition. Case of the respondent: The respondent, while denying the allegations and averments set out in the company petition, stated that the petitioner was a director of the company with effect from June 27, 1996, as seen from the filing of Form No. 32. In the balance-sheet as on September 31, 1996, March 31, 1997, the petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lling upon the petitioner to show cause as to why prosecution shall not be launched against him under section 299 of the Companies Act, besides intimating that the offences for which action is being taken are compoundable under section 621A of the Companies Act, 1956. The petitioner submitted a consolidated explanation on April 3, 1999, for all the show-cause notices dated February 24, 1999. The respondent once again advised the petitioner through the company to file an application for composition of the offences in respect of the show-cause notices. At that stage, the present company petition has been filed under section 633(2). This court called upon the respondent to detail the materials based on which the respondent had issued various show-cause notices on February 24, 1999, since it was represented that the petitioner was not even a director of M/s. Elnet Technologies Ltd., during the material period. The respondent filed a report. The report reads thus: "2. In this connection it is submitted that Sri Madhavan Nambiar was the chairman/director of M/s. Elnet Technologies Ltd. (hereinafter referred to as 'the company') from June 27, 1996, to April 13, 1999, as per the statut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e financial year ending with March 31, 1997. 8. That Sri Madhavan Nambiar was the chairman-cum-director of the company during the relevant period as mentioned above and hence show-cause notices were issued to the company and the petitioner herein." With respect to the case of the petitioner and the respondent and the report submitted by the respondent, the following points arise for consideration: A.Whether the petitioner is entitled to a direction under section 633(2) of the Companies Act for being relieved from the proceedings initiated by the respondent for alleged violations of sections 58A, 17 read with 291, 113, 211, 297, 301 and 299 of the Companies Act? B.Whether the petitioner's claim that he is an ex officio director/chairman and, therefore, he is not liable to be proceeded against for one or more of the alleged violations is sustainable? In respect of the very same show-cause notices and in respect of the same violations relating to the said company on the earlier occasion Mr. Ramesh Chand Meena, director, filed C. P. No. 172 and Mr. Neeraj Mittal, director filed C.P. No. 183 of 1999. The said two directors were sought to be proceeded against for the alleged vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd taken care in the affairs of the company.) In the matter of proceedings for negligence, default, breach of duty, misfeasance or breach of trust or violation of the statutory provisions of the Act and the rules, there is no difference or distinction between the whole-time or part time director or nominated or co-opted director and the liability for such acts or commission or omission is equal. So also the treatment for such violations as stipulated in the Companies Act, 1956. Section 5 of the Companies Act defines the expression "officer who is in default". The expression means either ( a ) the managing director or managing directors; ( b ) the whole-time director or whole-time directors; ( c ) the manager; ( d ) the secretary; ( e ) any person in accordance with whose directions or instructions the board of directors of the company is accustomed to act; ( f ) any person charged by the board with the responsibility of complying with that provision; ( g ) any director or directors who may be specified by the board in this behalf or where no director is so specified, all the directors. Section 29 of the Companies Act provides the general power of the board and such power has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hiagaraj S. Chettiar had not disclosed to the board that he was interested in the transaction. That apart the petitioner was not a director during the relevant point of time. Hence there could be no action against the petitioner under section 301(4). Taking up the next violation, viz. , violation of section 113(1) it relates to delay in the despatch of share certificates to three of the shareholders, and the threatened action under section 113(2) it is rightly pointed out that the petitioner was not a director during the relevant time, nor was he a director in charge of the company. It may be that there is some delay in forwarding a few share certificates, but as the petitioner was not a director during the material point of time, he cannot be proceeded against under section 113 of the Act. In respect of the alleged violation of section 193(1A), which is punishable under section 193(6), the petitioner was not a director during the relevant time and he was not a director in charge of the company as seen from the facts. Hence he cannot be proceeded against. So also in respect of the alleged violation under sections 301(1), 291, 297(1) and 299 as the petitioner was not a director ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fences have been created for the non-performance of such duties. These offences are offences in relation to the performance of certain duties under the Act. The various offences are mentioned under sections 59, 62, 63, 68, 142, 162, 207, 218, 272, 374, 420, 423, 538 to 545 and 606. The expression 'any proceeding' occurring in section 633 cannot be read out of context and treated in isolation. It must be construed in the light of the penal provisions. Otherwise what will happen is the penal clauses under the various other Acts would be rendered ineffective by application of section 633. Again, if Parliament intended section 633 to have a coverage wider than the Act, it would have specifically provided for it as, otherwise, it is a sound rule of construction to confine the provisions of a statute to itself. We are also of the view while referring to any proceeding under sub-section (2) Parliament intended to restrict it only to the proceedings arising out of negligence, default, breach of trust, misfeasance or breach of duty in respect of the duties prescribed under the provisions of the Companies Act. Further examining the sub-section with reference to the context and the placem ..... X X X X Extracts X X X X X X X X Extracts X X X X
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