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TMI Blog2007 (7) TMI 413X X X X Extracts X X X X X X X X Extracts X X X X ..... 211(1) of the Act, read with Schedule VI thereto. The ninth notice complains of the petitioners having violated section 211(2) of the Act, read with Part II of Schedule VI thereto. The eighth and eleventh notices complains of violation of section 217(1)(e) of the Act in the matter as to the contents of the director's report. The twelfth notice refers to the provisions of sections 127 and 292 of the Act having been breached. 3. In the affidavit used by the Registrar, a point of law has been urged. The Registrar contends, in substance, that for the provisions of section 633(2) of the Act to apply, the petitioning officer must first concede as to default and then seek pardon by demonstrating that he had acted honestly and reasonably. It is urged that the High Court has to take into account the circumstances of the accepted default. 4. Such point needs first to be addressed before the merits of the charges levelled and the justification of excuses proffered can be gone into. The Registrar urges that there is material difference between sub-sections (1) and (2) of section 633 of the Companies Act and that what the criminal court receiving the Registrar's complaint can do, the High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sub-section (2), in its closing part, identifies the criminal court and provides that the High Court will have the same powers as the criminal court to relieve a petitioning officer. The expression 'if it had been a court before which a proceeding against that officer. . . had been brought under sub-section (1)' makes it clear that the High Court in exercise of powers under sub-section (2) will have the same powers as the court receiving the criminal proceedings. Such expression does not imply that the High Court will exercise only such powers under sub-section (2) that the criminal court may, upon the criminal court finding the charged officer guilty. For the criminal court to relieve the charged officer, such court may or may not conclude that the charged officer is liable. There can be no other meaning to the expression 'he is or may be liable' found in sub-section (1). If the criminal court can relieve a charged officer without coming to any conclusion that the charged officer is actually guilty or is liable for the offence, so can the High Court. In taking into account the surrounding circumstances, the criminal court may form a tentative opinion, without a full-fledged trial, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as would be permissible on the basis of a possible reading of the Accounting Standards. 8. The first, second and third show-cause notices allege that the accounts of the company for the relevant year did not comply with the Accounting Standards. Explanations have been given, which form part of the petition and it does not appear from such explanations that the petitioners have been completely unmindful of complying with the Accounting Standards. It is the subjective assessment of the Registrar against the subjective assessment of the petitioners and the explanations indicate a possible bona fide view that the petitioners have taken. 9. The sixth and ninth show-cause notices alleged that the balance-sheet and profit and loss accounts of the company for the financial year ended 31-3-2005, did not give a true and fair view of the state of affairs of the company or its profit and loss position as at that date. Again, the explanations furnished indicate a possible bona fide view taken by the petitioners and it does not appear that the petitioners attempted to conceal anything or that the petitioners attempted to actively present a different picture of either the state of affairs of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , if such company acquires any property which is subject to an existing charge that was required to be registered under the Act. The transferor company had furnished particulars of the existing charge and upon the merger of its assets, under section 394 of the Act, no further deed or act in respect of such merged asset was required to be done. Pursuant to the merger, the property vested in the transferee company and the benefit of the particulars of the charge filed by the transferor company could be enjoyed by the transferee company. The charge of violation of section 292 is equally vague and the explanation furnished is adequate. 12. On behalf of the Registrar, the fourth, fifth, seventh and tenth charges have been pressed with more enthusiasm than the others. The company has a subsidiary by the name of Madhuting Tea (P.) Ltd., and such company ran into rough weather, as it had a number of tea companies during the relevant period. The company had invested in shares in Madhuting at a high value and in the accounts for the financial year 2004-05 it provided for the value of investments at cost though the net worth of the invested company had by then been substantially eroded and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad better grounds to press the charge. But the company and the petitioners indicated in Note 4 of Schedule 17 to the accounts, the financial position of Madhuting and the auditor, in keeping with the amended provisions of section 227 of the Act, had drawn the attention of anyone reading the accounts to such note. At the end of the day, it boils down to whether the subjective assessment of the petitioners that the diminution in the value of Madhuting shares was temporary, was justified or not. There cannot be a black and white answer to this and neither will the subsequent improvement in financial position of Madhuting exonerate the petitioners nor would the further erosion of Madhuting net worth have confirmed the charge brought. 16. The surrounding circumstances, the indeterminate connotation of the word 'temporary' and the specific inclusion of the relevant fact in Schedule 17, would entitle the petitioner to be relieved, on terms, of the charge that may have been brought against them by the Registrar without going into the question as to whether there was any default on their part. The Madhuting matters are covered by the fourth, seventh and tenth show-cause notices. 17. The f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the petitioners' part on such score. 20. The petitioners refer to the judgment in Duomatic Ltd. In re [1969] 1 All ER 161 (Ch. D) and the view of Buckley, as to the court's assessment of reasonableness of the conduct of a company's officer. Section 448 of the Companies Act, 1948, of England empowered a court to relieve an officer of a company in the manner that section 633(2) of the Indian Act permits a High Court to relieve such officer. The considerations that ought to weigh with court are found in the following lines (at page 169):- "Section 448 enables the court to grant relief where three circumstances are shown to exist. First of all, the position must be such that the person to be excused is shown to have acted honestly. Secondly, he must be shown to have acted reasonably. And thirdly, it must be shown that, having regard to all the circumstances of the case, he ought fairly to be excused." 21. In respect of the two major heads of charge seriously pressed by the Registrar, the petitioners appear to have acted honestly on their interpretation of AS-13 and Note 8 of Schedule XIV to the Act. In addition, the petitioners had specifically mentioned such matters in Note 4 and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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