Co. Pet-7/09 //1// In the High Court of Judicature for Rajasthan Jaipur Bench ** Company Petition No.7/2009 Sharad Kr. Singh & Others Versus Office of Registrar of Cos. Jaipur In the matter of Shri Ganpati Fertilizers Ltd Jaipur Date of Order ::: 12/08/2010 Hon'ble Mr. Justice Ajay Rastogi Mr. Deepak Diwan with Mr. Sandeep Taneja, for petitioners, Mr. Shashank Sharma, for respondent-Reg. Of Cos. Instant Company petition has been filed U/Ss 633(2) of Indian Companies Act, 1956 (“Co. Act”) seeking direction to release petitioners from prosecution for any alleged defaults or breach of provisions of Co. Act, if any having been committed during the period prior to management of Shri Ganpati Fertilizers Ltd (“the Company”) being taken over by petitioners. As alleged, the petitioners are professionals being full time employees of M/s DCM Shriram Consolidated Ltd (“DSCL”), which was sole secured creditor of the Company. It has been alleged that the Company since its incorporation in the year 1994, was solely under control & management of its original promoters/directors (Mr. RK.Joshi (the then Managing Director), his family members & close relatives). In 2005, the Company being in serious financial crisis, was indebted to Punjab National Bank for a sum of Rs.1044 Co. Pet-7/09 //2// lacs; thereby the Bank initiated proceedings under Securitisation Act and entire plant, machinery, factory land and other assets of the Company were attached; in such circumstances, the Company approached DSCL seeking financial aid, promising to sell its products to DSCL in turn and repaying the loan amount in accordance with agreements dt.31/01/2006 and other related agreements. As alleged, the DSCL disbursed Rs.300 lacs, for being utilized by the Company for settling its dues with PNB; and that apart, further working capital of Rs.442 lacs was also provided by DSCL for revival of the operation of plant of the Company being closed since long time. As alleged, after borrowing amount from DSCL and settling its account with PNB, original promoters (Mr.R.K.Joshi & associates) of the Company became negligent and did not take appropriate steps for revival and operation of the Company; rather committed a number of defaults on account of negligence on the part of the then promoters (Mr.R.K. Joshi) who were Directors and were having exclusive control over affairs of the Company; and only after detailed correspondence and notices, calling upon them to ensure legal compliances and for revival of the operation of the plaint in terms of agreements executed by them, the DSCL was constrained to invoke Cl.12 of the Agreement and nominated petitioners-1 to 4on Co. Pet-7/09 //3// the Board of Directors of the Company with a view to protect its interest under the loan agreement. It has averred in para 7 at p.12 of the petition that petitioner-5 being nominee of the Board of Directors of the Company appointed by DSCL on 22/02/2006 gave notice of the Board meeting and petitioners-1 to 4 were inducted its nominee Directors on the Board of of the company on 27/03/2008 – pursuant to which Form 32 & its challan were filed on 14/05/2008 before the Registrar of Cos. However, in extra ordinary general meeting convened on 11/06/2008, original promoters (Mr. RK Jain the then Managing Director & other Directors) in terms of provisions of S.284 of Co. Act were removed. It has further been alleged that since ex- management of the Company was not co-operating and because of their attitude, present management of the Company (petitioners) is not in a position to fulfill requirements provided under the Co. Act. It has come on record that with regard to the defaults committed by the Company U/Ss 159, 160, 166, 210 & 220 of the Co. Act; show cause notices were issued by the Registrar of Cos. On 12/06/2008 & 20/08/2008 for non-filing of Form DIN-3 in respect of Director Identification Number as provided U/s 266-E of Co. Act. Main thrust of the submissions made on Co. Pet-7/09 //4// behalf of petitioners is that the petitioners have acted through out in a reasonable & prudent manner in discharge of duties as Officers of the Company without causing any default willfully or otherwise and they cannot be held responsible for the defaults having been committed and the defaults existing before taking over the management of the Company by petitioners cannot be attributed to the petitioners and accordingly they may be exempted from any prosecution, if initiated by respondent in regard to statutory breach or violation of provisions of the Co. Act and may be granted exemption from all kinds of prosecution for defaults misfeasance or negligence committed during the period of ex- management of the Company. Reply to the petition has been filed by Registrar of Cos. And it has been averred in para I (i) of preliminary objections that petitioners-1 to 4 were appointed as Directors of the Company w.e.f. 27/03/2008 and petitioner-5 w.e.f. 22/02/2006 and the management was taken over on 11/06/2008 and prior thereto, it was under control & supervision of ex-management (Mr. RK Jain & his associates). It has also been averred that as per various penal provisions of the Co. Act, only those officers of the Company being in default within the meaning of S.5 of the Act are liable to be prosecuted for such Co. Pet-7/09 //5// default, breach, negligence, misfeasance etc.; and since in instant case, the contravention having been allegedly committed was of prior date of appointment of petitioners, the petition deserves to be dismissed. It has been informed by respondent- Registrar of Cos. that compliance in refernece to notices dt.12/06/2008 & 20/08/2008 has been made and there is no notice thereafter being issued by Registrar of Cos. And no proceedings at present having been initiated under any of provisions of the Co. Act against the company or its Directors including petitioners-1 to 5 herein pending consideration. Para-I(i) of the reply filed by Registrar of Co. being relevant in examining the issue herein is reproduced ad infra: “(i) Because the petitioner Nos. 1, 2, 3 and 4 were appointed as Directors of the Company, Shri Ganpati Fertilizers Ltd. (for the sake of brevity herein after referred to as “SGF”) w.e.f. 27th March, 2008 and the petitioner No.5 was appointed Director of the said Company w.e.f. 22nd February, 2006. It has also been claimed by the petitioner that till 11th June, 2008 the entire management was in control and supervision of Mr. RK Joshi, the then Managing Director and other Directors of the said Company, who were his wife, father, mother and friends etc. As per the various penal provisions contained in the Companies Act, 1956, the officer(s) of the Co. Pet-7/09 //6// company who is in default with the meaning of Section 5 of the said Act are liable to be prosecuted for any default, breach of trust, negligence, misfeasance etc. and on those persons/officers who are liable for any such omission/default etc and further that they exist honestly and reasonable having regard to all the circumstances of the case are only entitled to file petition under section 633(2) of the Companies Act, 1956. In the instant petition, the petitioners have approached this Hon'ble Court for grant of exemption from the compliance of those provisions of the companies Act, 1956 contravention of which were committed prior to the date of their appointment.” From a bare reading of S.633 it emerges that U/s 633(1) of Co. Act, if any proceedings arises out of negligence, default, breach of trust & duty, misfeasance and it appears to the Court that an officer has acted reasonably in the facts & circumstances of the case, he may fairly be relieved partly or wholly from his liability. However, at the same time, under sub-section (2) of S.633 of Co. Act, without there being any proceedings if officer of a Company has reason to apprehend that proceedings might be brought against him in respect of any negligence, default, breach of duty, misfeasance or breach of trust, he may apply to the High Court for relief. But, in Co. Pet-7/09 //7// the instant case, it is not a case where any proceedings are pending. From the reply, it is clearly manifest that petitioners-1 to 4 who became nominee Directors of the Company w.e.f. 27/03/2008, prior to which, default, breach or misfeasance, if committed cannot be attributed for making them liable for prosecution under the Co. Act. As regards petitioner-5, who became nominee Director w.e.f. 22/02/2006, it has been averred by Registrar of Companies that for defaults, if any committed, whatever action provided under law would be initiated. From the material on record, it reveals that the apprehension having taken note of by petitioners appears to be without any foundation. In regard to the defaults or breach or violation of certain provisions of the Co. Act, notices dt.12/06/2008 & dt. 20/08/2008 (Ex.A & B) were issued to the Company however, it has been informed that petitioners have made full compliance in response to the notices and no further proceedings have been initiated by Registrar of Companies in regard to the defaults, if any committed prior to petitioners being inducted as Nominee Directors of the Company. It has also been informed that neither any proceedings are contemplated nor initiated with regard to default or breach of provisions of the Co. Act against either of the Directors including petitioners-1 to 5 nor are pending. Co. Pet-7/09 //8// From the material having come on record and taking note of averments made by respondents in their reply, there appears to be no reason for an officer of Company to apprehend for initiating proceedings in future in regard to alleged default etc. as provided U/s 633(2) of the Co. Act, seeking absolute exemption from any action being initiated against either of officers or petitioners in case of any breach of violation of provisions of the Co. Act, which cannot be granted by this Court in isolation; and as such apprehension raised by petitioners in the facts and circumstances appears to be ill- founded. Consequently, company petition fails and is hereby dismissed. No costs. (Ajay Rastogi), J. K.Khatri/p8/ 7CoPet2009RsrAug12.doc