L.MOHAPATRA, J. COPET NO.30 OF 2008 (Decided on 04.03.2011) PRADIP KUMAR KHAITAN & ORS. … …..Petitioners. .Vrs. REGISTRAR OF COMPANIES, ORISSA. ………Opp.Parties. COMPANIES ACT, 1956 (ACT NO.1 OF 1956) – S.633 (2). For Petitioners - M/s. A.K.Parija, S.P.Sarangi, B.C.Mohanty, P.P.Mohanty, D.K.Das, P.K.Dash, R.K.Tripathy, A.Kanungo, A.K.Kanungo & A.Pattnaik. For Opp.Parties - Ms.Saswata Patnaik Central Government Counsel L.MOHAPATRA, J. This application has been filed under Section 633 (2) of the Companies Act, 1956. Petitioner No.1 is the Chairman of OCL India Limited (hereinafter referred to as “Company”) and petitioner Nos.2 to 7 are its Directors. Petitioner No.8 is the Company Secretary of the Company and Petitioner No.9 is the whole time Director and CEO of the Company. The facts leading to filing of this petition are that during September/October 2007, the Assistant Director (Inspection) conducted inspection of books of accounts and records of the Companies under Section 209-A of the Act by the orders of the Regional Director, Ministry of Company Affairs. After completion of inspection, by letter dated 19.3.2008, the Assistant Director (Inspection) alleged violation of certain provisions of the Companies Act and sought for explanations/ clarifications from the Company. Annexure-1 is the letter written to the Company indicating the alleged contraventions of the provisions contained in the Act. Fifteen instances of contraventions of different provisions of the Act have been indicated in the said letter. The Company submitted its explanation/clarification in response to the said letter but the ROC, Cuttack issued six undated show cause notices in June, 2008 to the petitioners with a view to prosecute them on the basis of the said alleged violations. Apprehending prosecution, at the instance of the ROC, Cuttack, the present application has been filed. 2. Before consideration of the submissions of the learned counsel appearing for both the parties, it is necessary to refer to Section 633 of the Act. The said provision is quoted below: “633. Power of Court to grant relief in certain cases.-(1) If in any proceeding for negligence, default, breach of duty, misfeasance or breach of trust against an officer of a company, it appears to the Court hearing the case that he is or may be liable in respect of the negligence, default, breach of duty, misfeasance or breach of trust, but that he has acted honestly and reasonably, and that having regard to all the circumstances of the case, including those connected with his appointment, he ought fairly to be excused, the Court may relieve him, either wholly or partly from his liability on such terms as it may think fit: Provided that in a criminal proceeding under this sub-section, the Court shall have no power to grant relief from any civil liability which may attach to an officer in respect of such negligence, default, breach of duty, misfeasance or breach of trust. (2) Where any such officer has reason to apprehend that any proceeding will or 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 and the High Court on such application shall have the same power to relieve him as it would have had if it had been a Court, before which a proceeding against that officer for negligence, default, breach of duty, misfeasance or breach of trust had been brought under sub-section (1). (3) No Court shall grant any relief to any officer under sub-section (1) or sub-section (2) unless it has, by notice served in the manner specified by it, required the Registrar and such other person, if any, as it thinks necessary, to show cause why such relief should not be granted.” As is evident from the said Section, sub-section (2) provides that where any such officer has reason to apprehend that any proceeding will or 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 and the High Court on such application shall have the same power to relieve him as it would have had if it had been a Court, before which a proceeding against that officer for negligence, default, breach of duty, misfeasance or breach of trust had been brought under sub-section (1). Sub-section (3) provides that no Court shall grant any relief to any officer under sub-section (1) or sub- section (2) unless the Registrar of the Company is served with a notice to show cause as to why such relief should not be granted. In compliance of sub-section (3) of Section 366, notice was issued to the ROC on 25.7.2008 and the ROC is represented through Ms. Saswata Patnaik in this petition. 3. Coming to the alleged contraventions as mentioned in Annexure-1, it appears that most of the contraventions alleged relate to non-compliance of Accounting Standards. With reference to Section 211 of the Act, Shri A.K. Parija, the learned Senior Counsel appearing for the petitioners submitted that every balance-sheet of a company shall give a true and fair view of the state of affairs of the company as at the end of the financial year and shall, subject to the provisions of the said section, be in the form set out in Part I of Schedule VI, or as near thereto as circumstances admit or in such other form as may be approved by the Central Government either generally or in any particular case; and in preparing the balance-sheet due regard shall be had, as far as may be, to the general instructions for preparation of balance-sheet under the heading “Notes” at the end of that Part. Referring to sub-section (2) of the said Section, it was contended that every profit and loss account of a company shall give a true and fair view of the profit or loss of the company for the financial year and shall, subject as aforesaid, comply with the requirements of Part II of Schedule VI, so far as they are 2 applicable thereto. With reference to the aforesaid two provisions, it was further contended that there is nothing in the show cause notices that due to the alleged non-compliance of accounting standards, the balance-sheet of the company does not give a true and fair view of the state of affairs of the company at the end of the financial year. It is stated in the Company Petition that the Company and its Directors/Officers have acted honestly, reasonably, bona fide and diligently and no prejudice has been suffered by any person by reason of such alleged defaults. No pecuniary or other benefit has been obtained by the petitioners by reason of such alleged defaults. Due diligence has been exercised in auditing the Company’s accounts through M/s. V. Sankar Aiyar & Company and accounts have been maintained in terms of the requirements of the relevant provisions of the Act. The accounting standards have been complied with as near to Part I and Part II of Schedule VI as circumstances admit and therefore, the petitioners are entitled to the protection available to them under Section 633 of the Act. 4. Ms. Saswata Patnaik appearing for the Registrar Companies with reference to Annexure-1 submitted that specific violation of the accounting standards have been indicated in the said letter and the petitioners have not been able to explain under what circumstances such contraventions have been made and therefore, notices have been issued by the ROC to the petitioners and in the event the ROC is of the view that the explanation submitted is not satisfactory, it is open for him to launch prosecution under the provisions of the Act. 5. From the documents attached to the petition, it appears that on the basis of Annexure-1, the ROC has issued six notices indicating the contraventions of different accounting standards. The allegations contained in the notice and the replies given by the Company are mentioned hereunder in a tabular sheet. Reference of Show cause notice Section violated Allegation in brief Reply Notice No.1 211(3A) read with AS-22 Break up of deferred tax assets/ liabilities are not shown Represents single item 211(3A) read with AS-13 Profit on sale of investments is not shown as long term and short term Balance sheet itself indicates that all investments are 3 long term. Hence no separate requirement is necessary 211(3A) read with AS-2 Raw material not shown at cost. (Over burden sale is adjusted against raw mat cost) Cost material is shown at net of taxes and sale generated proper disclosure is made as per AS- 2 211(3A) read with AS-29 Liability for non compliance of Jute packaging Act is not shown as contingent liability Reasons are given by way of note 211(3A) read with AS-28 Accounting policy followed is mentioned but no disclosure under such policy There is no such item for disclosure 4 211(3A) read with AS-20 Diluted EPS has not been disclosed Typographical error 211(3A) read with AS-15 Base Date for actuarial valuation is not mentioned Clarification is given that year end is the basis 211(3A) read with AS-6 Depreciation for the year has not been disclosed Disclosure is made as per Part-I of Schedule VI Notice No.2 211 read with Part-I of Schedule VI Advances against Capital expenditure Disclosure is made as per Part-I of Schedule VI 211 read with Part-I of Schedule VI Cash, cheques in hand are clubbed and shown Cheques on hand are equivalent to cash 211 read with Part-I of Schedule VI Quantity of Resins and Aluminum powder are not shown Quantities are negligible and due to rounding off get eliminated 211 read with Part-I of Schedule VI Under investments number of shares is not shown only amountis shown for previous year Current year disclosure requirement is complied with although number is not required to be shown 211 read with Part-I of Schedule VI Sales have been shown as net of Trade discounts, Sale tax, inclusive of excise duty Proper disclosure is made 5 211 read with Part-I of Schedule VI Pending execution of sale deed, likely expenses have not been shown as contingent liability Expenses are not material as cost of flat is 3.15 laks 211 read with Part-II of Schedule VI Earning in Foreign exchange under head others, nature of exp is not disclosed Other exp are not significant as 0.01% of total, no details are warranted 211 read with Part-II of Schedule VI Dividend on foreign shareholding is not shown separately Remittance is in Indian rupees only to mandate banks. Hence it can not ascertain 211 read with Part-II of Schedule VI Quantities in respect of self consumption of cement is not shown Not mandatory for self consumption 211 read with Part-II of Schedule VI Interest paid on debenture is not shown Debentures are also loans for fixed period and interest is clubbed with interest on other terms load Notice No.3 Section 292(1) Inter corporate borrowings Board passed resolution authorizing officers to accept borrowing up to certain limits 6 Notice No.4 Section 217(1) (e) Director report Disclosure about energy consumption Grades of for refractory are the same as that are used in cement Notice No.5 217(2A) Directors Report disclosure about Employees salaries, designation etc Disclosure is made Notice No.6 217(2AA) Disclosure about compliance by directors Disclosure is made From these allegations and replies, it appears that most of the allegations even if accepted to be correct are technical in nature and have not affected the entire accounting procedure adopted by the Company or in disclosure of the true affairs of the Company. In this connection, reference may be made to a decision of the Calcutta High Court in the case of BOC India Limited and the Registrar of Companies, West Bengal in C.P. No.94 of 2007/C.A. No.215 of 2007, disposed of on 16.7.2007. In the said case, two notices issued by the Registrar of Companies threatening criminal proceeding against the petitioners therein were the subject matter of the proceeding before the Calcutta High Court under Section 633 (2) of the Companies Act, 1956. On consideration of the allegations and the replies, the Court was of the view that the contemplated criminal proceedings were not warranted and accordingly allowed the petition. The same view was also expressed by the Calcutta High Court in the case of Chandra Kumar Dhanuka & others v. the Registrar of Companies, West Bengal in C.P.No.428 of 2006/C.A.No.651 of 2006, disposed of on 13.7.2007. Reference may also be made to another decision in the case of Re DUOMATIC, LTD., reported in (1969) 1 All England Law Reports, page 161. 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. In the reported judgment, it was held that 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. There is no allegation that the petitioners have acted dishonestly or unreasonably and in absence of any such allegation, they are to be excused. There is also nothing on record to show that due to non-observance of the accounting standards as alleged, any of the shareholders of the Company is affected. There is not a single complaint by any of the shareholders of the Company so far as maintenance of the accounts is concerned. The inference is that the Company has tried its best to maintain the accounts in terms of the accounting 7 standards and the contraventions pointed out have not affected the true picture of the balance-sheet of the Company. 6. In view of the above, I accept the contention of Shri A.K. Parija, the learned Senior Counsel appearing for the petitioners that the petitioners who apprehend to be prosecuted for the alleged violations have not only acted honestly but also have acted reasonably in maintenance of the accounts of the Company and therefore, they are entitled to be excused under Section 633 (2) of the Companies Act, 1956. Accordingly this application is allowed and the opposite party-ROC is directed not to launch any prosecution against the petitioners for the alleged violation of the accounting standards. Application allowed. 8