Simplex Infrastructures Ltd. and Banwarilal Bajoria and others vs. Registrar of Companies, West Bengal

[2014] 182 Comp Cas 243(Cal.)

[In the Calcutta High Court]

Simplex Infrastructures Ltd. and Banwarilal Bajoria and others vs. Registrar of Companies, West Bengal

Court can grant relief to directors for any proceedings initiated for negligence, default or breach of duty, if there is no specific allegation of dishonest intent and that same is a technical default and does not affect any person or is not opposed to public policy

Brief Facts

The Petitioners are the directors of the Company. The Registrar of Companies, West Bengal (“RoC”) had issued several show cause notices to the Petitioners for various non-compliances and non-disclosures in the audited accounts as required under Section 211 of the Companies Act, 1956 (“Act”). The show cause notices indicated the following non-compliances and non-disclosures:

a.      The loss on account of exchange fluctuation not being provided in the Company’s accounts.

b.      Advance received on account of work in progress not being shown separately.

c.       Not disclosing the cancellable and non-cancellable lease separately.

Company had duly replied to all the show
cause notices and had given proper explanation and justification as to all non–contraventions.

In anticipation of any action which may be taken against the Company and its directors, the Petitioners filed this application under Section 633 of the Act.  Section 633 refers to powers of a court to grant relief in case of any proceedings for negligence, default, breach of duty, misfeasance or breach of trust against an officer of the company.

The argument from the Respondent is that although, the powers exercised by the Court under Section 633(2) is discretionary, the same should be exercised with great caution.

Judgment and Reasoning

The Hon’ble Court allowed the petition. While allowing the petition, the Court noted that for relief to be granted under Section 633, the Petitioners should have shown to have acted in a manner in which any man of affairs with reasonable care could be expected to act in the case and circumstances of the facts. The court also noted the replies given to the said show cause notices of the RoC. The Court also relied on the judgment in the case of Bhagwati Foods
P. Ltd vs. Registrar of Companies, West Bengal [2008] 143 Comp Cas 531 (Cal.),  in which it was held that the show cause notice should not only contain an exact offence but also a specific allegation of dishonest intent. The Court noted that a technical default, if it does not affect any person or is not opposed to public policy, can be excused under Section 633(2) of the Act.