JAGANNATH PRASAD JHALANI Vs. REGIONAL PROVIDENT FUND COMMISSIONER

JUDGEMENT

(1.) THIS petition under section 633(2) of the Companies Act, 1956 (for short 'the Act'), was filed on 4th September, 1984. Earlier, when the petition was filed, the petitioner company was known as M/s. Gedore Tools (India) Pvt. Ltd. The name of the company was changed to M/s. Jhalani Tools (India) Pvt. Ltd. and this new name was registered under section 23 of the Act. It was stated that the change in the name would not affect any prosecution sought to be launched by any of the respondents. In fact, this is what sub -section (3) of section 23 of the Act says. By an order dated 1st December, 1986, on an application (C.A. No. 2518 of 1986), the name of M/s. Jhalani Tools (India) Pvt. Ltd. was allowed to be substituted in place of M/s. Gedore Tools (India) Pvt. Ltd.

(2.) THERE are 10 petitioners and respondents are 6 in number. Respondents Nos. 3, 4 and 6 are Income -tax Officers under the charge of Commissioner of Income -tax, Rohtak, and Commissioner of Income -tax, Delhi VI, New Delhi. Respondent No.1 is the Regional Provident Fund Commissioner (Haryana) and respondent No. 2 is the Regional Director, Employees' State Insurance Corporation (ESIC), also of Haryana. Respondent No. 5 is the Registrar of Companies (Delhi and Haryana) but no relief is sought against this respondent. It is stated that petitioners Nos. 1 and 2 are not the working directors of the company and are not responsible for the day to day conduct of the business of the company. The only working directors of the company are stated to be petitioners Nos. 3, 4 and 5. Petitioner No. 6 is the nominee director of the State Industrial and Investment Corporation of Maharashtra, a financial institution from where the company had taken loan. Petitioners Nos. 7 and 8 are alternate directors nominated by two non -resident German directors of the company. It is stated that they are on the board by virtue of their expertise and professional skill. Petitioners Nos. 9 and 10 are respectively the general manager and senior personnel manager of the company and it is stated that they are not responsible for the defaults in respect of payments of statutory dues since they have no authority to make such payments.

(3.) THE petitioners state that the company is engaged in the manufacture and sale of hand tools. It has six manufacturing units, four in Haryana and two in Maharashtra. There are about 6,000 employees working in the company. For the last about three years, there was recession of a very serious nature which affected export -oriented companies including the petitioner company and the company was also affected by steep rise in steel prices in India and from February, 1981, steel prices in India were almost double of those prevailing in the international market. The working conditions of the company in its factories at Faridabad also remained disturbed for about a year from March, 1983, to April , 1984, due to inter -union rivalry and this also resulted in lower production. The factory at Kundli also remained closed from March to May, 1984. In July, 1981, the Government announced a scheme called International Price Reimbursement Scheme (IPRS) with a view to pushing up the export of hand tools. Certain guidelines were laid for providing cash subsidy to make up the difference between the international and domestic prices to the exporters of engineering goods retrospectively with effect from 9th February, 1981. Forging quality carbon steel and chrome vanadium steel, the basic raw materials used by the company for manufacturing hand tools were not covered under the scheme and the company, thereforee, could not claim any benefit there under. However, the matter was represented to the Government by the company and forging quality carbon steel was included in the scheme with effect from 17th March, 1982. It is stated that chrome vanadium steel is still not covered under the scheme. The company represented to the Government for inclusion of forging quality carbon steel in the scheme with effect from 9th February, 1981, and various representations were made for the purpose. It is stated that it was on 16th July, 1984, that benefits of IPRS were extended to hand tools made from chrome vanadium steel as well. It is then claimed that the total subsidy available to the company for chrome vanadium steel if the scheme is implemented with effect from 9th February, 1981, would be around Rs. 1 crore and that if subsidy is provided for forging quality carbon steel from 9th February, 1981, the total amount of subsidy due to the company would be around Rs. 1,30,00,000. Then, it is stated that because of recession and high steel prices prevailing in the country, the company suffered losses during the two years (1981 -82, ending June, 1982, and 1982 -83, ending December, 1983), and that after adjusting depreciation and the export incentive received by the company, the losses for these two years were respectively Rs. 1.86 crores and Rs. 6.55 crores. It is then stated that the company being labour intensive having about 6,000 employees wanted to protect as many jobs as it could in the national interest and that with that end in view was trying to manage the situation in the best possible manner and did not take recourse to retrenchment or closure. Financial crisis led to defaults in payment of statutory dues. The aforesaid circumstances, it is claimed, were beyond the control of the petitioners and that payments under the three Acts mentioned above could not be made after March, 1982, or could no be deposited in time. It is stated that prior to February, 1982, the company always deposited the statutory dues within the specified time. In paragraph 15A of the petition which was added after amendment of the petition, it was stated that due to continuous decline in production and rise in cash losses, the T.D.S. (tax deducted at source) for the period April, 1981, and onwards was deposited late. However, it is stated that no statutory dues were payable under the Income -tax Act in respect of the head office of the company at New Delhi up to October, 1984. After October, 1984, statutory dues under the Income -tax Act again could not be deposited because of 'adverse economic downfall and circumstances beyond their control'. The petitioners, thereforee, also seek exemption from prosecution for defaults regarding non -payment of income -tax (tax deducted at source) in respect of the head office as mentioned in the paragraph. Then the petitioners add that the recession is now lifting gradually and conditions in the industry are improving. This is apart from the fact that the company is trying to persuade the Government to implement the scheme (International Price Reimbursement Scheme) retrospectively from 9th February, 1981, and that in case it is done, the company will be having funds to meet all its liabilities immediately thereafter. Then the petitioners make the following statement in paragraph 16 :