HARESHCHANDRA MAGANLAL Vs. UNION OF INDIA

JUDGEMENT

(1.) PETITIONERS Nos. 1 to 3 are directors of Raghuvanshi Mills Limited, being a company incorporated and registered under the Companies Act, 1956, while petitioner No. 4 is Manager of the company. The company had engaged several workman in running of the Mills. Under provision of section 40 of the Employees State Insurance Act, 1948, the Company is required to pay in respect of every employee both employers contribution and employees contribution. The employees contribution is paid after deducting the amount from the wages payable to the employees. The company is also required to pay a Deposit linked Insurance Fund in accordance with section 60 of Employees Provident Funds and Miscellaneous Provisions Act, 1952. The company failed to pay its dues both under the Provident Funds Act and Employees State Insurance Act. Respondent No. 2-Regional Provident Fund Commissioner, thereupon issued several show-cause notices to the petitioners to show cause as to why action should not be taken for having committed offence under section 14 (1a) and 14 (2) by contravening provisions of the Provident Funds Act. Respondent No. 4-Regional Director, Employee State Insurance Corporation, also issued notice to show cause why proceedings under section 85 of the Insurance Act should not be adopted for failing to pay contribution. In pursuance of the notices respondent No. 3- Provident Fund Inspector, filed prosecutions against the petitioners for having committed default and the said prosecutions are pending in the Court of Metropolitan Magistrate. Prosecutions were also launched by respondent No. 5 in respect of violation of provisions of Employees State Insurance Act. Respondent Nos. 2 and 4 also passed orders determining the amount due from the company in respect of the contribution to be made under Provident Fund and Insurance Act.

(2.) THE present petition was filed on April 3, 1989 under section 633 (2) of the Companies Act, 1956 claiming that the petitioners should be relieved in respect of criminal and civil liabilities. The petitioners claimed that there is a reasonable apprehension that more prosecutions would be launched against the petitioners and the civil liability to pay the amount would be enforced by concerned officers. The petitioners claimed that default in making contribution or payment is not mala fide but the petitioners have acted honestly and reasonably and the default had occured for reasons beyond their control and therefore they should be excused. The petitioners claimed that the company is facing serious financial difficulties since the year 1982-83 and a reference is made under the Sick Industrial Companies (Special Provision) Act, 1985 for being declared as "a sick company". The petitioners further claimed that the Board for Industrial and Financial Reconstruction has appointed Industrial Development Bank of India as the Operating Agency for rehabilitation of the company. The default, claim the petitioners, is because of the financial difficulties which are beyond their control.

(3.) THE respondents raised a preliminary objection to the maintainability of the petition claiming that the petitioners cannot be relieved from criminal prosecutions and civil liabilities in exercise of powers under sub-section (2) of section 633 of Companies Act in respect of breaches or violations arising under the statutes other than the Companies Act. It is claimed that powers of jurisdiction of High Court under sub-section (2) of section 633 is restricted only in respect of criminal and civil proceedings which are likely to be instituted in respect of any default prescribed under the Companies Act. The preliminary objection raised on behalf of the respondents is correct and deserves acceptance.