R K MAHAPATRA Vs. SECRETARY TO GOVERNMENT

JUDGEMENT

(1.) This is a petition filed by the managing director and former directors of Mishra Dhatu Nigam Limited (a Government of India undertaking) under section 633(2) of the Companies Act, 1956 (for short, "the Act"), for relieving them from liability, if any, on the ground that they have acted honestly and reasonably in depositing the surplus funds of the company in SBI Capital Markets Ltd., and in ANZ Grindlays Bank. In the petition they state that the Registrar of Companies issued a show-cause notice to the company on 3/05/1995, under sections 49, 211, 292, 292(1)(d) and 292(3) of the Companies Act, 1956, alleging that the meeting of the board of directors held on 20/07/1989, authorised the managing director to deal with the surplus funds without specifying the total amount up to which they can be invested and the nature of investments, thus violating section 292(3). It is also alleged that they contravened section 292(1)(d) in making investments in non-banking institutions like SBI Capital Markets Ltd., amounting to Rs. 735 lakhs and Rs. 1,965 lakhs in the years 1990-91 and 1991-92 respectively and Rs. 310.55 lakhs with ANZ Grindlays Bank, a foreign bank, as against the authorisation of the board of directors for deploying the funds in short term deposits in public sector undertakings and financial institutions, and these being investments ought to have been disclosed under the heading "investment" instead of "inter-corporate loans and advances" in the balance-sheets, thus violating section 211 of the Act. There is also an allegation that the alleged investments which are in the nature of portfolio management scheme were not kept in the name of the company and physical delivery of documents was not taken in contravention of section 49(9). Yet another charge is that the investment in portfolio management scheme was not entered in the prescribed register violating section 49(7) and also that the company has violated section 292 in investing the surplus funds without the approval of the President of India as required under articles 85(XII) of the articles.

(2.) The company gave a reply on 29/05/1995, stating that funds were deposited as short-term deposits for reasonable interest and they cannot be construed as investments requiring the approval of the President of India, that the deposits were authorised by resolution of the board of directors on 20/07/1989, that there was no portfolio management scheme requiring disclosure in the balance-sheets wherein they were shown under the head "Loans and advances", that the balance-sheets were prepared following the normal accounting procedure and the same were audited by statutory auditors and certified by the Comptroller and Auditor-General under section section 619(2) of the Companies Act, 1956, and that they never pointed out any objection regarding this method of exhibition. The petitioners apprehend that the Registrar may launch prosecution under various provisions of the Act and accordingly seek relief under section 633(2) on the ground that they acted honestly, reasonably and in the interest of the company and that no loss has been incurred by the company nor any personal gain accrued to the petitioners as a result of these transactions.

(3.) Notice before admission was issued and pending admission, stay of prosecution of the petitioners was granted in C.A. No. 170 of 1995, dated 7/09/1995, initially till 22/09/1995, and was later extended till further orders. It may be noticed here that after filing of this petition, the Registrar of Companies has launched prosecution against the company in S.T.C. Nos. 11 to 14 of 1995, for offences under sections 49(1)(a), 292, 292(1)(d) and 292(3) of the Companies Act, 1956, and in view of the stay order, the directors were not impleaded as accused in those cases.