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In the matter of Matter No. 15 of 1957, decided on 10th January 1958.

‑High Court not competent to relieve company of liability already incurred and for which criminal proceeding has already been commenced --Only Court competent to grant relief is the Court hearing the criminal case‑Person seeking relief should disclose all facts before High Court.

Subsection (2) of section 281 of .the Companies Act is attracted only up to the stage where no, proceeding has yet been commenced and the person who has committed the default or is liable for the negligence may come: .up to the High Court for relief from such liability in anticipation thereof but once the proceeding has been commenced, then according to the provisions of subsec tion (1) of section 281, the only Court that has the power to so relieve the defaulting person from such liability is the Court hearing the case.

The provisions of section 281 have been interpreted to relieve companies of their negligence, carelessness or lack of caution provided the same were not committed with any improper motive or fraudulent intention but were due to honest misapprehensions of fact or ignorance in fact of the law or of the correct state of affairs. But in each case the party seeking to be so relieved must make the fullest and most candid disclosure before the High Court and in such an application a mere statement that the omission was accidental or inadvertent; without giving with sufficient particularity the reasons for the breach of the statutory duty imposed by the Act will not be sufficient.

In re' Gilt Edge Safety Glass, Limited L R (1940) 1 Ch. D 495 fol.

M. Hakim with Serajul Huq for Petitioner.

This is an application made by Messrs Elahee Bakhsh & Co, Ltd., a Company under the Companies Act, having its registered office at 126, Sadarghat Road, Chittagong, East Pakistan, for extension of time for filing the return of allotments in respect of certain allotments of shares made by the said Company on the 7th of March 1953.

This Company is a private limited Company and its share holders are the members of the same family. It was incorporated on the 23rd of July 1951, with an authorised capital of Rs. 10 lacs divided into 2,000 ordinary shares of Rs. 500 each with the object mainly of acquiring and taking over the running business of the family which was a partnership concern run under the name and style of Elahee Buksh & Co. The partners of the said firm in July 1951, were five in number and they became the first directors of the Company when the Company on the Ist of August 1951, took over the assets of the said firm. 0On that day, out of the authorised capital of 10 lacs, shares to the extent of one lac were allotted for cash and other than cash and, for the balance, an application for sanction for allotment was made to the Controller of Capital Issues on the 7th of March 1952. During the pendency of the application before the Controller, the then Managing Director of the Company, one Haji Rashid Ahmed, suddenly died on the 2nd of December 1952. Thereafter the affairs of the Company were in some sort of disorder for about a year when his son, the present Managing Director, Muhammad Shabbir Ahmed, was appointed the Managing Director in the place and stead of the said Haji Rashid Ahmed.

In the meantime, however, the Controller of Capital Issues granted the necessary sanction on the 24th of December 1952, for the allotment of shares worth 9 lacs for consideration other than cash, which meant really the assets of the partnership firm. In pursuance of this sanction, the shares were allotted on the 7th of March 1953, to all the share‑holders of the Company except to deceased Haji Rashid Ahmed.

The present Managing Director states that thereafter in the 1st week of April 1953, he duly directed his Chief Accountant, one M. A. Bary, to file the allotment return with the Registrar immediately but as the Chief Accountant was indisposed for some time, nothing could be done until the early part of June 1953, when, it is alleged, some allotment returns were filed by the said Accountant with the Registrar of Joint Stock Companies. But unfortunately, due to oversight, the allotment returns in respect of the allotment made in March 1953, were not included in the said return. Then the Managing Director states that he again enquired from the said Accountant if he had filed the returns as directed by him earlier and he was informed that the same had been done. In these circumstances, the Managing Director was genuinely under the belief and impression that his directions had been complied with and the returns had been filed. But to his dismay, in the last week of November 1953, while going through the old papers of this Company, he discovered that the allotment returns in respect of the same had not been filed at all. He took his Accountant to task but was told that the Accountant was under some mistaken belief that these returns need not be filed. He however, took steps for having the same filed and ultimately on the 27th of November 1954, the same were filed with the Registrar of Joint Stock Companies together with the usual fees for the said purpose.

It was in this state of affairs that in January 1957, to his utter surprise, he found that a summons had been issued by the Court of the Sub‑divisional Officer, North Chittagong, summoning him and the other Directors of the Company to appear before him and answer for the violation of the provisions of section 104 of the Companies Act. Then, on making enquiries, he came to know that on the 4th of December 1954, the Registrar had duly called upon them to move this Court and obtain an extension of time for the filing of the said allotment returns. The said letter, however, it is stated, is not to be found in the records of the Company and it never reached the petitioner. In these circums tances, it is now prayed that time may be extended, as the failure to comply with the provisions of section 104 was purely accidental and inadvertent and due to a mistake of the Chief Accountant, and it is further said that it will be just and expedient to grant such extension, particularly, as no one would be pre judiced thereby, as there is no liquidation proceeding pending against the Company.

The statements in this petition are also supported by an affidavit filed by the said M. A. Bary himself, affirmed at Chittagong on the 17th of July 1957. In this also it is reiterated that he did in June 1953, file some papers with the Registrar of Joint Stock Companies but, due to oversight and mistake, did not file the allotment returns in question and that it was in November 1953, that the Managing Director, while going through the old papers, discovered this mistake and took him to task. He also corroborates the statement of the Managing Director that it was in April 1953, that he first directed him to file the required allotments.

It must, however, be pointed out that there is some un fortunate error in the petition itself because according to the annexure to the said petition, no returns appear to have been filed in June 1953, at all but annexure B' to the petition discloses that some allotment returns were filed on the 27th of November 1954, and the receipts annexed in annexure C' show that the High Court's order and an affidavit were filed on the 8th of June 1954. In these circumstances, it appears that even now both the Managing Director and the Chief Accountant of the Company are under some misapprehension that they filed any returns in 1953, as mentioned by them in their present petition and affidavit filed in support thereof. Evidently nothing was done in 1953 and no explanation is forthcoming with regard thereto. The receipts annexed to the affidavit show that perhaps some proceeding was instituted in this Court and the order of this Court was filed with the Registrar in June 1954.

Again, if the statement of the Managing Director is correct that he discovered the omission in 1953, he does hot give any explanation as to why even then no return was filed until the 27th of November 1954. It is clear, therefore, that on the showing of the Company itself, there has been gross negligence on the part of both the Managing Director and the Chief Accountant. It is true that in the petition it is stated that these people are not fully acquainted with the relevant law and rules but even this does not appear to‑ me very convincing, because, the Managing Director himself says that in April 1953, i.e., within a month of the allotment of the shares in March 1953, he asked his Chief Accountant to file the allotment returns with the Registrar immediately. Now, under section 104 of the Companies Act, the return is required to be filed within one month of the allotment. This clearly indicates that the Managing Director, at any rate, knew of the provisions of section 104 of the Companies Act and it was because of this that he directed his Chief Accountant in April 1953, to file the necessary returns with the Registrar of Joint Stock Companies of Chittagong. There is, however, this to be said that after he had given directions he was perhaps, genuinely under the impression that his directions had been complied with by the Chief Accountant who now admits that he did not comply with them due to some mistaken belief that these particular returns need not be filed.

This application was admitted as long ago as the 29th of June 1957, and directions were given to serve a copy thereof on the Registrar of Joint Stock Companies as also to cause notices of the moving of this application to be advertised in various news papers. These directions of the Court have been duly complied with but the Registrar of Joint Stock Companies has not come forward to oppose this application. I have no reason, therefore, to doubt the statement of the Managing Director that he was under the mistaken belief that his Accountant had complied with his directions given in April 1953, and that the letter supposed to have been written by the Registrar on the 4th of December 1954, never reached him. Had it done so, he would have moved this Court much earlier.

Be that as it may, it is now apparent that proceedings under subsection (3) of section 104 of the Companies Act have already been started against this Company in respect of the violation committed by it. In these circumstances the question, arises that even if I held that this was a fit case in which I should extend the time for filing the allotment returns and even if I am satisfied that the delay was purely accidental or due to inadvertence, can I do so in such a manner as to relieve the Company of the liability already incurred by it, and for which a criminal proceeding has already been started. Power has been given to the Court hearing "the case" in respect of a proceeding for negligence, default, breach of duty or breach of trust against a person to whom the provisions of the Companies Act apply such as Directors of the Company, etc., to excuse such person if it is satisfied that in respect of the negligence, default, breach of duty or breach of trust, that person acted honestly and reasonably and he ought fairly to be excused. This is provided in section 281 of the Companies Act. Subsection (2) thereof also gives the person power to apply to the Court' for relief even when he has reason to apprehend that any claim will or might be made against him in respect of any such negligence, default or breach of duty or breach of trust. Now the Court in this subsection may be the Court having jurisdiction to wind up the Company, namely the High Court, but it appears to me that subsection (2) of section 281 is attracted only upto the stage where no proceeding has yet been commenced and the person who has committed the default or is liable for the negligence may come up to this Court for relief for such liability in anticipation thereof but once the proceeding has been, commenced, then according to the provisions of subsection (1) of the said section 281, the only Court that has the power to so relieve the defaulting person from such liability is the Court hearing the case. In the present case, as I have already pointed out, the proceedings have already been commenced in the Court of the Sub‑divisional Officer, North Chittagong, and, therefore, in respect of those proceedings the only Court which will, according to me, have jurisdiction to relieve the defaulting person of that liability is that Court and that Court alone.

In taking this view, I also find support from a decision in the case of In re Gilt Edge Safety Glass, Limited (L R (1940) 1 Ch. D 495). In that case, certain persons who had not the qualification to act as directors of the Company had acted as such directors and, therefore, rendered themselves liable to pay the penalty imposed by the Companies Act. A proceeding was commenced against such defaulting directors on the 6th of October 1939, when summonses were served calling upon them to appear before the Court of summary jurisdiction at Bow Street on the 16th of October 1939, to answer information that they had on the 29th of June 1939, unlawfully acted as directors of the company after the expiration of two months from the date of their appointments, contrary to the provisions of section 141 of the English Companies Act of 1929. It further appears that the Metropolitan Magistrate had then adjourned the case to enable the directors to apply to the High Court of Justice for relief under the provisions of section 372 of the said English Companies Act 1929. The provisions of the said section 372 of the English Companies Act 1929 are substantially the same as the provisions of our section 281. In that case, Crossman, J., took the same view that after the proceedings had been commenced in the Court of the Magistrate, the only Court that had the jurisdiction under subsection (2) of the said section 372, which is the same as subsection (1) of section 281 of our Companies Act, was the Court which hears the case in respect of the proceedings already commenced before it arid that sub section (2) of the said section 372, which is again similar to our subsection (2), was introduced in the Act to meet those cases when proceedings have not been commenced but which will or may be commenced, and in those cases only gives the High Court jurisdiction to grant relief from prospective liability. In these circumstances, Crossman, J., while on the merits, took the view that the directors in that case had acted honestly and reasonably and ought fairly to be excused from all prospective liability in respect of their conduct, but nevertheless in the order that he made he clarified that this shall not in any way relieve the petitioner before him in respect of any order which may be obtained in the proceedings pending before the Magistrate or from any liability which he may have incurred for acts done as a Director, Chairman and Managing Director for which he would have been liable even if he had been fully qualified. It is clear, therefore, that in the present case, too, if I am satisfied that the delay in (he filing of the return was purely accidental and inadvertent and it is just and equitable to grant relief, I can do so only with a similar reservation.

Now in the matter of The Chittagong Landing and Shipping Co. Ltd., decided by me on the 24th of February 1956, I have already fully discussed the relevant law and indicated the cir cumstances in which this Court will exercise the jurisdiction given to it to extend the time. It seems that the provisions of this section have been interpreted to relieve companies of their negligence, carelessness or lack of caution provided the same were not committed with any improper motive or fraudulent intention but were due to honest misapprehensions of fact or ignorance in fact of the law or of the correct state of affairs. But in each case the party seeking to be so relieved must make the fullest and B most candid disclosure before this Court and in such an appli cation a mere statement that the omission was accidental or inadvertent, without giving with sufficient particularity the reasons for the breach of the statutory duty imposed by the Act, will no be sufficient. I have given a warning also in the said decision that unless applications made in future comply with the directions there given, parties will find themselves in difficulty in getting extentions of time from this Court.

Keeping these principles in view, I have carefully considered the facts disclosed in the petition and the supporting affidavit before me. Whilst it cannot be said that the fullest disclosure has been made in the present case, particularly with regard to the period from April 1953 to November 1954, when the returns were in fact filed, yet, there is nothing to indicate that the Company or the Managing Director or other Directors of the Company did so with any base or improper motive. It is patent that no one was affected by reason of the non‑filing of the said return. It may well be that the Managing Director took it for granted that his directions had been complied with by his Chief Accountant and allowed the matter to rest at that until he discovered the returns still lying in his office file. Even so, he was again negligent in not insisting upon the same being filed immediately but allowed the matter to drift for another whole year until November 1954. There is no explanation as to why this delay occurred. But this again is purely negligence, I may even call it gross negligence on the part of the Managing Director and those vested with the management of the Company. But even so, I am not in a position to say that this was done with any dishonest or improper motive.

In the result, I have come to the conclusion that although the Managing Director of the Company and the Chief Accountant of the Company were grossly negligent and were not properly looking after the affairs of the Company, the non‑filing of the returns at least till November 1953, was .accidental and purely inadvertent due to the mistaken belief on the part of the Managing Director that the same had in fact been filed and due to the erroneous belief on the part of the Chief Accountant that those returns need not be filed and thereafter it was sheer negligence on their part. I think, therefore, that this case is just a case on the border line in which I may fairly exercise my discretion under the proviso to subsection (3) of section 104 and relieve the Directors of the Company of their negligence. I, therefore, grant the extension of time prayed for and permit the filing of the returns but subject to the same limitations as were imposed by Crossman, J., in the case of In re : Gilt Edge Safety Glass, Limited, namely, that nothing in this order contained shall relieve the petitioner in .respect of any order which may be made, or obtained in the proceeding now pending in the Court of the Sub‑divisional Officer, North, V Chittagong.

That there has been gross negligence in the present case is clear and, as such, I feel that those responsible for such negligence ought, to be penalised in some way or other. Normally it has been my practice in a case where I find that there has been some negligence not to make any such order extending time except upon certain terms and conditions, namely, that the defaulting party should make some contribution to some charity. In the present case, however, I am informed by the learned Counsel appearing on behalf of this Company that it has made a very handsome contribution to a laudable object, namely, the prevention of blindness in this country. I, therefore, impose no further condition in the present case. The time for filing the allotment is extended upto a period of two weeks from the date of the drawing up of this order subject to the reservation above made.

The costs of this application will, however, in no event come out of the assets'of the Company but out of the salary of the Chief Accountant, M. A. Bary, for it is clearly his default in not complying with the directions of the Managing Director in April 1953, which has necessitated all these proceedings.

Z. A. S.

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