Section 633, Cos Act: Judiciary Limiting Its Scope?

Judiciary restricting the immunity granted by the legislature to officers of a company?

By: Prateek Bhandari, NUJS

Such are the rigours of the Companies Act and other acts that it is said that every officer of a company starts his day as a potential criminal. From compulsory audits to the requirements of a public issue, these procedures stifle entrepreneurship in a way that the very benefits of a separate legal personality of a company appear fruitless. Thus, the legislature found it necessity to protect the officers of the company from the rigours of the law when their act is honest and reasonable.  This was embodied in Section 633 of the Companies Act, 1956.

Section 633(1) reads as:

If in any proceeding for negligence, default, breach of duty, misfeasance or breach of trust against an officer of a company it appears to the court hearing the case that he is or may be liable in respect of the negligence, default, breach of duty, misfeasance or breach of trust, but that he has acted honestly and reasonably, and that having regard to all the circumstances of the case including those connected with is appointment, he ought fairly to be excused, the Court may relieve him, either wholly or partly from his liability on such terms as it may think fit.

In a nutshell this section provides that the Court mat relieve any officer of the company from liability with regard to any proceedings against such officer of the company for negligence, default, breach of duty, misfeasance or breach of trust provided he has acted honestly and reasonably.

Considerable controversy has taken place on the scope of section 633 and the crucial question around which the controversy centres is: can the section 633 remedy be resorted to in claiming a relief from penal liability for offences under any statute other than those under the Companies Act? This question has been debated several times and there are conflicting decisions of different High Courts on it.

The cause of controversy revolved around the expression "any proceedings" occurring in sub-sections (1) and (2) of the section which has given rise to a plausible argument that the relief under section 633 can be claimed by directors and officers of a company against any proceedings