Sections 209 and 209A
BOOKS
OF ACCOUNT
[1984] 55 COMP. CAS. 734 (BOM.)
v.
Amtee Properties (P.) Ltd.
SUJATA V. MANOHAR J.
Company Application No. 11 of
1982,
JUNE 24, 1982
J.B. Chinoi with Y.S. Mithi for the applicants.
S.H. Doctor for the respondents.
Sujata
V. Manohar J.—In this company application, the applicants, who are respondents
Nos. 2 to 8 in Company Petition No. 714 of 1981, have asked for inspection of
the entire records of the company as per prayer (a) of the judge's summons.
The company petition is filed by three petitioners
under sections 397 and 398 of the Companies Act. Admittedly, petitioner No. 2
was in charge of the management of the company from 1967 to July, 1981. The
second petitioner has also challenged his removal as managing director of the
company from July, 1981. The entire records of the company is admittedly in the
possession of the petitioners. The petitioners hold 1/6th of the issued' shares
of the company. Respondents Nos. 2 to 8 hold 2/3rds of the issued shares of the
company. The business of the company consists of management and dealing in
certain immovable properties in Bombay.
The
petitioners have challenged the right of respondents Nos. 2 to 8 to obtain
inspection of the entire records of the company and have submitted that this is
merely an attempt on their part to delay the hearing of the Company Petition
No. 714 of 1981.
The
second respondent is admittedly a director of the company. The application for
inspection of the entire records of the company is pressed both on behalf of
the company and on behalf of the second respondent along with others. Under s.
209 of the Companies Act, a director of the company is entitled to inspect the
books of account of the company and other books and papers referred to in that
section. In the case of N.V. Vakharia v.
Supreme General Film Exchange Co. Ltd.
[1948] 18 Comp Cas 34 (Bom); [1948] 50 Bom LR 140, our High Court has held
that a director is entitled to exercise his right to take inspection of the
company's account and other books and papers of the company through an agent,
provided the agent gives an undertaking that he will disclose the information
so obtained to his principal only. In view of this position in law the second
respondent is entitled to take inspection of the books of account and other books and papers of the company either personally or
through his agent. Mr. Chinoi who appears for the second respondent states that
the second respondent will take such inspection along with his chartered
accountant and his advocate on record. Accordingly the following order is
passed.
The petitioners to give to
respondent No. 2 and/or his chartered accountant and/or his advocate,
inspection of the entire records of the company for the last 8 years. Chartered
accountant and/or advocate so taking inspection will give an undertaking to
this court not to disclose the information so gathered by him to any person
other than respondent No. 2. The petitioners are directed further to give
inspection of all the documents referred to and relied upon by them in their
company petition to respondents Nos. 2 to 8.
The inspection will be
given from day to day forthwith. Respondents Nos. 2 to 8 to file their
affidavit in reply in Company Petition No. 714 of 1981, within 6 weeks from
today. No further adjournments will be granted for this purpose. This time is
given on the assumption that inspection will be offered by the petitioners from
day to day as provided hereinabove. Respondents Nos. 2 to 8 are, however,
required to file their affidavit within 6 weeks irrespective of their
completing inspection or otherwise. This, of course is, provided inspection has
been offered by the petitioners from day to day.
Costs of the company petition will be costs in the cause. Respondents Nos. 2 to 8 to give a copy of their affidavit in reply to the petitioners on or before August 9, 1982, and the petition to be on board for hearing on 11th August, 1982.
[1948] 18 COMP.
CAS. 34 (BOM.)
HIGH COURT OF BOMBAY
v.
The Supreme General Film Exchange Co., Ltd.
TENDOLKAR, J.
MARCH 18, 1947
H.D. Banaji, for the Plaintiff.
M.P.
Laud, for the Defendants.
Tendolkar, J.—This is a suit filed by the plaintiff for a declaration
that he is entitled to take inspection of the books of account and other papers
of the first defendant company through Mr. U.S. Kaushik or some other skilled
agent appointed by him. The plaintiff is a director of the first defendant
company and defendants Nos. 2, 3 and 4 are his co-directors. The plaintiff gave
a power-of-attorney to one Mr. Kaushik, an accountant, to attend at the
registered office of the first defendant company and take inspection of the
books of account and other documents of the company. The plaintiff by his
letter dated 16th December, 1945, informed the company that he had given such a
power to Mr. Kaushik and sent a copy thereof to the company with a request that
the said Mr. Kaushik should be allowed to take inspection. Mr. Kaushik attended
at the office of the company on 27th December, 1945, and applied for
inspection; but defendant No. 2 declined to give inspection stating that the
plaintiff could take inspection only personally. The company by their
attorney's letter dated 2nd January, 1946, addressed to Mr. Kaushik informed
him that he was not entitled to take inspection and that only a director was
entitled to such inspection and not his constituted attorney. By his attorney's
reply dated 5th January. 1946, Mr. Kaushik pointed out that that was not the
correct position in law and further gave an assurance to the company that the
information which he would gather on such inspection would not be disclosed by
him to any one other than the plaintiff. He therefore requested the company to
reconsider the position. A reminder was sent on 12th January, 1946, and by
their letter, dated 14th January, 1946, the company stated that they had
nothing to add to
their earlier letter. It. is under these circumstances that the present suit is
filed with the sole object of enforcing the plaintiff's right to inspection
through a constituted attorney.
Mr.
Banaji for the plaintiff has relied upon the provisions of Section 130 of the
Indian Companies Act for the purpose of establishing his right to inspection of
the books of account; and he has not pressed his client's rights to inspection
of other papers and documents of the company. 1 shall therefore proceed to deal
with this suit on the basic of a suit merely for a declaration that the
plaintiff is entitled to inspection of the books of account through a skilled
agent.
Section
130 (2) of the Indian Companies Act is in these terms:—
"The
books of account shall be kept at the registered office of the company or such
other place as the directors think fit, and shall be open to inspection by the
directors during the business hours."
It
is dear then, fore that every director has a right to inspect the books. The only
question that I have been called upon to determine is whether this right must
be exercised by a director personally or whether he can appoint an agent to
take inspection on his behalf. So far as I am aware the point has not been
decided either in England or in India with regard to the right of a director to
take inspection. Of course the point has been decided in relation to the law of
partnership where a partner has a similar right of inspection of the books of
account of his firm. The leading case on the subject is the decision of the
Court of Appeal in the case of Bevan v.
Webb. In that case the articles of the
partnership inter alia contained
a provision that each of the partners should have free access to and liberty to
examine and copy or take extracts from any of the books and writing of the
partnership at all reasonable times. Apart from such articles partner was under
Section 24(9) of the Partnership Act entitled to take inspection of the books
of account. The question arose whether this right of inspection must be
exercised by the partner personally or whether it could be exercised by him
through an agent. The Court of Appeal held that the right could be exercised by
him through an agent, provided there was no reasonable objection to the person
appointed as agent and the agent undertook not to make use of the information
which he should thus acquire except for the purposes of confidentially advising
his principal. In considering whether the right of inspection conferred on the
partner was an individual right or could be exercised through an agent Lord
justice Collins observed as follows:—"If the object is to enable him
effectually to make use of the right secured to him, and if that effectual user
involves his using some means to that end—for instance, if he is a near sighted
man, the use of spectacles, or if he cannot see at all and he must make use of
another's eyes instead of his own, or if being empowered to take copies of
documents he cannot write, having lost his hands, and must use the hands of
some one else—I should say that prima
facie the permission to do a thing carries with it the right to use the
instrument necessary to prevent that right so conferred from being rendered
ineffective, unless there is anything in the nature of the right or in the
relations of the parties from which we are bound to infer that the right must
be in some way limited." Then his Lordship proceeded to point
out:—"…..there is no suggestion of any personal objection to the gentleman
named by the plaintiffs to make the inspection on their behalf, and the Court
would, of course, be prepared to impose a fetter upon the user by him of the
information which he may acquire in that way." Of course this decision of
the Court of Appeal has been followed in subsequent decisions and is still good
law with regard to the rights of a partner.
In
the case of Norey v. Keep this decision was followed and
applied to the case of a trade union where the rules of the registered union
provided that its books of accounts and list of members should be open to
inspection to all members. Parker, j., in delivering judgment referred to the
case of Bevav v. Webb, and observed as follows:—
"The
question raised was whether the right was a personal one, or whether it could be
exercised on behalf of a partner by an agent appointed by him for the purpose,
and it was held that the right was one which might be exercised not only
personally, but by an agent under
proper conditions." The learned Judge proceeded to point out that if
he were to hold that the right of inspection was only a personal right he would
be defeating the object with which the right was given. Mr. Laud has picked out
the words "under proper conditions" from this judgment and wants me
to hold that no inspection by an agent can be allowed when the principal is
capable of taking effective inspection himself; and it is only when the
principal is either physically unfit or intellectually not qualified to take
effective inspection that inspection may be allowed by an agent. I am not
prepared to put that interpretation on the passage which I have quo fed above
from the judgment of Mr. Justice Parker. The learned Judge was there dealing
with the test laid down in the case of Bevan
v. Webb and the only qualifications laid
down in that case were the two which I have set out above. That was the view
taken by the Appeal Court in Dodd v.
Amalgamated Marine Workers' Union. This was a case under the Trade Unions Act where a member sought to employ an
accountant to execrcise the statutory right to inspect the accounts of the
Union. Warrington, L.J., referred to the words "under proper conditions"
in the judgment of Mr, Justice Parker in Norey
v. Keep and stated:
"……. those
conditions…… are that the agent should not be objectionable to the Union on
personal grounds, and that he should give an undertaking not to disclose the
information obtained accept to his client." I do not think, therefore,
that the argument, that a person can exercise his right of inspection through
his agent only if he is unable effectively to take inspection has any substance
in it. Of course, it may be that in a proper case it is open to the party
opposing inspection to show that the person seeking inspection is guided by
improper motives, and if he succeeded in doing so the Court may refuse inspection
through an agent. The principles that apply to the right of inspection of a
partner are to my mind equally applicable to the right of inspection conferred
on a director under Section 130 (2) of the Indian Companies Act. Steeble in his
Company Law and Precedents, 3rd edn., Volume II, at p, 909, states, "a
person entitled to inspect is prima
facie entitled to employ an agent or expert to inspect at his
instance." The authorities relied upon for this proposition are the cases
of Bevan v. Webb, Norey v. Keep and Dodd v. Amalgamated
Marine Workers' Union, which I have referred to earlier. I
think the ratio of these cases is equally applicable to the right of a director
to inspect accounts, and I, therefore, hold that under Section 130 a director
is entitled to take inspection of accounts not only personally but through an
agent, provided there is no reasonable objection to the person chosen as agent
and the agent undertakes not to utilise the information obtained by him for any
purpose other than the purpose of his principal. In this case it has not been
suggested in correspondence that there is any objection to the individual
chosen as agent: and as I have pointed out above the agent so chosen did by his
attorney's letter, dated 5th January, 1946, give an assurance that he would not
use the information obtained by him or disclose it to any one other than his
principal.
But
it is further contended by Mr. Land that even if that may be the correct
position under Section 130 of the Indian Companies Act, under the articles of
this company there is a specific provision that inspection shall not be taken
by a director by employing an agent. He relies on clause 6 of the articles of
association of the company, the material portion of which runs as
follows:—"No shareholder or other person shall be entitled…..to inspect…….. the books of account of the company without the
permission of the directors of the company." The director's right of
inspection which is statutory is referred to in clause 139 of the articles of
association which provides:—"The books of account shall be kept at the
office of the company or at such other place as the directors determine and
shall always be open to inspection of the directors." Now, I cannot read
clause 6 of the articles of association as relating to the right of a director
to take inspection at all, because such right being a statutory right cannot be
subject to any permission of the directors of the company Clause 6 of the
articles has therefore no relevance to the case before me. It is not Mr.
Kaushik who is seeking the right of inspection before me. It is a director of
the company. Quite obviously, therefore, clause 6 has no application whatever
to the case. But assuming that article 6 of the articles of association was
intended to prevent a director from taking inspection through an agent, I would
have no hesitation in holding that it was ultra vires of the company because the company would then be
restricting a statutory right conferred upon a director by Section 130 of the
Act and that right is not subject to the articles of the company unlike the
right of a partner to take inspection which is subject to the contract between
the partners under Section 12 of the Partnership Act. Therefore, in any event,
the plaintiff's right to obtain inspection through an agent is entirely
unaffected by the articles of the company. It was sought to be urged before me
that the application for inspection through an agent is mala fide in this case. As I have stated above were I satisfied
that the plaintiff desires inspection for some improper motive may have been
inclined not to grant him such inspection, but there is no averment in the
written statement that the plaintiff is actuated by improper motives; and I
cannot allow such an allegation to be made at the hearing. That being so, I am of
the opinion that the plaintiff is entitled to the relief he claims.
There will be accordingly a
declaration in terms of prayers (a)
and (b) of the plaint but
restricted to the books of account only and subject further to the qualification
that there is no reasonable objection to the person chosen as the agent.
Defendants to pay the costs of the plaintiff. Mr. Laud applies that the costs
should be quantified. As I consider the conduct of the defendants wholly
unjustified I reject the application.
[1985] 58 Comp. Cas. 805 (Raj.)
High Court OF Rajasthan
v.
Lake Palace Hotels And Motels P.
Ltd.
M.C. Jain, J.
July 20, 1983
A.K. mathur for the Petitioner.
L.R. Mehta and N.N. Mathur for
the Respondent.
M.C. Jain, J.—The petitioner has moved this petition for seeking
direction under s. 163 read with s. 209(4) of the Companies Act, 1956
(hereinafter referred to as "the Act"), for allowing immediate
inspection of the records specified in those provisions. The petitioner is an
existing director and a shareholder of the Lake Palace Hotels and Motels Pvt.
Ltd. and in his capacity as such has sought this direction. This court issued
notices to the respondents. The. respondents have appeared before this court,
but have not submitted any reply to the petition and the learned counsel for
the respondents have raised certain contentions before me with regard to the
maintainability of the petition.
Mr. L.R. Mehta, learned
counsel for respondents Nos. 1 and 2, and Mr. N.N. Mathur, learned counsel for
respondent No. 3, have submitted that for seeking any relief under s. 163 as
well as under s. 209(4) of the Act, this court has no jurisdiction to entertain
this petition. Reference has been made to the notification issued under sub-s.
(2) of s. 10 of the Act. Section 10 of the Act provides for jurisdiction of the
courts to entertain petitions and sub-s. (2) empowers the Central Government to
confer any powers on any District Court to exercise all or any of the
jurisdiction conferred by the Act upon the High Court. The Central Government
has issued Notification G.S.R. 663 dated May 29, 1959, in which the
jurisdiction for entertaining a petition for inspection under s. 163 of the Act
has been conferred on the District Courts. The Notification under s. 10 does
not cover s. 209 of the Act. Under sub-s. (1) of s. 10, general jurisdiction
under the Act has been conferred on the High Court. Clause (a) of sub-s. (1) of
s. 10 provides that the High Court shall have jurisdiction, except to the
extent to which jurisdiction has been conferred on any District Court or
District Courts subordinate to that High Court in pursuance of sub-s. (2).
Admittedly, there is no notification issued by the Central Government
conferring any power on the District Court with regard to seeking any relief
under s. 209(4) of the Act. It would be an independent question to examine as
to whether the right under s. 209(4) of the Act is an enforceable right. So far
as the question of jurisdiction is concerned, all matters arising under the Act
can be heard by this court, which are not covered under the notification issued
under sub-s. (2) of s. 10 of the Act by the Central Government. Thus, in my opinion,
in the light of the notification, this court has no jurisdiction to entertain
the petition under s. 163 of the Act, but if any petition lies under s. 209 of
the Act, such an application would lie only to this court.
Now, it remains to be
examined whether any application for inspection of the documents specified in
sub-s. (4) of s. 209 of the Act lies or not. Sub-s. (4) of s. 209 of the Act
provides that books of account and other books and papers shall be open to
inspection by any director during business hours. A bare perusal of the
provision shows that it confers a right of inspection on the directors of
all" books of account and other books and papers. The question arises
whether such a right is enforceable by this court. It has been urged before me
by the learned counsel for the respondents that s. 209 does not contain any
provision conferring any power on this court to make any order directing the
company to allow inspection to any director. In the absence of such a provision
under s. 209, the right of inspection is not enforceable. It was pointed out
that the Act embodies several provisions like ss. 144(4), 163, 196, 304 (2) and
(3), 307 (9), where specific provisions have been made conferring a power on
the court to make an order directing inspection of the contemplated documents
in the various provisions. The absence of such a provision under s. 209 should
be taken to mean that the Legislature did not intend to confer any such right
which may be enforceable. It has been pointed out that the breach of sub-s. (4)
of s. 209 has been made punishable under sub-s. (5) by the persons who have
been specified in sub-s. (6). So the only remedy in case sub-s. (4) of s. 209
of the Act is contravened is to launch prosecution of the person who has
contravened the provision of sub-s. (4) of s. 209.
I have Carefully considered
the above submissions. In my opinion, it cannot be conceived that where a
statute confers a right, then the right would remain unenforceable. It is one
thing that penal proceedings may be taken. It is entirely different that
without initiating penal proceedings, the right is sought to be enforced. It is
the look out of the director only to launch the prosecution or to seek
enforcement of his right by initiating the proceedings before the court which
has jurisdiction to entertain such a petition. The general maxim in "ubi jus ibi remedium" (where
there is a right, there is a remedy). Here sub-s. (4) of s. 209 of the Act
confers a statutory right of inspection and the court which has jurisdiction under
the Act, in my opinion, possesses powers to enforce that statutory right. It
has been urged that the Companies (Court) Rules, 1959, do not envisage any such
petition and what petitions lie, are specified. Petitions provided under the
Rules are exhaustive. I am unable to agree with this submission as well. As
already stated, when sub-s. (4) of s. 209 of the Act envisages conferment of
right of inspection on the director, then the director can seek a remedy by
moving a petition to this court. Thus, I hold that the petition is maintainable
under s. 209(4) of the Act and the company is under an obligation to allow
inspection to the petitioner of all the books of account and other books and
papers.
Accordingly, the petition is partly allowed. The petition under s. 163 of the Act is dismissed as not maintainable. However, the petition under s. 209(4) of the Act is allowed and the respondents are directed to allow the petitioner to inspect all books of account and other books and papers during business hours within a week from today.
[1972] 42 COMP. CAS. 596 (MAD)/ [1972] SCL (S). (MAD)
HIGH COURT OF
MADRAS
v.
MAHARAJAN J.
JULY 13, 1972
Criminal Revision Petition No.
1502 of 1970.
K.
Gopalachari for the Petitioner.
P.K.
Gopalakrishnan for the Respondent.
Maharajan ,J.—This revision petition is directed against the judgment of
the Sixth Presidency Magistrate, Saidapet, convicting the petitioner, who is
the secretary of the Mylapore Hindu Permanent Fund Ltd. (hereinafter called
"the Fund"), of the offence under section 209(4)(a) read with section 209(5) and (6)
of the Companies Act, and sentencing him to pay a fine of Rs. 100 and, in
default, to suffer simple imprisonment for one month.
The circumstances leading
to the prosecution of the petitioner are briefly these : The capital of the
Fund as shown by the memorandum and articles of association and bye-laws is one
crore of rupees, and the object of the Fund is to enable persons to save money,
to secure loans at a favourable rate of interest on the security of immovable
property or jewels, etc. The Fund is managed by a board of directors elected by
the shareholders at the annual general meeting. At every annual general
meeting, one-third of the directors have to retire by rotation, and the general
body may fill up the vacancy by appointing the retiring director or some other
person thereto. The 97th annual general meeting of the shareholders of the Fund
was held at Radha Manram, Vepery, Madras, on the 25th April, 1970, at 2 p.m. At
that meeting, the shareholders got up on the dais and snatched the minutes
book. Owing to confusion and pandemonium, the meeting could not be commenced,
whereupon Company Application No. 220 of 1970 was filed on the original side of
the High Court and Mr. S. Venkatachala Sastri, advocate, was appointed on the
7th July, 1970, as chairman to hold and conduct the 97th annual general meeting
of the Fund, to ascertain at the meeting as to the manner in which the election
of the directors should take place and to conduct the election. It was in this
context of excitement that one Shanmugham, the complainant in this case, in his
capacity as one of the directors, sent a communication dated August 25, 1970,
to the secretary (accused) for permission to inspect the office file relating
to the nominations filed by candidates for election to the board of directors.
Under article 138 of the articles of association of the Fund, all
communications to the Fund shall ordinarily be addressed to the secretary and
all correspondence between the Fund and the shareholders and others shall
generally be carried on by the secretary under the orders of the president. The
application of P.W. 1 was consequently placed by the accused before the
president on August 25, 1970, with the following note :
"Sir, Sri T.M. Shanmugham,
director-treasurer, requests inspection of the file relating to nominations for
appointment as directors, at the office today.
His letter is submitted herewith for orders as
to what reply is to be given. Submitted."
On August 27, 1970, the
president passed the following order :
"Consult court chairman."
On August 27, 1970, P.W. 1
wrote another letter to the secretary, complaining that in spite of his
requests, the secretary had not shown the file relating to the nominations and
that he must be allowed to see the same as well as the minutes book of the 97th
annual general meeting. This letter was put up by the secretary to the
president with the following note :
"His letter in No. 12116 of date is
submitted herewith.
In this connection, it is submitted that the
court chairman has directed the office not to furnish copy of the proceedings to
allow inspection of the minute book to anybody as the 97th annual general
meeting is not yet over.
Attempts were also made to seize the minutes
book by some members on April 25, 1970, when the 97th annual general meeting
was scheduled to be held.
Orders are requested as to what precautions are
to be taken to ensure safety of the minutes book, till the 97th annual general
meeting concludes and all the proceedings is drawn, and signed by the chairman.
Submitted for orders."
The president passed the
following orders :
"Secretary to keep the books with lock and
key in safe custody."
It appears that P.W. 1
continued to write to the secretary, repeating his request. On September 13,
1970, the secretary put up the following note to the president.
"Sri T.M. Shanmugam, director-treasurer,
by his letters dated August 21, 1970, August 25, 1970, August 27, 1970, and
September 3, 1970, wanted to inspect the file relating to the nominations filed
for appointment as directors at the 97th annual general meeting. By his letter
dated September 7, 1970, he has given notice that if his request is not
complied with, he will take suitable legal steps under section 209(5) of the
Companies Act.
The above letters are submitted herewith.
Orders are requested as to what reply is to be given to him."
The president passed on
September 15, 1970, the following laconic order : "Meeting". Probably
what he meant was that the matter might be placed at the meeting.
Meanwhile, that is to say,
on September 14, 1970, T.M. Shanmugham, the complainant, instituted his
complaint in the court below. The gist of his complaint was that in spite of
his repeated letters, the accused failed, neglected and defaulted to take all
reasonable steps to secure compliance by the company with the legitimate demand
of the complainant for inspection of the abovesaid file and papers connected
with the nomination and election of directors at the 97th annual general body
meeting as he was entitled to do under section 209(4)(a) of the Companies Act, and consequently the accused was
punishable under section 209(5) and (6) of the Companies Act.
If under article 138 of the
articles of association of the Fund, which has been marked as exhibit P-1, all
correspondence between the Fund and the shareholders like the complainant shall
be carried on by the secretary under the orders of the president, and if the
president did not permit the secretary to show the relevant file to the
complainant in spite of the secretary having placed the complainant's letters
before the president for orders, I fail to see how the accused, secretary, can
be convicted of the failure to take all reasonable steps to secure compliance
by the company with the requirements of section 209(4) of the Companies Act, or
of having caused any default by his own wilful act. If the secretary had shown
the file to the complainant without the orders of the president, he would
certainly have been guilty of disobedience of the president and of violating
the provisions of article 138 of the articles of association of the Fund. Even
assuming without conceding that the failure to show the nomination papers to
the complainant is an offence under the Companies Act, the offender would be
the president, who is the managing director within the meaning of section
209(6) of the Companies Act, and not the secretary, whose non-compliance of the
requirements of the Act would be the result, not of his own wilful act, but of
the omission of the president to permit him to show the nomination papers.
I shall next consider if
the omission to keep the nomination papers open to inspection by the
complainant would constitute an offence under the Companies Act. Section
209(4)(a) of the Companies Act
directs that the books of accounts and other books and papers shall be open to inspection
by any director during business hours. What is the legislative intent behind
the expression "other books and papers"? Can it be reasonably
construed to embrace "the nomination paper"? At page 289 of Maxwell on the Interpretation of Statutes, twelfth
edition, the following passage occurs as to how associated words in a common
sense have to be understood:
"When two or more words, which are
susceptible of analogous meaning are coupled together noscuntur a sociis. They are understood to be used in their
cognate sense. They take, as it were, their colour from each other, the meaning
of the more general being restricted to a sense analogous to that of the less
general."
In the expression
"books of account and other books and papers" occurring in section
209(4)(a) of the Companies Act,
the words "other books and papers" are more general, whereas the
words "books of account" are less general. But the more general words
take their colour from the less general and become restrictive in meaning. Even
if the ejusdem generis rule is
applied, the general expression is to be read as comprehending only things of
the same kind as that designated by the preceding particular expressions,
unless there is something to show that a wider sense was intended—vide R. v. Edmundson[1][1] It would then follow that the
expression "other books and papers" must be construed as referring to
other books and papers of the same kind as the books of account. The pattern of
the different clauses in section 209 of the Companies Act along with the
heading "Accounts" would also point to the same conclusion. As
pointed out by Maxwell at page 11 of the book cited supra, the headings
prefixed to sections or sets of sections in some modern statutes are regarded
as preambles to those sections, and that though they cannot control the plain
words of the statute, yet they may explain ambiguous words. It is true that
while the court is entitled to look at the headings in an Act of Parliament to
resolve any doubt, the law is quite clear that you cannot use such headings to
give a different effect to clear words in the section where there cannot be any
doubt as to their ordinary meaning. In my view, it would be dangerous to
construe the words "other books and papers" to embrace every scrap of
paper in the office of the company, whether it is in the nature of a book of
account or not. The sub-heading to section 209 of the Companies Act is
"Books to be kept by company and penalty for not keeping proper
books". This sub-heading emphasises the fact that the words "proper
books" have a restricted meaning and refer only to books in the nature of
accounts. Originally, section 209(4) of the Companies Act did not contain the
words "other books and papers". These words were added by section 20
of the Companies (Amendment) Act, 1965. The Joint Select Committee's Report
explained the object of the amendment in the following words :
"It is proposed to redraft sub-section (4)
with a view to making it clear that the Registrar of Companies or any officer
authorised in that behalf may inspect the books of account and other books and
papers of the company without giving any previous notice to the company or any
officer thereof, if sufficient cause exists for such inspection and take copies
of and put identification marks on the documents so inspected. Opportunity is
also taken to make it obligatory on the company and its officers to produce the
necessary books of account, etc., for inspection by the Registrar or any other
officer and to give them all possible assistance in connection therewith."
It is, therefore, clear
that the object of the amendment was to cover not only books of account,
strictly so-called, but also books showing such particulars relating to
utilisation of material or labour or to other items of cost as may be
prescribed in the case of companies engaged in production, processing,
manufacturing or mining activities, within the meaning of section 209(1)(d) of the Companies Act. Clause (d) of section 209(1) itself was
inserted by section 20 of the Companies (Amendment) Act, 1965, and it was to
cover the records relating to the particulars mentioned in clause (d) that the expression, "other
books and papers" appears to have been used. I, therefore, hold that this
expression does not extend to the nomination papers, which the complainant
wanted inspection of, and that the failure of the secretary to give inspection
thereof does not constitute an offence within the meaning of section 209(5) of
the Companies Act.
In the result, the
conviction and sentence imposed upon the petitioner by the lower court under
section 209(4)(a) read with
section 209(5) and (6) of the Companies Act are set aside as illegal, and the
petitioner is acquitted of the offence of which he has been wrongly convicted.
The criminal revision is allowed. The fine, if collected, will be refunded to
the petitioner.
[1972] 42 COMP. CAS. 338
(DELHI)
HIGH COURT OF DELHI
v.
Union of India
H.R. KHANNA, C.J.
AND P.N. KHANNA, J.
MAY 14, 1971
V.M. Tarkunde, H.L. Anand and T.M. Chandwani, for the Petitioner.
Jagadish
Swarup, Dipak Chaudhry, (A.K. Marwah, and R.L. Mehta, for the Respondents:
Khanna, C.J.—This is a petition under articles
226 and 227 of the Constitution of India by B.M. Bajoria of Calcutta against
(1) the Union of India, (2) the Company Law Board, (3) S.S. Singh, Under
Secretary, Company Law Board and (4) the Director, Special Police
Establishment, CBI, New Delhi.
The facts giving rise to the petition are as below:
The petitioner has been associated with a number of
firms and joint stock companies including Ouchterlony Valley Estates (1958)
Ltd. (hereinafter referred to as “the company”). The company was incorporated
in the year 1938 with an authorised capital of Rs. 40 lakhs. The issued and
paid-up capital of the company in 1967 was over Rs. 19 lakhs. The company was
incorporated with the object of carrying on business of tea and coffee
plantations, and owns a number of tea and coffee estates in District Nilgiris. Its
shares are quoted on the Madras Stock Exchange. According to the petitioner, he
was the managing director 6f the said company between 1966 and 1969. Since
June, 1969, the petitioner claims to have severed his connections with the company and to have sold his entire holdings in
it. 0a November 10, 1968, Shri G. Srinivasan, Assistant Inspecting Officer,
Company Law Board, visited the office of the company and carried out an
inspection of the books of accounts and other records of the company by virtue
of authority conferred by section 209 of the Companies Act, 1956. Shri
Srinivasan made a report of the outcome of the inspection to the Company Law
Board. The Company Law Board considered the report. On January 25, 1969, Shri
S.S. Singh, respondent No. 3, addressed the following letter to the Director,
Special Police Establishment, CBI, New Delhi, respondent No. 4:
“M/s.
Ouchterlony Valley Estates (1938) is a public limited company situated at New
Hope, New Hope (P.O.), Nilgiris District. The company is cultivating and
selling tea and coffee. This company is managed by the board of directors with
a managing director and the present directors are Shri B.M. Bajoria, managing
director, Bakishore Bajoria, B.P. Pittle, K.N. Jalan, and G.K. Tuberewala.
During the
course of a routine inspection under section 209(4) under the Companies Act by
Shri G. Srinivasan, Assistant Inspecting Officer of this department, it has
come to light that the properties of the company have been dishonestly disposed
of and the proceeds thereof were not credited in the accounts of the company.
Timber from the reserved area land of the company, viz., Lauriston Estate, New Hope Estate, Kelly Division,
Glermans Estate, Suppolk Division, Tullous Division, etc., have been
dishonestly cut and removed and its proceeds amounting to over Rs. 6 lakhs were
not credited to the accounts of the company but have been dishonestly
misappropriated. This has been done between January, 1967, and February, 1968,
as presently seen. It has further come to light that certain properties of the
company were sold at high price but in the books of the company lesser amounts
were credited and the difference was dishonestly misappropriated. Another mode
of dishonest misappropriation of the funds of the company has been found,
inasmuch as the actual expenses incurred by or on behalf of the company were
inflated and the inflated amount was claimed from the company between the
period February, 1966, to January, 1967. The difference between the inflated
amount charged and the actual amount spent was dishonestly misappropriated. It
is further learnt reliably that the above dishonest misappropriations from, the
funds of the company were committed by the management in connivance with
certain employees and; that the company was dishonestly deprived of its lawful
property and moneys.
As there is
reasonable ground for believing that the management along with other employees
have committed the above acts of dishonest misappropriation of the company’s
money and have further dishonestly or fraudulently falsified the records, it is
requested that a case under sections 120B (read with 409), Indian Penal
Code, 409, 467, 471 and 477-A, Indian Penal Cods, may kindly be registered and
investigated.
The details of the various alleged misappropriations
are given in the annexure.
This may please be registered for investigation and
the offenders brought to book.”
Respondent No. 4 then took cognizance and had a case
registered on the basis of the above letter. Copy of the first information
report was forwarded by the police to the Magistrate having jurisdiction.
On November 6, 1969, the petitioner filed the present writ petition for the issuance of a writ to quash :
“(a) the
report of the Assistant Inspecting Officer of the Company Law Board;
(b) the reports and proceedings of the Company Law Board subsequent to the report of the Assistant Inspecting Officer aforesaid;
(c) the decision of the Company Law Board to prosecute the manager meat of the company; and
(d) the reference of the matter by the Board to the Central Bureau of Investigation and the communication of the Under Secretary of the Company Law Board dated January 25, 1969, and the proceedings now being taken by the Central Bureau of Investigation in pursuance thereof.”
The petitioner has also prayed for a direction
restraining the respondents from in any manner taking steps in relation to the
said allegations in pursuance of the report or in relation to the conduct and
affairs of the company.
The petition has been resisted by the respondents and
the affidavit of Shri Sadho Saran Singh, Under-Secretary of the Company Law
Board, has been filed in opposition to the petition.
The first contention, which has been advanced on
behalf of the petitioner, is that the officers of the Delhi Special Police
Establishment have no power to investigate into the offences alleged to have
been committed in the State of Tamil Nadu, because no consent to such
investigation had been given by the Government of that State. This contention,
in our opinion, is not well founded. The Delhi Special! Police Establishment
has been constituted by the Central Government by virtue of the power conferred
by section 2 of the Delhi Special Police Establishment Act, 1946 (XXV of 1946).
Section 3 of that Act empowers
the Central Government to specify by notification in the official gazette the
offences or classes of offences, which are to be investigated-; by the Delhi
Special Police Establishment. The Central Government issued, a notification
under the above provision on November 6,1956. The offences; under sections 409,
467, 471, 477A as well as conspiracies in relation to or in; connection with
those offences are mentioned besides other offences in that notification.
Section 5 of the Act gives power? (to the Central Government to extend the powers and jurisdiction of Special
Police Establishment to area other than a Union territory. According to section
6, nothing contained in section 5 shall be deemed to enable any member of the
Delhi Special Police Establishment to exercise powers and jurisdiction in any
area in a State not: being a Union territory or railway area, without the
consent of the Government of that State. As the investigation in the present
case has been-carried on by the Special Police Establishment in areas now forming
part of Tamil Nadu, the question arises whether the Government of Tamil Nadu
has given its: consent to the members of the Delhi Special Police Establishment
to exercise powers and jurisdiction in Tamil Nadu. In this connection we find
that Shri G.P. Kalra, Section Officer, Department of Personnel, Cabinet
Secretariat, has filed his affidavit and along with that has produced a copy of
the letter dated January 23, 1957, which was sent on behalf of the Home
Department of the Madras (now Tamil Nadu) Government to the Ministry of Home
Affairs, Government of India. According to that letter, the Madras Government
agreed to the members of the Delhi Special Police Establishment exercising
powers and jurisdiction within the Madras State with regard to the offences
mentioned in the notification dated November 6, 1956. Affidavit has also been
filed by Shri A.T. Sathianathan, Deputy Secretary to the Government: of Tamil
Nadu. It is stated by Shri Sathianathan in that affidavit “that proper sanction
was accorded by the State of Tamil Nadu in letter No. 188-Home, dated January
23, 1957, for the functioning of the Delhi Special Police Establishment
exercising powers and jurisdiction within the State of Tamil Nadu with regard
to offences mentioned in the notification of the Government of India”.
According further to the affidavit, the file was dealt with at proper level in
accordance with the Tamil Nadu Government Business Rules and Secreatriat
Instructions then in force. Shri Sathianathan has added that the final orders for
according sanction for the functioning of the Delhi Special Police
Establishment in the State of Tamil Nadu were approved by the then Chief
Minister, Shri Kamaraj. The material brought on record, in our opinion, clearly
shows that the State of Tamil Nadu has given its consent to the members of the
Delhi Special Police Establishment exercising powers and jurisdiction within
the State of Tamil Nadu with regard to offences mentioned in the notification
dated November 6, 1956. The argument that there is nothing to show that
according to the Rules of Business the Chief Minister was authorised to give
the approval, is not convincing, because there is a presumption of regularity
of official acts. Apart from that, the affidavit of Shri Sathianathan shows
that the file Was dealt with at proper level in accordance with the Tamil Nadu
Government Business Rules and Secretariat Instructions then in force. A similar
contention was raised, in tine case of Management
of Advance Insurance Co, Ltd. v. Gurudasmal and, was repelled by the court in
the fallowing words:
“A doubt raised in the High Court and before us that
the Government of Maharashtra had not considered the matter or that the consent
was not properly given, is sufficiently answered by the affidavit of the
Undersecretary to the Government of Maharashtra dated July 18, 1968, in which
it is clearly stated that the Chief Minister had considered the matter and
given his consent and that under the Rules of Business he was quite competent
to do so. No argument has been advanced before us which entitled the appellant
to go behind the memorandum and the affidavit. There is a presumption of
regularity of official acts and even apart from it, the memorandum and the
affidavit clearly establish that the consent was given.”
Before dealing with the other contention advanced on
behalf of the petitioner, it may be useful to refer to some of the provisions
of the Companies Act. Section 209 of the Act relates to books of account to be
kept by a company. Sub-section (4) of that section provides for the inspection
of books of account and reads:
“(4) (a) The books of
accounts and other books and papers shall be open to inspection by any director
during business hours.
(b) The
hooks of account and other books and papers shall be open to inspection during
business hours—
(i) by
the Registrar,
(ii) by any officer of Government authorised by the Central Government in this behalf:
Provided that such inspection may be made without giving any previous
notice to the company or any officer thereof.
(c) The Registrar or such officer may during the course of inspection—
(i) make
or cause to be made copies of the books of account and other books and papers,
(ii) place or cause to be placed any marks of
identification thereon in token of the inspection haying been made.
(d) In order to enable the Registrar or such
officer to make an inspection of the books of account and other books and papers
of the company it shall be the duty of the company—
(i) to produce to the Registrar or such
officer such books of account and other books and papers of the company as the
Registrar or such officer may require,
(ii) otherwise to give to the Registrar or
such officer all assistance in connection with the inspection which the company
is reasonably able to give.”
Sections 235 to 251 pertain to investigation of the
affairs of a company. Section 235 provides for investigation of affairs of a
company on application by members or report by Registrar. Section 237 deals
with investigation of the affairs of a company in other cases and reads as
under:
“237. Without prejudice to its powers under section
235, the Central Government—
(a) shall appoint one or more competent persons
as inspectors to investigate the affairs of a company and to report thereon in
such manner as the Central Government may direct, if—
(i) the
company, by special resolution; or
(ii) the court, by order, declares that the affairs of the company ought to be investigated by an inspector appointed by the Central Government; and
(b) may
do so if, in the opinion of the Central Government, there are circumstances,
suggesting—
(i) that the business of the company is
being conducted with intent to defraud its creditors, members or any other
persons, or otherwise for a fraudulent or unlawful purpose, or in a manner
oppressive of any of its members, or that the company was formed for any
fraudulent or unlawful purpose;
(ii) that persons concerned in the formation
of the company or the management of its affairs have in connection therewith
been guilty of fraud, misfeasance or other misconduct towards the company or
towards any of its members; or
(iii) that the members of the company have not
been given all the information with respect to its affairs which they might
reasonably expect; including information relating to the calculation of the
commission payable to a managing or other director, the managing agent, the
secretaries and treasurers, or the manager, of the company,”
Section 239 gives power to inspectors to carry on
investigation into affairs of related companies or of managing agents. Section
240 provides that it shall be the duty of all officers, employees and agents of
a company to preserve and to produce to an inspector or a person authorised all
books and papers relating to the company and otherwise to give assistance in
connection with the investigation. Section 240A empowers the inspector, where
he has reasonable ground- to believe that the books and papers of, o? relating
to, a, company may be destroyed, mutilated or altered, to apply to a Magistrate
for seizure of such books and papers. Section 241 makes provision for the
submission of the inspector’s report to the Government. The Central Government
is required to forward a copy of the final report made by the inspectors to the
company at its registered office and other persons specified in the section.
Section 242 empowers the Central Government to launch prosecution if from any
report made under the preceding section, it appears to the Central Government
that any person has; in relation to the company, been guilty of an offence.
Sub-section (1) of that section- reads as under:
“242. (1) If,
from any report made under section 241, it appears to the Central Government
that any person has, in relation to the company or in relation to any other
body corporate, managing agent, secretaries «ad treasurers, or associate of a
managing agent or secretaries and treasurers, whose affairs have been
investigated by victual of section 23 been guilty, of any offence for which he
is criminally liable, the Central Government may, after taking such legal
advice as it thinks fit, prosecute such person for the offence; and it shall be
the duty of all officers and other employees and agents of the company, body
corporate, managing agent, secretaries and treasurers, or associate, as the
case may be, (other than the accused in the proceedings), to give the Central
Government all assistance in connection with the prosecution which they are
reasonably able to give.”
Section 243
makes provision for an application: for winding up of a company or for an order
under sections 397 or 398, if it appears to the Central Government from the
inspectors report that it is expedient to do so. Section 244 authorises the
Central (Government to initiate proceedings in the name of a company for the
recovery of damages of property if, from a perusal of the report, it appears to
the Central Government that such proceedings ought in the public interest to be
brought by the company. It is not necessary for the purpose of this case to
refer to the other provisions relating to investigation into the affairs of the
company.
It is argued
by Mr. Tarkunde on behalf of the petitioner that if it is intended to prosecute
a director of the company in. respect of some act of embezzlement or
malfeasance concerning the affairs of the company the only way to do so is by
directing investigation into the affairs of the company under section 237 of
the Companies. Act. After a report under section 241 of the Act is received as
a result of that investigation, a copy of that report should be supplied to the
company The Government may in that event, after taking legal advice, launch
prosecution in accordance with section 242. To lodge a report with the police ;
on the basis of a report submitted by an official of the Company Law Board
after inspection of account books under section 209(4) of the Act without
supplying a copy of the report of that official to the company would result,
according to the learned counsel, in such procedural discrimination as would-be
violative of article 14 of the Constitution. The above argument, though
ostensibly attractive, on closer examination, incur opinion, would be found to
be not tenable. An investigation into the affairs of a company is ordered in a
variety of circumstances which have been mentioned in sections 235 and 237 (a) the Companies Act. In cases
covered by section 237(a) the
Government is bound to appoint one or more competent persons as inspectors to
investigate the affairs of a company. As against that, if a-case is governed by
clause (b) of section 237 or in
case it is governed by section 235, the Government has, a discretion in the
matter. An investigation into the affairs of a company under the above
provisions of law from the point of view of; general reputation of a company is
a very serious matter. It can result in a number of consequences, viz.,
prosecution, vide section 242 ; winding up of the company or an order under
sections 397 or 398 of the Act, vide section
243 or initiation of proceedings by the Central Government in the name of the
company for recovery of damages or property, vide section 244 of the Act. It is also manifest that investigation
is ordered into the affairs of a company when there is some aspect of those
affairs regarding which the Government is not in possession of full facts and
the circumstances exist as are referred to in section 235 or 237 of the Act. In
such an event, the Government orders probe into these aspects to apprise itself
of the correct facts. It is only after that probe, when further facts come to
the notice of the Government, that the Government has to decide about the next
step, i.e., whether it should
drop the matter Or proceed in any of the ways mentioned in sections 242 to 244
of the Act. There is, however, nothing in section 237 which makes it imperative
for the Government to order investigation into the affairs of the company when
the Government does not consider the necessity of further probe and is already
in possession of facts which, in its opinion, show the commission of an offence
by an officer of the company or other person in respect of the assets of the
company. There is, in such an event, no legal bar to the officer of the Company
Law Board or other Government officer concerned making a report to the police.
A report to the police in the very nature of things is directed against one or
more than one individual. Although the records of the company may have to be
examined and produced during the course of police investigation or in evidence
during the course of prosecution following that investigation so far as the
existence and continued functioning of the company are concerned they would not
be affected by such investigation or prosecution of the individuals.
The question
of supply of copy of inspectors’ report under section 241 of the Companies Act
arises when the investigation into the affairs of a company is made as
contemplated by sections 235 and 237 of the Act. The “affairs of a company”
have been held to mean its business affairs—its goodwill, profits or losses,
contracts and assets, including its control over subsidiaries and it makes no
difference who is conducting those affairs. (See page 606 of the Principles of Modern Company Law by
Gower, third edition). Section 241 of the Companies Act contemplates supply of
a copy of the report when investigation is made. When, however, there is no
such investigation, no occasion can arise for the supply of such a copy. An
inspection of the account books of a company under section 209(4) is
something quite distinct from an investigation into the affairs of a company as
envisaged in sections 235 and 237 of the Act. The fact that in the case of such
an investigation a provision is made for the supply of a copy of the report of
the persons making the investigation while there is no provision for the supply
of a copy of the report of the person making the inspection, would not, in our
opinion, show discrimination violative of article 14 of the Constitution.
We are not impressed by the argument advanced on
behalf of the petitioner that section 242 alone prescribes the mode of
launching prosecution against officers of the company and other individuals who
appeal to have been guilty of embezzlement and other acts of malfeasance in
respect of the assets of a company. There is neither an express provision nor
any other provision which by necessary implication warrants this conclusion.
There are some provisions of the Companies Act like section 621(1A), 624, 624A
and 624B wherein the words used are “Notwithstanding anything contained in the
Code of Criminal Procedure”, thus indicating that those provisions would have
an overriding effect. There is, however, nothing in section 242 or the other
provisions of the Companies Act to point to the conclusion that no prosecution
can be launched or no report can be made to the police in respect of an alleged
act of embezzlement or malfeasance by an individual connected with the company
without recourse to an investigation under sections 235 or 237 of the Act. In
the case of M. Vaidyanathan v. Sub-divisional Magistrate, Erode, the question arose whether the
provisions of section 630 of the:Companies Act constituted a bar to the
exercise of the jurisdiction vested in a police officer under sections 154 and
157 of the Code of Criminal Procedure. The question was answered in the
negative by Rajagopalan J. The above decision was affirmed on appeal by a
Division Bench of the Madras High Court (Rajamannar C.J. and Panchapakesa Ayyar
J.) in In re M. Vaidyanathan.
It has been argued on behalf of the petitioner that a
company or the individual concerned may have a complete answer to offer
regarding the allegation of embezzlement or malfeasance based upon the result
of an inspection under section 209(4) of the Act. To initiate proceedings for prosecution
without affording the company or the individual the opportunity of giving a
reply to such allegations would be oppressive and be tantamount to persecution.
In this respect we are of the view that mere registration of a case does not
necessarily mean that it would result in prosecution. If during investigation
by police following such registration of the case facts come to light either in
course of examination of the individual concerned or otherwise that no case for
embezzlement or malfeasance has been
made; the police in such a case can proceed in accordance with section 169 of
the Code of Criminal Procedure. It cannot; therefore, be said that the
individual concerned has no opportunity what so ever of showing cause before
the challan is put in court
that the allegations against him of embezzlement or malfeasance are not
well-founded. It is no doubt true that the police after registration of a case
does not normally drop the matter as contemplated by “section 169 of the Code
of Criminal Procedure, but this is so in all cases registered by the police.
The above circumstance cannot, in our opinion, lend material assistance to the
case of the petitioner
It may also
be mentioned that no ground has been taken by the petitioner in the petition about
any violation of article 14 oŁ the Constitution. Apart from that, we are of the
opinion that there has been no such violation of that article. Reference has
been made on behalf of the petitioner to the case of Northern India Caterers Private Ltd. v. State of Punjab. Their Lordships in that case dealt
with section 5 of the Punjab Public Premises and Land (Eviction and Rent
Recovery) Act. It was held by the majority that the section provided two
alternative remedies to the Government and left it to the unguided discretion
of the Collector to resort to one or the other and to pick and choose some of
those in occupation of public properties and premises for the application of
the more drastic procedure under section 5. The impugned section was
consequently held to be violative of article 14 of the Constitution. The dictum
land down in the above case, in our opinion, cannot be of much assistance to
the petitioner because we are not dealing here with two available procedures
one more drastic or prejudicial to the party concerned than the other to be
applied at the arbitrary will of the authority. An investigation under sections
235 and 237 of the Companies Act as mentioned earlier is not the same as
inspection of account book under section 209(4). No inference of contravention
of article 14 can be drawn from the procedural difference between the aforesaid
investigation and inspection of records. The fact that information derived as a
result of the above-mentioned investigation or inspection can give rise
prosecution would not attract article 14 of the Constitution. The said article
does not postulate that information, which may be the basis for making report
to the police, must be derived in one particular way and no other way.
Reference has
also been made on behalf of the petitioner to the case of Nazir Ahmad v. King Emperor wherein, while dealing with a confession
recorded by a Magistrate, their Lordships held that where a power is given to
do a certain thing in a certain way the thing must be done in that way or not
at all. The above dictum could have been attracted to the present ease
if the Government had resorted to investigation into the affairs of the company
without complying with the provisions of section 235 and the subsequent
sections of the Companies Act. T; he present is not a case where a power is:
given to do a certain thing in a certain way and the thing has been done in
some other way.
Another case to which reference has been made is Rohtas Industries Ltd. v. S.D. Agarwal. It has been held in that case that
action under section 235 of the Companies Act can be taken provided certain
preconditions including those mentioned in section 236 are fulfilled. It has
been further held that such investigation is a serious matter and should not be
ordered except on good grounds. This case too cannot be of much avail to the
petitioner because no order for investigation into the affairs of the company
has been made in the instant case.
The matter can also be looked at from another angle.
Any one who has information of the commission of a cognizable Offence can make
a report about the commission of such offence to the police. The police after
registration of the case on the basis of that report, in accordance with
section 154 of the Code of Criminal procedure, can investigate the matter. If
the investigation reveals that such an offence has been committed, the police
has to put in challan in court,
where after the trial of Me Code would commence in the criminal court. There’
are certain offences wherein the police cannot put in challan without observing some formality such as obtaining
consent in cases covered by section 196A(2) of the Code of Criminal Procedure
or Requisite sanction in cases covered by section 197 of the code or; section 6
of the Prevention of Corruption Act. Their is however .no provision of law, at
least none has been cited at the bar which makes it imperative to obtain such
consent or sanction or to go through other formality before the police can put
in challan for a cognizable
offence relating to the assets of a company. The plain effect of the acceptance
of the submission made on behalf of the petitioner would be to place a
procedural restriction on the prosecution of officers of a company or other
individuals in respect of offences relating; to the assets of a company. It is
our opinion not permissible to read such a restriction in the statue when none
exists.
Reference has been made by Mr. Tarkunde, to. the
report, of a committee which preceded the enactment of the Companies Act. The
petitioner in our opinion cannot derive much assistance from the report of that
committee in the matter of the construction of the .provisions of the Companies
Act. Even in .respect of the statement of objects ;and reasons for
introducing a particular piece of legislation the court can refer to the
statement only for the purpose of ascertaining the circumstances which led to
the legislation in order to find out what was the mischief which the
legislature aimed at. The statement of objects and reasons for introducing a
particular piece of legislation cannot be used for interpreting the legislation
if the words used therein are clear enough. (See in this connection S.C. Prashar v. Vasantsen
Dwarkadas). A
report of a committee can obviously not stand on a higher footing than the
statement of objects and reasons.
As a result of the above, the petition fails and is
dismissed, but in the circumstances without costs.
[1990] 68 COMP. CAS. 145 (DELHI)
HIGH COURT OF
DELHI
v.
Pioneer Seed Co. Ltd.
G. C. JAIN J.
I.A. NO. 1796 OF 1989 IN SUIT NO. 2745 OF 1988
MARCH 8, 1989
Anil
Diwan, P.V.
Kapur, Anil Sharma and Ms.
Sunita Narhari, for the Petitioner.
Kapil
Sibbal, S. Shroff and Ms. Pallavi
Shroff, for the Respondent.
G.C.
Jain J. —The
short question which falls for determination in this application is whether the
director of a company has an absolute and unfettered right to inspect the
records of the company. It has arisen in these circumstances.
Pioneer
Hi-bred International Inc., USA (hereinafter to be referred as
"PHI"), is organised and is existing under the laws of the State of
Iowa and has its registered office at 700, Capital Square, Des Moines 50309,
USA. It is engaged worldwide in the business of research and development,
production and sale of hi-bred seeds of various agricultural crops. The said
business is being conducted for the last 62 years and is stated to have
achieved enormous success and is regarded as a leader and pioneer in the seed
business. The plaintiff, Mr. D. Ross Porter, is the Assistant General Counsel
to the said company and is one of its directors.
Pioneer
Seed Co. Ltd. (PSCL), the defendant, is a company incorporated under the
provisions of the Companies Act, 1956, having its registered office at A-311,
Ansal Chamber, I-3, Bhikaji Cama Place, New Delhi. It was incorporated on
February 28, 1977, with the object of developing, growing, raising, processing,
buying and selling, export, import and dealing in all kinds of seeds. PSCL is
stated to have been set up and financed by PHI. The authorised capital of PSCL
is Rs. 30 lakhs. Its subscribed and paid-up capital is Rs. 5 lakhs. PHI holds
2,000 shares of the face value of Rs. 100 each. Dr. Surinder M. Sehgal and Mrs.
S. Kapoor hold 1,000 and 1,996 shares of Rs. 100 each, respectively. Remaining
four shares are held by others. Dr. Sehgal transferred his entire shareholding
in PSCL to Asian Investment Inc., a company wholly owned by Dr. Surinder M.
Sehgal.
Till March, 1988, Dr.
Sehgal was the vice-president of PHI and being a trusted employee of PHI, he
and his sister, Mrs. Kapoor, were allotted the shares mentioned above. Till
April 22, 1988, PHI, it is stated, was controlling and managing PSCL and
running its affairs. PHI, besides holding 40% shares in PSCL, allegedly
provided technical assistance in research information materials and funded the
entire research activities amounting to Rs. 2,09,34,682. PHI advanced a loan of
one million dollars to PSCL under agreement dated July 31, 1986. PSCL was also
given critical plant of the value of Rs. 10,55,568 free of cost. PSCL had also
a balance owing to it on export advance account of Rs. 44,40,150.
At all material times prior
to April 22, 1988, the board of PSCL comprised Dr. Sehgal, Mrs. Kapoor and the
plaintiff. However, disputes arose thereafter and on April 22, 1988, Dr.
Sehgal, because of his majority shareholding, caused appointment of four
directors on the board creating a majority for himself and reducing the
representation of PHI to a minority. Presently, there are eight directors on
the board including Mr. P. D. Ranjan. The defendant, however, disputes the
appointment of Sh. P.D. Ranjan.
On or about October 17,
1988, the plaintiff received a notice from PSCL informing that a meeting of the
board of directors was to be held on October 24, 1988. The plaintiff, by letter
dated October 17, 1988, intimated PSCL that he was unable to attend the meeting
and that he had nominated Mr. Brij Anand, a chartered accountant, as
alternative director on the board of PSCL. PSCL was requested to effect Mr.
Anand's appointment at the beginning of the meeting itself in order to enable
Mr. Anand to participate in the said meeting. On October 24, 1988, Mr. Anand
reached the office of the PSCL to attend the board meeting. He was informed
that the board of directors had discussed the matter of his appointment as
alternative director and had rejected the same which decision was allegedly
illegal.
On these allegations, the
plaintiff filed a suit seeking a decree for declaration declaring that PSCL had
no power to reject or refuse the appointment of Mr. Brij Anand as an
alternative director for the plaintiff; the rejection was wholly illegal, invalid,
arbitrary and that the resolutions passed at the board meeting dated October
24, 1988, were non-est, illegal, invalid and of no effect whatsoever.
This suit was resisted by
the defendants on various grounds. It was averred, inter alia, that the plaintiff was placed in a fiduciary
relationship but had violated the obligations and was guilty of misfeasance and
breach of trust inasmuch as he became a director in Regency Megnatics Pvt. Ltd.
along with Mr. Brij Anand, Mr. K. N. Mishra and Mr. P. D. Ranjan of which PHI
was funding the entire operation. The purpose of floating this company was to
have an alternative to PSCL and to set up competition in India and that there
was conflict of duty and interest and the plaintiff had violated laws of India in a
conspiracy to defraud the defendant-company and its majority shareholders.
In
the suit, the plaintiff had filed an application (I. A. No. 7194 of 1988) for
granting temporary injunction restraining the defendant from implementing the
resolutions passed in its meeting held on October 24, 1988, and directing the
defendant to ensure that the plaintiff was duly represented in the board
meeting through Mr. Brij Anand. This application was vehemently opposed. The
main defence was that the plaintiff had set up two companies which had
competitive interest with the defendants.
After
examining the facts and circumstances of the case, P. K. Bahri J. by order
dated January 18, 1989 (D. Ross Porter v. Pioneer Seed Co. Ltd. [ 1989] 66 Comp
Cas 363 (Delhi)) allowed the application and directed the defendant to accept
Mr. Brij Anand as an alternative director in place of the plaintiff to enable
him to attend the meeting of the board of directors of the defendant.
Mr.
Brij Anand went to the registered office of the defendant-company on March 3,
1989, with a letter requesting inspection of the books of account under section
209(4) of the Companies Act, 1956. He was, however, not allowed the inspection.
Consequently, he filed the present application for directing the
defendant-company to produce the books of the defendant-company referred to in
the letter dated March 3, 1989, in court and allow Mr. Brij Anand to inspect
the same. The books of which he wants inspection are (1) minute books of
directors' and shareholders' meetings from April 22, 1988, till date; (2) bank
statements relating to bank accounts of the company for the period from July,
1988, till date; and (3) financial books of account including cash/bank books,
ledgers and fixed assets registers maintained as well as records pertaining to
sale/purchase and physical verification thereof. This application was
vehemently opposed.
Section
209(4) of the Companies Act provides:
"The
books of account and other books and papers shall be open to inspection by any
director during business hours."
These
provisions confer an unconditional right on a director of a company to inspect
the account books and all other books and papers of the company.
Mr.
Kapil Sibbal, learned counsel appearing for the defendant, however, contended
that a director, no doubt, had a statutory right to inspect account books,
etc., of the company but at the same time he was under certain obligations.
There was a fiduciary relationship between him and the company. His position
vis-a-vis the company was similar to the position of an agent or of a trustee
and if there was conflict between rights and obligations, the court would
refuse interim mandatory injunction.
Reliance
was placed on the following statement appearing in para 63-13 of Palmer's Company Law, twenty-fourth
edition:
"Like
other fiduciaries, directors are required not to put themselves in a position
where there is a conflict (actual or potential) between their personal
interests and their duties to the company. It has been seen earlier that the
position of a director vis-a-vis the company is that of an agent who may not
himself contract with his principal and that it further is similar to that of a
trustee who, however fair a proposal may be, is not allowed to let the position
arise where his interest and that of the trust may conflict."
A
Division Bench of the Bombay High Court in Life Insurance Corporation of India v. Hari Das Mundhra [1966] 36 Comp Cas 371, 411, observed:
"A
director is in the position of an agent of the company; charged with the
obligation of carrying on its business. The nature of his duties is determined
partly by statute and partly by the law of agency. As agent, he owes two duties
to the company— the duty of loyalty and the duty of care. Breach of these
duties, speaking generally, amounts to breach of trust and misfeasance."
To
me, it is clear that sub-section (4) of section 209 of the Companies Act
confers on the director a statutory right of inspection of the books of account
and other books and papers of a company. At the same time, there is a fiduciary
relationship between the director and the company. His position is similar to
the position of an agent and a trustee.
Is
the court bound to grant a mandatory temporary injunction to enforce the
statutory right of a director of inspection of account books, etc., if there is
a conflict between the rights of a director and his obligations?
An
injunction is a judicial process whereby the parties are required to do or to
refrain from doing any particular act. It cannot be disputed that the jurisdiction
to grant injunction is, as in the case of specific performance, discretionary.
An interlocutary mandatory injunction is granted in exceptionally and extremely
rare cases.
For
granting injunction, the court has to examine, inter alia, the comparative
mischief or inconvenience which is likely to issue from granting or withholding
the injunction sought for.
Mr.
Anil Diwan, learned counsel for the plaintiff, contended that once it was held
that a director has a statutory right to inspect the account books of the
company, there was no discretion left with the court and the court was required
to enforce this right. The legislature, it was argued, knew that there would be
some disputes among directors and, in spite of that, conferred this right on
the director. Reliance was placed on Conway
v. Petronius Clothing Co. Ltd. [1978]
1 All ER 185. At page 201, it was observed:
"The
right exists but it is a right conferred by the common law and not by statute.
Although the Legislature, in section 147 of the 1948 Act (and its
predecessors), implicitly recognised the existence of this right at common law,
it conferred no new right; the purpose of that section and its predecessors was
to impose criminal sanctions in the event of proper books of account not being kept
or not being made available for inspection or in the event of a breach of any
of the other duties imposed by the section .... The right not being a statutory
right, the court is left with a residue of discretion whether or not to order
inspection."
I
am afraid, prima facie I cannot accept the contention that the right to inspect
being a statutory right, the court had no discretion in the matter. In my
opinion, the relief is a discretionary relief and the court has to keep in view
all the facts and circumstances of the case, namely, whether the plaintiff had
a right which he wants to enforce; whether it is likely to suffer irreparable
injury and whether comparative mischief or inconvenience which is likely to
issue from withholding the injunction will be greater than that which is likely
to arise from granting it.
In
Cuff v. London and County Land and Building Company Ltd. [1912] 1 Ch D
440, Farwell L.J., at page 449, observed as under:
"It
is one thing to say that a man has a statutory right and it is quite another
thing to say that the court, in the exercise of its judicial discretion, is
bound to grant a mandatory injunction in order to give effect to such
right."
In
support of this contention that the discretionary relief of temporary mandatory
injunction should not be granted, Mr. Kapil Sibbal, counsel for the defendant,
has relied on the deposition of Mr. Kamendra N. Mishra, made before the Iowa
District Court for POLK Country. On behalf of the plaintiff, an objection was
raised that this deposition was governed by a protective order. This fact was
denied on behalf of the defendant. In any case, no law was shown to me that
this court could not read this deposition in evidence. If the defendant has
violated any law of the USA, by producing it in this court, it would face the
consequences.
A
perusal of this deposition reveals that Regency Magnetics (RM), an Indian
company, was set up and funded by Pioneer. It was carrying on seed business in India.
It was set up as an alternative to PSCL in India because PSCL was. under
dispute. It further discloses that on April 22, 1988, all the employees of PSCL
resigned and were employed either by Pioneer Overseas Corporation or RM. This
deposition, prima facie, shows that the plaintiff was running the same business in India under the name RM.
It was a competitive business. In these circumstances, it was argued by learned
counsel for the defendant that it would not be fair and just to allow
inspection as demanded by Mr.
Anand.
Mr. Anil Diwan, learned
counsel appearing for the plaintiff, pointed out that the plaintiff had funded
several crores of rupees in PSCL. His interests were at stake. He supplied the
entire know-how and gave technical assistance. He simply wanted to know whether
there was any misappropriation of the funds of the company in which he had 40%
share. It was explained that the plaintiff was forced to float RM because of
breach of trust by his one-time trusted employee, Dr. Sehgal. No injury, argued
learned counsel, was likely to be caused to the defendant if inspection of
documents, as requested by Mr. Anand, was allowed. It was also pointed out that
the question of breach of fiduciary obligation had been duly considered by
Justice Bahri in his order dated January 18, 1989, directing the defendant to
accept Mr. Brij Anand an alternative director in place of the plaintiff.
I have carefully considered
the respective contentions of the parties. There is no doubt that Bahri J.,
while passing the order dated January 18, 1989, had taken note of the
contention of the defendant that the plaintiff was guilty of breach of faith.
However, the question whether Mr. Anand was entitled to inspect the account
books did not fall for determination before Bahri, J. in that application.
The main apprehension of
the defendant is that if the plaintiff was allowed inspection of all the
documents mentioned in his letter of request, it was likely to cause
irreparable injury to PSCL inasmuch as the names of the suppliers and names of
the customers and various other essential information would be gathered and
passed on to the rival company. On the other hand, the main purpose of Mr.
Anand to inspect the account books, etc., is to see that there is no
misappropriation of the funds of the company.
Balancing the equities
between the parties and being conscious of the fact that Mr. Anand had a
statutory right to inspect the records of the company, I think it would be
proper if Mr. Anand is allowed inspection of the following books:
1. Bank statements from
July 22, 1988, till date. Bank statements mean the statements furnished by the
bank from time to time showing the debit and credit entries, cash
reconciliation statement, bank reconciliation statement;
2. The accounts of the banks,
financial institutions and private parties from whom loan, if any, has been
taken by the PSCL or has been advanced, contained in the ledger for the period
from April, 1988, till date; and
3. The
register of movable assets, if any.
Mr.
Anand had admittedly inspected the minute books of directors' and shareholders'
meetings from 22nd April, 1988, till date and fixed assets register. I order
accordingly. This is only a prima facie view point.
[1997] 14 SCL 14 (MP)
HIGH COURT OF
MADHYA PRADESH
v.
Registrar of Companies
B.S. RAIKOTE, J.
AUGUST 30, 1996
Section 5 of the Companies Act, 1956 -
Officer-in-default - Criminal proceedings were initiated against petitioner (managing
director [M.D.] of company) treating him as officer-in-default for
contravention of provisions of sections 370 and 209 - Petitioner's case was
that he was not M.D. during material time when offences allegedly took place
and he was appointed as M.D. only subsequent to commission of offences -
Whether petitioner could be termed as an officer-in-default under section 5 so
as to maintain criminal proceeding against petitioner - Held, no
Section 371, read with section 5, of the
Companies Act, 1956 - Inter corporate loans - Petitioner-managing director
assumed office after loan in contravention of section 371, was granted -
Whether he could be termed as an officer-in-default at material time so as to
maintain prosecution against him - Held, no
Sections 209(5), read with section 5, of the
Companies Act, 1956 - Books of accounts - To be kept by Company -
Petitioner-managing director assumed office after alleged irregular/improper
maintenance of accounts took place -Whether he could be treated as officer-in-default
so as to maintain action against him - Held, no
FACTS
Criminal
prosecution proceedings against the officers of the company for violation of
provisions of sections 370, 209 and 211 were instituted. The offences were
allegedly committed up to the period ending 31-3-1992. The petitioner in
question, who was the managing director at the time of filing the complaints,
assumed the office with effect from 16-9-1992 much after the alleged commission
of the offences. Yet he was also sought to be prosecuted. The petitioner filed
petition for quashing the complaints against him contending that he was
appointed as M.D. with effect from 16-9-1992 and the offences were committed up
to 31-3-1992 at a time when he was not M.D. of the company and he was not an
officer-in-default during all the relevant and material times when the subject
office took place.
HELD
At the relevant point of time, that is, up to31-3-1992, the petitioner
was not the M.D. as admitted in the complaint itself. From the entire reading
of the complaint, it was clear that the petitioner who had joined his duties as
the M.D. with effect from 16-9-1992, could not be said to be an
officer-in-default regarding the loan transactions that had taken place prior
to his joining his duties on 16-9-1992. As per the allegations, in the
complaint itself it was clear that the relevant period of the offence was up to
31-3-1992. Since the petitioner was not a managing director during that period
he could not be a defaulting officer. In this view of the matter, the complaint
under section 370 did not disclose the offence alleged against the petitioner.
Hence, the criminal proceedings so far as it related to the petitioner were
liable to be quashed.
As regards offence under section 211 from the reading of the complaint
itself, it was clear that it was only accused No. 1 who was described as
officer-in-default but not the petitioner who was accused No. 2. The very
allegation in the complaint stated that the balance sheet and profit and loss
account for the year ended 31-3-1992, was not kept in accordance with law.
The present petitioner was not the managing director during that period
and he assumed charge as the managing director only with effect from 16-9-1992.
In this view of the matter, it could be safely concluded that no offence was
made out against the present petitioner under section 211 read with Schedule VI
to the Companies Act, 1956. In view of these circumstances, these proceedings
also were liable to be quashed so far as they pertained to the present petitioner.
As regards last offence under section 209 from the reading of the
complaint also, it was clear that it was only the accused No. 1 who had been
described as 'officer-in-default' but not accused No. 2. He had been shown as
the person who had taken charge as managing director of the company from
16-9-1992. Further, it was stated that 'in these circumstances, the security
transactions recorded in the books of account of the company as shown in the
published account as on 31-3-1992, were incorrect'. From this allegation and
from the entire allegations in the complaint it was further disclosed that the
irregularity that were sought to be pointed out was only for a period prior to
31 -3-1992, but not after the present petitioner assumed his charge with effect
from 16-9-1992. Therefore, on the basis of the allegations made in the
complaint, it was clear that the petitioner was not described as
officer-in-default, rightly so because he had assumed charge only with effect
from 16-9-1992. Hence the complaint, prima facie, did not disclose
the commission of any offence by the present petitioner under section 209.
Therefore, the allegations imputed were of the period prior to 31-3-1992, and
the petitioner had assumed the charge only with effect from 16-9-1992, he could
not be termed as an officer-in-default under section 5, so as to make him
liable for the offences committed under different sections of the said Act as
alleged in the complaint. All the prosecution proceedings pertaining to the
petitioner in questions were quashed.
CASES
REFERRED TO
H. Nanjundiah v. V. Govindan, Registrar of Companies [1986]
59 Comp. Cas. 356 (Bom.), R.P. Kapur v.
State of Punjab AIR 1960 SC
866, State of Haryana v. Bhajan Lal AIR 1992 SC 604, Ajit Kumar Sarkar v. Asstt. Registrar of Companies [1979]
49 Comp. Cas. 909 (Cal.) and Bipin
Behari Nayak v. Registrar of
Companies [1988] 63 Comp. Cas. 271 (Ori.).
V.S. Raju for the Petitioner.
P. Innaya Reddy for the Respondent.
JUDGMENT
1. The petitioner
is the one and the same in all these three cases and he has filed these
criminal petitions for quashing the proceedings. Criminal Petition No. 1711 of
1995 arises out of the proceedings in C.C. No. 64 of 1994 pending before the
Special Judge for Economic Offences, Hyderabad. Criminal Petition No. 1712 of
1995 arises out of the proceedings in C.C. No. 66 of 1994 and Criminal Petition
No. 1713 of 1995 out of the proceedings in C.C. No. 68 of 1994, pending before
the same Court. The petitioner is accused No. 5 in C.C. No. 64 of 1994, and
accused No. 2 in C.C. No. 66 of 1994, and C.C. No. 68 of 1994. It is relevant
to be noted that in C.C. No. 64 of 1994, Andhra Bank Financial Services Ltd. is
accused No. 1 represented by Shri C.V. Siva Prasad, accused No. 5 ('the lending
company'). Accused Nos. 2 and 3 are the ex-chairmen, accused No. 4, Y. Sundara
Babu, is the ex-managing director, and accused No. 6 is another loanee company.
In C.C. Nos. 66 and 68 of 1994, accused No. 1 is the ex-managing director and
accused No. 2 is the managing director at the time of filing the complaint.
Since common questions of fact arise, I am disposing of these petitions by this
common judgment.
2. Admittedly,
as per the complaint itself the petitioner was appointed as the managing
director of the said financing company with effect from 16-9-1992. These three
cases are filed alleging that the company has committed offences under the
different sections of the Indian Companies Act. C.C. No. 64 of 1994 was filed
against the five accused persons alleging that the financing company as a
lending company has advanced loans in excess of limits prescribed under the
Central Government Notification No. G.S.R. 448(E), dated 17-4-1989 - See [1989]
65 Comp. Cas. (St.) 585 [the notification issued under section 370(1) of the
Companies Act, 1956 ('the Act')]. According to the said notification, the
maximum lending limit of the bank is 30 per cent of the subscribed capital and
free reserves, which comes to Rs. 1.5 crores.
Accordingly,
it is alleged that the financing company having lent the loan in excess of 30
per cent without a resolution of the shareholders has committed an offence
under section 370. It is further alleged that the accused persons being
officers-in-default are liable to be punished under section 370. In paragraph
(5) of the complaint it is stated that the subject offence in this matter is
that during the period since commencement of business till 31-3-1992, the
lending company had granted loans to various corporate bodies and as on
31-3-1992, the total amount of such loans granted and outstanding was Rs.
511.48 lakhs. It is also stated that from 1-4-1992, onwards the lending company
continued to grant loans to the corporate bodies to the extent of Rs. 139.50
lakhs. On the basis of these allegations, it is prayed in the complaint that
the accused shall be punished according to law being the 'officers-in-default'
during the relevant and material times of the subject of the offence.
3. C.C. No.
66 of 1994 was filed against accused Nos. 1 and 2 who are the ex-managing
director and managing director at the time of filing of the complaint under
sub-sections (7) and (8) of section 211 read with Schedule VI to the Act, for
failure to comply with the requirements of sub-sections (1) and (2) of the said
section. In this complaint, it is alleged that on the basis of the inspection
conducted by the officers of the Central Government from 25-4-1994 to
30-5-1994, it was disclosed that the balance sheet and profit and loss account
for the year ended 31-3-1992, did not show the true and fair view of the state
of affairs as required under section 211 read with Schedule VI and such a
balance sheet was also contrary to the guidelines issued in pursuance of the
circular issued in January 1991. It is further stated in the complaint that the
amounts should have been reflected in the profit and loss account and balance
sheet as on 31 -3-1992, and the actual liability outstanding as on 31 -3-1992,
should have been disclosed in the balance sheet as on 31 -3-1992, and the
outstanding liability under the STS scheme as on 31-3-1992, was Rs. 160.25
crores. It is further stated that the company should have disclosed the details
of each and every purchase and sale of shares and bonds by way of schedule to
the balance sheet as on 31-3-1992. The company has not done so. Thus, the
company has not complied with Part I, Schedule VI. On the basis of these
allegations, the complainant prays that accused Nos. 1 and 2, ex-managing
director and the managing director, as on the date of filing of the complaint,
shall be punished as the officers-in-default under section 211 [sub-sections
(7) and (8)].
4. C.C. No.
68 of 1994 is filed against the lending company for the offences under
sub-sections (6) and (7) of section 209, for failure to comply with the
requirements of sub-sections (1) and (3) of the said section 209. In this case
also it is alleged that as per the inspection of the company by the officers of
the Central Government from 25-4-1994 to 30-5-1994, it is revealed that the
lending company has not kept the books of account properly as required under
sub-sections (6) and (7) of section 209. It is further stated that the
aggregate amount of money accepted under the STS scheme in 1991-92 amounted to
Rs. 1,170.45 crores and in 1992-93 the amount was Rs. 398.77 crores. Even
though the funds accepted on own account as well as from STS claims were
treated alike, the company opted to treat the amount as accepted under the STS
scheme as 'off the book transaction deal'. This is on account of a wrong and
incorrect view taken by the company. It is further alleged that the security
transactions recorded in the books of account of the company as shown in the
published account as on 31-3-1992, are incorrect. In other words, the lending operations
of the company (prohibited by the RBI) were disguised as security transactions
and shown in the books of account and published in accounts as purchase and
sale of securities. Thus, the company has not complied with the requirements of
section 209. On the basis of these allegations, it is prayed in the complaint
that accused Nos. 1 and 2 as the officers-in-default of the company shall be
punished under section 209.
5. In all
these cases, the defence of the petitioner is that he has assumed charge as
managing director with effect from 16-9-1992, being appointed with effect from
16-9-1992. He relies upon the appointment order dated 4-3-1993, filed in the
material papers at Annexure-III. This is the appointment order issued by the
Government of India, Ministry of Law, Justice and Company Affairs stating that
the appointment of the petitioner as managing director of the company with
effect from 16-9-1992 to 13-6-1993, is approved. It is further stated that the
appointment of the petitioner is intimated to the Registrar of Companies,
Andhra Pradesh, Hyderabad, vide letter
dated 1-10-1992, under Form No. 32. A copy of Form No. 32 is also filed. In
that Form No. 32, the petitioner's name is at Serial No. 2. Under column No. 5
of the Form, it is stated that the date of appointment of the petitioner is
16-9-1992. It is further stated that the appointment as director and managing
director is effective from 16-9-1992, as nominated by Andhra Bank on
deputation. The learned counsel appearing for the petitioner relying upon these
documents and also the averments in the criminal petitions stated that the
petitioner has been appointed with effect from 16-9-1992, as the managing
director and all these alleged offences have taken place prior to the
petitioner assuming charge on 16-9-1992. Therefore, on the basis of all the
complaints filed in all these cases, so far as the petitioner is concerned, no
offence can be said to have been made out, and, accordingly, it is a fit case
for quashing the proceedings under section 482 of the Code of Criminal
Procedure, 1973.
6. Secondly,
the learned counsel for the petitioner submitted that even in the complaints,
it is not alleged that the petitioner has committed the offence 'wilfully'.
Unless it is alleged that there is a 'wilful default' on the part of the
particular officers, no offence can be constituted under the respective
sections mentioned in each of the complaints. In support of his contention,
learned counsel for the petitioner also relied upon the judgment of the Bombay
High Court in H. Nanjundiah v. V. Govindan, Registrar of Companies [1986]
59 Comp. Cas. 356.
7. On the
other hand, the learned counsel appearing for the respondent-Registrar of
Companies submitted that there is some substance in the argument of the
petitioner so far as Criminal Petition No. 1712 of 1995 is concerned and
insofar as Criminal Petition No. 1711 of 1995 and Criminal Petition No. 1713 of
1995 is concerned, a prima facie case
is made out on the basis of the complaint filed and, therefore, the petitioner
is not entitled to any relief under section 482.
8. Regarding
the principle under what circumstances, this Court can quash the proceedings
under section 482 (561A of the old Code), both the counsel relied upon the
judgments of the Supreme Court in R.P.
Kapur v. State of Punjab AIR 1960
SC 866 and State of Haryana v. Bhajan
Lal AIR 1992 SC 604. In R.P.
Kapur's case (supra), the
Supreme Court laid down certain guidelines under what circumstances this Court
can exercise the inherent jurisdiction under section 482 as under:
"...
Ordinarily, criminal proceedings instituted against an accused person must be
tried under the provisions of the Code, and the High Court would be reluctant
to interfere with the said proceedings at an interlocutory stage. It is not possible,
desirable or expedient to lay down any inflexible rule which would govern the
exercise of this inherent jurisdiction. However, we may indicate some
categories of cases where the inherent jurisdiction can and should be exercised
for quashing the proceedings. There may be cases where it may be possible for
the High Court to take the view that the institution or continuance of criminal
proceedings against an accused person may amount to the abuse of the process of
the Court or that the quashing of the impugned proceedings would secure the
ends of justice. If the criminal proceeding in question is in respect of an
offence alleged to have been committed by an accused person and it manifestly
appears that there is a legal bar against the institution or continuance of the
said proceeding the High Court would be justified in quashing the proceeding on
that ground. Absence of the requisite sanction may, for instance, furnish cases
under this category. Cases may also arise where the allegations in the first information
report or the complaint, even if they are taken at their face value and
accepted in their entirety, do not constitute the offence alleged; in such
cases no question of appreciating evidence arises; it is a matter merely of
looking at the complaint or the first information report to decide whether the
offence alleged is disclosed or not. In such cases it would be legitimate for
the High Court to hold that it would be manifestly unjust to allow the process
of the criminal court to be issued against the accused person. A third category
of cases in which the inherent jurisdiction of the High Court can be
successfully invoked may also arise. In cases falling under this category the
allegations made against the accused person do constitute an offence alleged
but there is either no legal evidence adduced in support of the case or the
evidence adduced clearly or manifestly fails to prove the charge. In dealing
with this class of cases it is important to bear in mind the distinction
between a case where there is no legal evidence or where there is evidence
which is manifestly and clearly inconsistent with the accusation made and cases
where there is legal evidence which on its appreciation may or may not support
the accusation in question. In exercising its jurisdiction under section 561 A,
the High Court would not embark upon an enquiry as to whether the evidence in
question is reliable or not. That is the function of the trial magistrate, and
ordinarily it would not be open to any party to invoke the High Court's
inherent jurisdiction and contend that on a reasonable appreciation of the
evidence the accusation made against the accused would not be
sustained...." (p. 869)
9. In the
latter judgment in Bhajan Lal's case
(supra), the Supreme Court
formulated seven broad principles as guidelines for exercising the inherent
jurisdiction under section 482, by the High Courts as under:
"1. Where
the allegations made in the first information report or the complaint, even if
they are taken at their face value and accepted in their entirety do not prima facie constitute any offence or
make out a case against the accused.
2. Where the
allegations in the first information report and other materials, if any,
accompanying the first information report do not disclose a cognizable offence,
justifying an investigation by police officers under section 156(1) of the Code
except under an order of a magistrate within the purview of section 155(2) of
the Code.
3. Where the
uncontroverted allegations made in the first information report or complaint
and the evidence collected in support of the same do not disclose the
commission of any offence and make out a case against the accused.
4. Where the
allegations in the first information report do not constitute a cognizable
offence but constitute only a non-cognizable offence, no investigation is
permitted by a police officer without an order of a magistrate as contemplated
under section 155(2) of the Code.
5. Where the
allegations made in the first information report or complaint are so absurd and
inherently improbable on the basis of which no prudent person can ever reach a
just conclusion that there is sufficient ground for proceeding against the
accused.
6. Where there
is an express legal bar engrafted in any of the provisions of the Code or the
concerned Act (under which a criminal proceeding is instituted) to the
institution and continuance of the proceedings and/or where there is a specific
provision in the Code or the concerned Act, providing efficacious redress for
the grievance of the aggrieved party.
7. Where a
criminal proceeding is manifestly attended with mala fide and/or where the proceeding is maliciously instituted
with an ulterior motive for wreaking vengeance on the accused and with a view
to spite him due to private and personal grudge." (p. 629)
10. Further, in
paragraph No. 109 of the said judgment, the Supreme Court has given a note of
caution to the effect that the power of quashing the criminal proceedings
should be exercised very sparingly and with circumspection and that too in the
rarest of rare cases; that the Court will not be justified in embarking upon an
enquiry as to the reliability or genuineness or otherwise of the allegations
made in the first information report or the complaint. Keeping in view, these
principles enunciated by the Supreme Court, I now proceed to consider the
merits of each of these cases.
11. Criminal
Petition No. 1711 of 1995 is filed for quashing the proceedings in C.C. No. 64
of 1994 filed for the offence alleged to have been committed by the
petitioner-accused No. 5 under section 371 for failure to comply with section
370(1) on the allegation that the accused persons as the officers-in-default of
accused No. 1-company have advanced loans as lending company in excess of 30
per cent permitted in terms of the Central Government Notification No. G.S.R.
448(E), dated 17-4-1989 – See [1989]
65 Comp. Cas. (St.) 585, without the special resolution of the lending company
in terms of section 371B of the Act. It is relevant to extract paragraph No. 5
of the complaint which reads as under:
"5. That
the subject offence in this matter is that during the period since commencement
of business till 31-3-1992, the lending company had granted loans to various
bodies corporate/companies and as on 31-3-1992, the total amount of such loans
granted and remaining outstanding was Rs. 511.48 lakhs. From 1-4-1992 onwards,
the lending company continued to grant loans to bodies corporate/companies to
the extent of Rs. 139.50 lakhs. The details of such loans are furnished in
Annexure "A" which is enclosed with the complaint, and the same may
be considered as part and parcel of the complaint."
12. Relying on
this allegation, the learned counsel for the petitioner contended that no
offence can be said to have been made out against the petitioner-accused No. 5
in the case, since the alleged lending of loans was from the commencement of
the business till 31-3-1992. Even from the details the loans advanced also
pertain to a period up to 31-3-1992. Regarding the date found at item No. 8 of
the said Annexure 'A' as 30-6-1993, is the only one regarding the calculation
of the interest on the loan already advanced prior to 31 -3-1992. From these
facts, it is clear that the allegations and the complaint relate to a period up
to 31-3-1992, whereas the petitioner has been appointed as the managing
director with effect from 16-9-1992, a date after 31-3-1992. Therefore, the
petitioner could not have been made one of the accused in the case. Hence, the
proceedings are liable to be set aside. On the other hand, the counsel
appearing for the Registrar of Companies contended that as per the complaint
even from 1-4-1992, onwards the lending company continued to grant loans to
bodies corporate/companies to the extent of Rs. 139.50 lakhs as per Annexure
'A', therefore, there is a prima facie
case against the petitioner.
13. There is
substance in the argument of the learned counsel for the petitioner. Paragraph
No. 2 of the complaint itself states that:
"Accused
No. 2 was the chairman of the lending company from 25-2-1991 to 30-6-1992.
Accused No. 3 was the chairman of the lending company during the period from
1-7-1992 to 31-3-1993. Accused No. 4 was the managing director of the lending
company during the period from 14-6-1991 to 7-9-1992. Accused No. 5 is the
managing director of the lending company with effect from 16-9-1992. Accused Nos. 2 to 4 are the officers of the
lending company during the relevant and material times of the subject offence. Therefore,
accused Nos. 2 to 5 are the officers-in-default in accordance with section 5 of
the Companies Act, 1956." [Emphasis supplied]
14. From this
allegation in the complaint, it is clear that it is accused No. 4 who was the
managing director of the lending company during the relevant period from
14-6-1991 to 7-9-1994. It is further clear that A-2 to A-4 were the officers of
the lending company during the relevant and material times of the subject of
offence. However, it also described the present petitioner as accused No. 5 as
one of the officers-in-default in the next sentence. The short question would
be whether the petitioner who is accused No. 5 in this case is an
officer-in-default as per section 5 of the Act, for the purpose of the offences
under the provisions of the Act.
As per section
5 for the purpose of the provisions of the Act, an officer of the company, who
is in default, is made liable to punishment or penalty. Under clauses (a) to (g) of the said section it has
described such defaulting officers in cases of lapses and violations for the
purpose of the punishment and penalty and they are managing director or
managing directors, the whole-time director or whole-time directors, the
manager, the secretary and any person under whose directions or instructions
the board of directors of the company are accustomed to act, any person charged
by the board with the responsibility of complying with that provisions of the
Act. Examining the present case in the light of section 5, it is clear that at
the relevant point of time, i.e., up
to 31-3-1992, the petitioner was not the managing director, as admitted in the
complaint itself. No particulars are given in the complaint except the
particulars stated in Annexure 'A' filed along with the complaint. From the
reading of both the complaint and as well as Annexure 'A', it is clear that the
entire case pertains to the lending of loans prior to 31 -3-1992, and one entry
dated 30-6-1993, found at Item No. 8 of Annexure 'A' is only an item
calculating the interest on the loan already advanced on 22-4-1992. From the entire
reading of the complaint and its Annexure 'A' it is clear that the petitioner
who has joined his duties as the managing director with effect from 16-9-1992,
cannot be said to be an officer-in-default regarding the loan transactions that
have taken place prior to his joining his duties on 16-9-1992. As per the
allegations, in the complaint itself it is clear that the relevant period of
the offence is up to 31 -3-1992. Since the petitioner was not a managing
director during that period he cannot be a defaulting officer. In this view of
the matter, I am of the opinion that the complaint in C.C. No. 64 of 1994 does
not disclose the offence alleged against the petitioner. In view of the law
declared by the Apex Court in K.P.
Kapur's case (supra) and
Bhajan Lal's case (supra), the Court may quash the
proceedings under section 482 of the Code of Criminal Procedure, if the first
information report or the complaint itself does not disclose any offence.
Without embarking on any further enquiry, on a plain reading of the complaint
itself, the complaint does not disclose any offence against the petitioner.
Hence, the proceedings in C.C. No. 64 of 1994 so far as it relates to the
petitioner are liable to be quashed.
16. In Criminal
Petition No. 1712 of 1995, the petitioner has sought quashing of the
proceedings in C.C. No. 66 of 1994. According to this complaint, the balance
sheet and profit and loss account for the year ending 31 -3 -1992, did not show
the true and fair view of the state of affairs hence, the accused have
committed the offence under section 211 read with Schedule VI.
17. As pointed
out by the learned counsel for the petitioner, it is accused No. 1, ex-managing
director who is described as officer-in-default. To quote:
"That
accused No. 1 is the ex-managing director of the Andhra Bank Financial Services
Ltd. (hereinafter referred to as 'company') during period from 25-2-1991 to
7-9-1992 and he was thereby officer-in-default during all the relevant and
material times when the subject offence took place. Accused No. 2 has been the
managing director of the company since 16-9-1992."
18. From the
reading of the complaint itself, it is clear that it is only accused No. 1 who
is described as officer-in-default but not the petitioner who is accused No. 2.
The very allegation in the complaint states that the balance sheet and profit
and loss account for the year ended 31-3-1992, was not kept in accordance with
law. As stated above, the present petitioner was not the managing director
during that period and he assumed charge as the managing director only with
effect from 16-9-1992. In this view of the matter, it can be safely concluded
that no offence is made out against the present petitioner under section 211,
read with Schedule VI. Moreover, the learned counsel for the
respondent-complainant fairly conceded that so far as this complaint is
concerned prima facie no
offence is made out against the present petitioner. In view of these
circumstances, I am of the opinion that these proceedings also are liable to be
quashed so far as they pertain to the present petitioner.
19. Coming to
the last case, i.e., Criminal
Petition No. 1713 of 1995, it is seen from the pleadings that in this case, the
petitioner has sought for quashing of the proceedings in C.C. No. 68 of 1994.
This is a complaint filed under section 209(6) and (7) for failure to comply
with the requirements of section 209(1) and (3). The allegation is that the
company has not kept proper books of account with respect to all sums of money
received and spent and also regarding the money pertaining to all sales and
purchases of goods by the company. Even the assets and liabilities of the
company have not been kept properly. In this complaint also the present
petitioner is made accused No. 2 and accused No. 1 is the ex-managing director.
Paragraph No. 1 of the complaint reads as under :
"That
accused No. 1 is the ex-managing director of Andhra Bank Financial Services
Ltd. (hereinafter referred to as 'company') during the period from 25-2-1991 to
7-9-1992 and he was thereby officer-in-default during all the relevant and
material times when the subject offence took place. Accused No. 2 has been the
managing director of the company since 16-9-1992."
20. From the
reading of this complaint also, it is clear that it is only the accused No. 1
who has been described as 'officer-in-default' but not accused No. 2. He has
been shown as the person who has taken charge as managing director of the
company from 16-9-1992. Further, in paragraph No. 3, it is stated that 'in
these circumstances, the security transactions recorded in the books of account
of the company as shown in the published account as on 31-3-1992, are
incorrect'. From this allegation and from the entire allegation in the
complaint it is further disclosed that the irregularity that is sought to be
pointed out is only for a period prior to 31-3-1992, but not after the present
petitioner assumed his charge with effect from 16-9-1992. Therefore, on the
basis of the allegations made in the complaint, particularly in paragraph No. 1
it is clear that the petitioner is not described as officer-in-default, rightly
so because he has assumed charge only with effect from 16-9-1992. Hence, I am
of the opinion that the complaint, prime
facie, does not disclose the commission of any offence by the present
petitioner under section 209. Following the principle laid down by the Apex
Court in the judgments referred to above even these proceedings in C.C. No. 68
of 1994 are liable to be quashed.
21. On the basis
of the allegations made in these complaints if the proceedings are allowed to
go on the petitioner would be put to great loss and hardship and it would
definitely result in abuse of the process of the Court. The allegations imputed
are of the period prior to 31-3-1992, and the petitioner has assumed the charge
only with effect from 16-9-1992, he cannot be termed as an officer-in-default
under section 5, so as to make him liable for the offences committed under
different sections of the said Act as alleged in the complaint. In similar
circumstances, the Calcutta High Court in Ajit Kumar Sarkar v. Asstt.
Registrar of Companies [1979] 49 Comp. Cas. 909 also held that a person
against whom there are no specific averments in the complaint cannot be said to
be an officer-in-default. I am extracting the relevant portion as under:
"The next
point taken is that the case against the company and one of the directors has not
been filed as service could not be effected on them. Without the company being
prosecuted along with the petitioner the present proceedings cannot go on. That
the company is a necessary party goes without saying. Only if the company is
convicted the others may be convicted as the directors derive their liability
from the company. Hence, the company is a necessary party and the prosecution
should be conducted only in the presence of the company, as accused.
Further, it is
contended by the petitioner that the petition of complaint is liable to be
quashed on the ground that there is no specific averment in it as to the
officers who are in default apart from the company. In this connection, my
attention has been drawn to section 5 of the Companies Act wherein
'officer-in-default' has been defined and explained. It means 'an officer who
is knowingly guilty of default'. In section 162 of the Companies Act it is
provided that 'the company and every officer of the company who is in default
shall be punishable' which is further clarified in section 162(2) that the
expression 'officer' shall include 'any person in accordance with whose
directions or instructions the board of directors of the company is accustomed
to act'.
Here it was
incumbent on the prosecution to fix the liability with respect to the
particular 'officer-in-default' and there should have been a specific averment
to that effect in the complaint. In the petition of complaint, it is only
stated that 'accused Nos. 2 to 5 are the officers and directors of the company'
and in para 3, there is an averment that 'the company and its directors are
under a statutory obligation to file with the complainant an annual return'.
This statutory obligation is imposed under sections 159 and 162 of the
Companies Act. If all the directors are liable for every default then the
expression 'every officer who is in default' becomes redundant and meaningless.
As already stated above 'an officer includes a director'.
In this
connection, the case reported in [1978] CLJ 336 (sic) lends support to this contention of the learned advocate
for the petitioner.
In view of
what I have stated above on the last two points taken by the petitioner, I hold
that the cognizance taken on the basis of such petitions of complaint is bad
and accordingly the proceedings are quashed." (p. 919)
22. This
judgment is followed by the Orissa High Court in a decision in Bipin Behari Nayak v. Registrar of Companies [1988] 63
Comp. Cas. 271.
23. In view of
my above conclusions, it is now not necessary for me to consider the second
point urged by learned counsel for the petitioner that the complaints did not
specifically allege that there was a 'wilful default' on the part of the
accused persons. When it is held that the petitioner is not an
officer-in-default, as per section 5, the question whether such alleged default
was wilful or not does not arise. Therefore, the judgment of the Bombay High
Court in H. Nanjundiah's case (supra) relied upon by the petitioner
does not arise for consideration.
24. For the foregoing
reasons, I allow the Criminal Petition Nos. 1711, 1712 and 1713 of 1995, and,
accordingly, quash the proceedings pending on the file of the Special Judge for
Economic Offences, Hyderabad, in C.C. No. 64 of 1994, in C.C. No. 66 of 1994
and in C.C. No. 68 of 1994 insofar as these proceedings pertain to the
petitioner.
[1986]
59 COMP. CAS. 780 (CAL.)
HIGH COURT OF CALCUTTA
v.
S. Proshad
J.N.
CHAUDHURI, J.
CRIMINAL
REVISION NOS. 1506 TO 1509 OF 1979.
AUGUST 3, 1984
Mrs. Archana Sengupta for the
Petitioner.
R.N.
Saha for the opposite parties.
R.B.
Mahato for the State.
Jitendra Nath Chaudhuri,
J.—In all these matters, the two accused
persons being the opposite parties herein, were discharged by the impugned orders
dated March 28, 1979, passed by the learned Metropolitan Magistrate, 9th Court,
Calcutta. The complaints in the respective cases filed by the petitioner were
that as directors they had failed to take all reasonable steps to secure
compliance by the company in respect of the accounts to be laid before the
company in general meetings with the requirements of the Companies Act and, as
such, had thereby become liable to be punished under the provision of section
211(7) of the Companies Act.
Since I find that the
averments in the petitions of complaint in these cases are not in compliance
with section 209(6)(d) of the said Act, no case for any interference with the
impugned order arises. Section 209(6)(d) read with section 211(7) of the said
Act imposes liability on every director of the company "where the company
has neither a managing agent, nor secretaries and treasurers, nor managing
director, nor manager". But in none of those petitions of complaint is
there any averment to that effect as required in section 209(6)(d), which is a
necessary prerequisite for fixing the alleged liability on a director. There
must be an averment to show that "a director" is liable, excluding
the other persons mentioned in section 209(6)(d) of the said Act.
It is true that the impuged
orders have not considered this particular absence of specific averment as
contemplated under section 209(6)(d) of the said Act, but in view of lack of
specific averment as indicated above, it is not necessary for me to consider
whether the learned Magistrate was right in discharging the accused due to lack
of the specific averment in the petitions of complaint that these accused
persons were authorised by the board of directors of the company to discharge
the particular obligation which they have failed to discharge and, therefore,
are not officers in default as laid down in section 5 of the Companies Act.
Since I have already held
that on the face of the petitions, there is lack of specific averment as
discussed above, in exercise of my revisional jurisdiction I find no illegality
in the fact that the accused persons have been discharged in these cases. These
petitions accordingly fail and all the rules are discharged.
Let the records be sent
down forthwith.
[1986] 59 COMP. CAS. 814 (KER.)
HIGH COURT OF
KERALA
v.
Joint Director
K. BHASKARAN, ACTG. C.J., AND V. BHASKARAN NAMBIAR, J.
W.A. NO. 51 OF 1982 AND O.P. NOS. 77 AND 3949 OF 1982.
DECEMBER 7, 1983
K.K. Venugopal, Sumathi Dandapani, for the Appellant.
K.K. Venugopal, G. Sreekumar, K.P. Dandapani and M.M. Abdul Aziz, for the Respondents.
The
judgment of the court was delivered by
Bhaskaran,
Actg., C.J.—W.A.
No. 51 of 1982 is by Sri. C. V. Karuppunni, one of the directors of Sudarsan
Trading Co. Ltd., Calicut, and is directed
against the dismissal of his writ petition, O. P. No. 7197 of 1981 ; O. P. No.
77 of 1982 is by Sri. V. P. Balaram, chief executive of the said company; and
O. P. No. 3949 of 1982 is by Sri. M. Velayudhan, the managing director of the
said company.
Copies of the summons under
section 209A of the Companies Act, 1956 (the Act), dated November 30,1981,
addressed to the petitioner in O.P. No. 77 of 1982, the second petitioner in
O.P. No. 3949 of 1982 and the petitioner in O.P. No. 7197 of 1981 (the
appellant in W.A. No. 51 of 1982), were respectively marked as Exts. P-1, P-14
and P-15 in the set of documents produced in O.P. No. 77 of 1982. In O.P. No.
3949 of 1982, the summons addressed to the second petitioner therein is marked
exhibit P-l ; and the summons addressed to the petitioner in O.P. No. 7197 of
1981 (the appellant in W.A. No. 51 of 1982) is marked exhibit P-l in that writ
petition. In all the three cases, the challenge being directed against the
legality of these summons dated November 30, 1981, issued to the various
petitioners, all these cases were heard together, and are being disposed of by
this common judgment.
Sudarsan Trading Co. Ltd.
is a company mainly transacting non-banking financial business. The first
respondent, the Joint Director, Inspection, Company Law Board, Southern Region,
Madras (for short, "the Board"), decided to inspect the books of
account and other records of the company under section 209A of the Act. The
company, however, pointed out that the Board had already initiated
investigation under section 237B of the Act ; that the Delhi High Court in
Civil Writ Petitions Nos. 143 and 848 of 1974 had directed stay of proceedings
and the Central Government counsel had given an undertaking before that court
that no action would be taken further in the matter pending disposal of the
writ petitions ; and that it was when these writ petitions were pending on the
file of the High Court of Delhi that the first respondent had decided to
inspect the books of account and other records of the company. The material
portion of the summons dated November 30, 1981, produced in the respective
petitions as exhibit P-l reads as follows :
"Whereas your
attendance is required in connection with the inspection under section 209A of
the Companies Act, 1956, in the case of M/s. Sudarsan Trading Co. Ltd. you are
hereby required personally to attend at the office of the Regional Director,
Company Law Board, Southern Region, Shastri Bhavan, Block IV, 2nd floor, 35,
Haddows Road, Madras 600 006, on the fourteenth day of December, 1981, at
eleven O' clock a.m. to produce either personally or through an authorised
representative the books of account or other documents specified overleaf and
not to depart until you receive my permission to do so. If you intentionally fail to so attend and
produce the books of account or documents, a fine up to Rs. 500 may be imposed
upon you."
On
behalf of the petitioners, various contentions including the vires of section 209A
of the Act have been raised. The plea that investigation undertaken by the
Board, under section 237B of the Act, has been stayed by the High Court of
Delhi and, therefore, inspection of books of account under section 209A of the
Act would not be permissible was not seriously pursued by Sri. K. K. Venugopal,
the counsel for the petitioners. The stress laid by Sri. Venugopal centred
round the scope of inspection of the books of account, etc., of the company by
the first respondent or his subordinates by virtue of the power vested in them
under section 209A of the Act. It was his submission that the section falls
under the head "Accounts" in Part VI and the right of inspection in
relation to the company would be restricted to that of the books of account. This
position, according to him, is very clear from the provisions of the Act
itself. He also contended for the position that the summoning of the books of
account and personal attendance could be ordered only after the first
respondent or his subordinates had undertaken an inspection of the books of
account. In that connection considerable stress is laid on the expression
"making inspection" occurring in sub-section (3) of the section. For
the sake of convenience, we would quote sub-sections (1) to (5) of the section,
with which we are directly concerned in this case :
"209
A. Inspection of books of account,
etc., of companies.—(1) The books of account and other books and papers
of every company shall be open to inspection during business hours—
(i) by
the Registrar, or
(ii) by
such officer of Government as may be authorised by the Central Government in
this behalf :
Provided
that such inspection may be made without giving any previous notice to the
company or any officer thereof.
(2)
It shall be the duty of every director, other officer or employee of the
company to produce to the person making inspection under sub-section (1), all
such books of account and other books and papers of the company in his custody
or control and to furnish him with any statement, information or explanation
relating to the affairs of the company as the said person may require of him
within such time and at such place as he may specify.
(3)
It shall also be the duty of every director, other officer or employee of the
company to give to the person making inspection under this section all
assistance in connection with the inspection which the company may be
reasonably expected to give.
(4) The person making the
inspection under this section may, during the course of inspection,—
(i) make or cause to
be made copies of books of account and other books and papers, or
(ii) place or cause
to be placed any marks of identification thereon in token of the inspection
having been made.
(5) Notwithstanding
anything contained in any other law for the time being in force or any contract
to the contrary, any person making an inspection under this section shall have
the same powers as are vested in a civil court under the Civil Procedure Code,
1908, while trying a suit, in respect of the following matters, namely :—
(i) the discovery and production of books of account and other
documents, at such place and such time as may be specified by such person;
(ii) summoning and
enforcing the attendance of persons and examining them on oath ;
(iii) inspection of
any books, registers and other documents of the company at any place."
We find it difficult to
agree with this argument inasmuch as the same expression "making
inspection" occurs in sub-section (2) of the section, and that would mean,
if it is only after the inspection is over that the directors, officers or
employees of the company are bound to produce books of account and other books
and papers of the company to the officers, who are authorised in that behalf
and who intended to inspect the books, that the inspection had to be done
without the aid of books of account which might be rather impracticable, if not
impossible.
We, however, find
considerable force in the argument advanced by Sri Venugopal that the
principles of ejusdem generis have to be applied in deciding the question as to
the type of books and documents the inspecting officers are entitled to
inspect. In other words, the documents and papers referred to in sub-section
(1) of the section must be those which have the character of books of account.
The submission that in the guise of carrying out an inspection of books of
account and other books and papers, the inspecting authorities cannot make a
roving enquiry into all the affairs of the company merits serious
consideration. We are of the opinion that the scope of inspection of books of
account and other books and papers under section 209A has its limits and has to
be distinguished from the investigation of the company's affairs under section
237 of the Act. Sri Venugopal submitted that the company would have no
objection to the officers of the Board inspecting at the office of the company
where the books of account and other books and papers have to be kept under the
Act, which would include books of account, ledgers, documents, and vouchers
described in item 1 of the notice dated November 30, 1981, in the instant case.
In view of this offer made by Sri Venugopal, we consider that the writ appeal
with the writ petitions could be disposed of with the following directions :
(1) A notice listing the actual ledgers, documents and
vouchers to be inspected by the officers of the Board shall be served on the
petitioner company not less than four weeks prior to the date of inspection,
and such inspection in any one office of the company will be completed as
expeditiously as possible, as far as possible within two weeks from the date of
its commencement.
(2) It shall then be open to the respondents to inspect at
the office of the company where the books of account and other books and papers
have been kept under the Act, including ledgers and vouchers described in item
1 of the notice dated November 30, 1981.
(3) In case the respondents require to inspect books and
documents other than those mentioned in clause (2) above, they would seek
appropriate directions from the company court.
(4) The question whether the petitioner company would be
within its right to seek privilege on the ground that it is beyond the scope of
inspection under section 209A and would trespass into the arena of investigation
under section 237 of the Act, would have to be considered on the facts and
circumstances of the case ; and no particular direction in that behalf is
issued in this judgment.
(5) After inspection of books of account and other books and
papers as contemplated by sub-section (1) of the section, if the respondents
require any statement, information or explanation relating to the affairs of
the company from any director, officer or employee of the company, the
respondents would be at liberty to exercise such rights as are available to
them under sub-sections (2) and (5) of the section.
The writ appeal and the
writ petitions are disposed of with the above directions. There will be no
order as to costs.
Carbon copy of this
judgment may be granted to the counsel for the Central Government free of
charge and to the counsel for the petitioners on usual terms if applied for in
that behalf.
[1985] 57 COMP. CAS. 662
(CAL.)
HIGH COURT OF
CALCUTTA
v.
Registrar of Companies
N.G. CHAUDHURI, J.
CRIMINAL REVISION NO. 2175
OF 1979.
FEBRUARY 1, 1983
Santosh Sen and S.N. Some for the Petitioners.
Dipak Kumar Sengupta for the Respondent.
Miss Sova
Mukherjee for the State.
Chaudhuri, J.—In this case arising out of an
application under s. 401 read with s. 482 of the Cr. PC, 1973, and art. 227 of
the Constitution, a prayer has been made for quashing the proceedings in Case
No. G/2969 of 1975, in the fifth Court of Metropolitan Magistrate, Calcutta,
and for setting aside the order dated October 11, 1979, passed in the said
case.
The aforesaid case before the Metropolitan Magistrate
arose out of a petition of complaint filed by the Registrar of Companies, West
Bengal, under s. 209A(8) of the Companies Act, 1956, impleading the present
petitioners as accused. It was alleged that Poobong Tea Co. Ltd. was
incorporated under the Indian Companies Act, 1913, on March 27, 1923, having
its registered office at 44, Strand Road, Calcutta, and the accused were
directors of the company. Pursuant to the provisions of sub-s. (2) read with
sub-s. (5) of s. 209A of the Companies Act, 1956, the books of account and the
other books of the company were required to be produced before Shri J. B.
Bhaduri, Assistant Inspecting Officer, an officer authorised under c1. (ii) of s. 209A(1) of the Act on
September 19, 1975, after a notice to that effect was given to the directors by
a letter dated August 30, 1975. The company, by a letter dated September 8,
1975, expressed its inability to produce the books of account on September 19,
1975, and prayed for one month's time. The complainant alleged that by another
notice dated October 17,1975, the directors of the company were individually
informed that default in the matter of production of records before the authorised
officer was well within their knowledge and they were required to show cause
why action should not be taken against them under the appropriate section of
the Companies Act. Instead of complying with the above direction, the accused
remained silent and the company requested for directions on the authorised
officer to carry on the inspection of the books at its premises which was
contrary to the specific directions given by the complainant in its notice. The
complainant, therefore, alleged that the accused committed an offence under s.
209A(2), read with sub-s. (5) and sub-s. (8) when the company, by its letter
dated November 15, 1975, expressed its unwillingness to produce the books of
account. In the petition of complaint it was alleged that after giving prior
notice to the company, Mr. Bhaduri had visited the premises of the company on
April 16, 1974, April 18, 1974, and April 25, 1974, in vain for inspection of
the books of account. After receiving the complaint, the then Chief
Metropolitan Magistrate by his order dated December 25, 1975, took cognizance
of the case and ordered issue of summons against the accused petitioners.
Simultaneously, he transferred the case to the fifth Court of Metropolitan
Magistrate for disposal. Entering appearance in the case, the accused took some
preliminary objections to the proceedings and prayed that the order taking
cognizance of the case be reviewed and the proceedings dropped. By order dated
October 11,1979, impugned herein, the learned Metropolitan Magistrate, fifth
Court, refused the prayer of the accused. Against the above background, the
present revision case has been filed.
Mr. Santosh Nath Sen, the learned advocate on behalf
of the petitioners, challenges the legality and validity of the proceedings
before the learned Metropolitan Magistrate on various grounds. He contends that
offence, if any, was committed by the company between April 16, 1974, and April
25, 1974. The case before the Metropolitan Magistrate instituted on December
23, 1975, is barred under s. 468(2)(b)
of the Cr. PC. This contention does not have any substance on its face. It has
been clearly stated in para. 7 of the complaint that the complainant issued
another notice on October 16, 1975, reiterating specifically that the directors
of the company individually were aware of the default of not producing the
records before J. B. Bhaduri on August 30, 1975, and the directors were asked
to show cause why action should not be taken against them, but the directors
remained silent and the company prayed for direction on Mr. Bhaduri to carry on
inspection at its premises contrary to the directions given in the original
notice dated August 30, 1975. In para. 10 of the petition of complaint, it has
been specifically pleaded that the offence occurred on November 15, 1975, when
the company by its letter of the same date expressed its unwillingness to
produce the books of account. If is thus evident that the complaint was not for
offences committed on different dates in the month of April, 1974, to which references
were incidentally made in paras. 5, 6 and 7 of the complaint. The complaint
gave clear indication that the prosecution undertaken was for the offence
committed on November 15, 1975. By no stretch of imagination can it be said
that the cognizance of the said offence was taken beyond the period of
limitation prescribed by s. 468(2)(b)
of the Cr. PC. The first contention of Mr. Sen, therefore, fails.
Mr. Sen draws my attention to annexure "A" of
the revision application and contends that by way of notice under s. 209(1) of
the Companies Act, dated April 17, 1974, the Registrar of Companies, West
Bengal, was informed that the board of directors had decided to keep the books
of account of the company at Poobong Tea Garden, Ghoom, District Darjeeling.
Mr. Sen, accordingly, concludes that non-production of the books of account at
the registered office of the company at 44, Strand Road, Calcutta, did not
constitute an offence. This contention does not prevail with me. Clause (ii) of s. 209A(1) makes books of
account and other books open to inspection by an authorised officer, and sub-s.
(2) requires that the company and its directors and employees will be liable to
produce the books and papers at such time and place as may be specified by the
person making the inspection. So if Mr. Bhaduri, the authorised officer,
demanded inspection of the books of accounts at 44, Strand Road, Calcutta, it
cannot in answer to the said requisition be said that the books of account may
be inspected at Ghoom, Darjeeling.
Mr. Sen next contends relying on the Division Bench
ruling of this court in the case of Mahalderam
Tea Estate Pvt. Ltd. v. D. N.
Prodhan [1978] 52 FJR 392; [1978] Cal HN 336; [1978] Lab IC 898, that a
company is primarily liable for an offence and a conspicuous feature of the
present case is that the company has not been prosecuted. In short, his
contention is that when the company, the primary offender, has not been
prosecuted, its directors cannot be prosecuted. This contention has no force.
The prosecution in the case reported was under s. 14A of the Employees'
Provident Funds Act, 1952. A perusal of the provisions of the said section
indicates that the company is primarily responsible for commission of offences
and every person who, at the time the offence was committed, was in charge of
and was responsible to the company for the conduct of the business of the
company was made further liable. The provisions of the Companies Act are not
comparable in their text and terms with the provisions of s. 14A of the
Employees' Provident Funds Act. In this connection, reference is made to s.
209A(2) of the Companies Act which casts a duty on every director and other
officers and employees of the company to produce to the person making
inspection, of books of account and other books. Sub-s. (8) of the said section
makes it clear that if default is made in complying with the provisions of this
section, every officer of the company who is in default shall be punishable.
The provisions of the Companies Act, referred to above, do not indicate that
the company itself will have to be prosecuted. The liability or responsibility
of the directors is unqualified. Mr. Sen draws my attention to the provisions
of s. 2(30) of the Companies Act, 1956, defining "officer". The
definition does not help Mr. Sen because the definition of "officer"
includes primarily any director. So a defaulting director is obviously liable
to be prosecuted under s. 209A(8) of the Act. Mr. Sen's last contention is that
in the absence of specific averment in the petition of complaint as to the
responsibility of the petitioner accused vis-a-vis the company with regard to
day-to-day affairs of the company and maintenance of books of account, the
prosecution started was untenable. To fortify his contention, Mr. Sen refers to
the case of Maya Chundra v. Inspector,
Minimum Wages Office [1978] Cal HN 993; [1979] Cri LJ 534. Mr.
Dipak Sen Gupta, on behalf of the Registrar of Companies, points out that the
case relied upon by Mr. Sen was based on the express provisions of s. 22(c)of the Minimum Wages Act, 1948, and
the provisions of the said section are entirely different from the provisions
of s. 209A of the Companies Act, 1956. Having heard the learned advocates of both
the sides, I am satisfied that the decisions relied upon by Mr. Sen have no
applicability to the instant case. The provisions of s. 209A of the Companies
Act are significantly different from the provisions of the Minimum. Wages Act
or the Employees' Provident Funds Act and the provisions of s. 209A cast an
unqualified duty on any director of the company to permit inspection of books
of account by an authorised officer at the appointed place and time and default
in compliance with such requisition is to be visited with penalty. (Section
209A does not?) require the company to be prosecuted nor does it require that
directors or persons actually responsible for maintenance of books of account
can only be prosecuted. In the aforesaid premises, the contention of Mr. Sen
fails.
In the result, the petition under consideration fails
and is liable to be dismissed. So it is ordered that the petition under
consideration be dismissed on contest and rule discharged. The interim order of
stay already issued is withdrawn and vacated. The records of the court below be
sent back forthwith with directions to dispose of the case as expeditiously as
possible.
[1996]
85 COMP CAS 572 (MAD)
HIGH COURT OF MADRAS
v.
ARUMUGHAM J.
JANUARY 21, 1993
C. Hari Krishnan for the Petitioner.
Mohan and Iliasali for
the Respondent.
Arumugham
J.—The first
accused before the trial court is the revision petitioner herein. He challenged
the correctness and the legality of the judgment of conviction and sentence
rendered by the learned Principal Sessions Judge at Madras in Criminal Appeal
No. 36 of 1987, dated October 17, 1987, confirming the said conviction of the
accused/revision petitioner to suffer rigorous imprisonment till the rising of
the court and imposing a fine of Rs. 5,000, in default to suffer rigorous
imprisonment for three more months for the offences under section 209A(5) and
(8) of the Companies Act, 1956.
The short facts of the prosecution case as culled out from the records of both courts below are stated as follows : The revision petitioner along with eight others being the managing director and directors of a private company by name Udaya Pipes and Concrete Products Private Limited, a company incorporated under the Indian Companies Act having its office at Madras and branch at Bangalore, were tried by the learned Additional Chief Metropolitan Magistrate for Economic Offences II. On a complaint preferred by the Additional Registrar of Companies, Madras-6, alleging that the first accused/revision petitioner in the capacity of the managing director along with the other accused as directors of the said company failed to produce the account books of the company for the years 1979-80 and 1980-81 before the inspecting officer, when he inspected the registered office of the said company from August 1, 1985, and August 3, 1985, and thus has contravened the provisions of section 209A(5) and (8) of the Companies Act. Nor did they produce the account books of the company for the said period. But on completion of inspection one Radhakrishnan, director of the company, gave a letter, exhibit P-1, requesting time till September 10, 1985, to produce the books of account, which was followed by another letter, exhibit P-2, thereby asking time till September 20, 1985. But they have not produced the books of account till October 14, 1986. This was the charge revealed by the evidence of P.W.-1, Mr. B.C. Davey, Assistant Registrar of Companies, Madras-6.
P.W.-2,
Mr. M. Sigamani, senior technical assistant, deposed that basing on the
inspection report he issued a show-cause notice under section 209A(5) and (8)
of the Companies Act and no reply was received from the company or managing
director. Therefore, according to him, the concerned file was transferred to
legal section and consequently the complaint above referred to was filed on
July 24, 1986, in the court.
On
being questioned with regard to the incriminating circumstances found against
them under section 313 of the Criminal Procedure Code, 1973, the revision
petitioner and others disclaimed any knowledge about the inspection by P.W.-1,
but they sent a reply on February 27, 1986, and thereby clearly explained and
showed the cause for the non-production of the account books and that,
therefore, they had not committed any offence as framed against them. But none
were examined on their behalf to substantiate their defence. But they have
relied on six documents which were marked as exhibits D-1 to D-6.
On
assessing the oral evidence given by two witnesses, namely, P.Ws.-1 and 2, and
the documents relied on by the prosecution, exhibits P-1 to P-6, and six
documents marked on behalf of the revision petitioner, exhibits D-1 to D-6, the
trial court found the revision petitioner guilty of the offence tried against
him and accordingly convicted and sentenced him. In rendering the said judgment
it was the finding of the trial court that accused Nos. 2 to 9 were not guilty
and accordingly all of them were acquitted. On appeal filed by the first
accused in C.A. No. 36 of 1987 after reassessing the entire records and
evidence dealt with by the trial court, the learned Principal Sessions Judge
confirmed the finding of conviction and sentence recorded by the trial court and
against which the present revision is being directed as stated above.
While
challenging the legality and correctness of the judgment of conviction and
sentence rendered by both the courts below concurrently, Mr. Harikrishnan,
learned counsel appearing for the revision petitioner, contended before me that
both the courts below thoroughly overlooked the mandatory provisions provided
in the section under which the charge has been framed against the revision
petitioner and that has been duly exercised by the issuance of a notice given
by P.W.-2 and that has been marked as exhibit P-5 dated February 17, 1986,
which was found served on the revision petitioner on February 20, 1986, as per
exhibit P-6 and to which three replies had been sent to the Registrar of Companies
under exhibits D-3, D-4 and D-5 and under which sufficient cause has been shown
to the authorities constituted under the company law, namely, P.Ws.-1 and 2,
and explained the attendant situation due to which the first accused/ revision
petitioner was unable to produce the account books and that, therefore, he has
not committed any offence. And that in the context of the above cause
adequately shown under the above said exhibits D-3 to D-5 and that inasmuch as
the same has not been rejected and there was no response from the complainant,
learned counsel contended that the launching of the prosecution under section
209A(5) and (8) of the Companies Act is not at all proper and cannot be
sustained ; then learned counsel would further contend that inasmuch as a
notice, exhibit P-5, has been issued by P.W.-2 as required by sub-section (2)
of section 209A of the Act ; then in the context of the cause and explanation
given by the first accused/revision petitioner under exhibits D-3, D-4 and D-5
no prosecution can be launched against the accused and that in short the court
cannot take cognizance of the offence charged and try it ; and, thirdly,
learned counsel submitted that on the day of exhibit P-6, namely, February 20,
1986, pursuant to the order of this court, the company was ordered to be wound
up and, consequently, the official liquidator took charge and custody of the
entire properties and records of the company on the very same day and thereby
sealed off the entire properties and premises of the company, that since then
onwards all the properties including the books of account and records have been
in the custody and charge of the official liquidator appointed by this court
and that, therefore, the accused was not in a position to produce the same before
the authorities. And that while so it is highly arbitrary on the part of
P.Ws.-1 and 2, learned counsel contended that by ignoring all the above said
facts, the launching of the prosecution against the accused is highly and
clearly an error of law committed to the utter disregard of the mandate built
in under the provisions of the company law itself and that, therefore, the
finding of conviction and sentence recorded by the both courts against the
revision petitioner is liable to be set aside by the interference of this
court.
Per
contra, Mr. Mohan strains every one of his nerves to persuading me that the
duty was cast upon the revision petitioner and other accused being the managing
director and directors of the company to be carried out and administered in
pursuance of the company law, they failed to produce the books of account
maintained to the authorities concerned when they inspected the registered
office of the company from August 1, 1985, to August 3, 1985, that the failure
to do so clearly amounts to an offence as contemplated under section 209A of
the Act, that the offence has been materialised by the issuance of notice under
exhibit P-5 and that, therefore, learned counsel contends that the explanation
or cause shown by the revision petitioner under exhibits D-3 to D-5 would not
come to his rescue from the offence committed by him already and while
projecting the said contention learned counsel supports the finding recorded by
both the courts below against the revision petitioner.
In
the light of the above rival contentions projected on behalf of the respective
parties herein the only question which arises for consideration before me is
whether the courts below while finding the revision petitioner guilty of the
offence charged and tried against him committed any error of law or
irregularity in doing so and as such it is liable to be interfered with in this
revision ?
Before
proceeding to discuss the various findings recorded by the courts below on the
basis of the tendered oral and documentary evidence, it has become useful for
me to advert to section 209A of the Companies Act which reads as follows :
"The
books of account and other books and papers of every company shall be open to
inspection during business hours —
(i) by the Registrar, or
(ii) by such officer of Government as may be
authorised by the Central Government in this behalf :
Provided
that such inspection may be made without giving any previous notice to the
company or any officer thereof."
A
mere casual reading of the above sub-section (1) of section 209A makes it clear
that either the Registrar of Companies or such officer of the Government
authorised by the Central Government in this behalf is entitled to inspect the
registered office of the company and inspect all the books of account and other
books and papers at any time without giving any prior notice. It is further
imperative that on such inspection being made, it has been mandatorily provided
that the company shall produce the books of account and other papers of the
company for inspection of such persons and on no account the company is
entitled to withhold the production of the said books of account and so on.
This sub-section (1)'of the said section made the obligation of the company to
produce the books of account on inspection mandatory in nature and obligatory.
Then sub-section (5) of the said section reads as follows :
"Notwithstanding
anything contained in any other law for the time being in force or any contract
to the contrary, any person making an inspection under this section shall have
the same powers as are vested in a civil court under the Code of Civil
Procedure, 1908, while trying a suit, in respect of the following matters,
namely :—
(i) the
discovery and production of books of account and other documents at such place
and such time as may be specified by such person ;
(ii) summoning and enforcing the attendance of
persons and examining them on oath ;
(iii) inspection of any books, registers and other
documents of the company at any place."
Then
the relevant sub-section (8) proceeds as follows :
"If
default is made in complying with the provisions of this section, every officer
of the company who is in default shall be punishable with fine which shall not
be less than five thousand rupees, and also with imprisonment for a term not
exceeding one year."
Perhaps
P.Ws.-1 and 2 who gave the evidence and lodged the complaint against the
accused proceeded on the pretext of the above said subsections (5) and (8) for
the revision petitioner having not been complied with under sub-section (1) of
section 209A. If section 209A of the Companies Act contains sub-sections (5)
and (8) alone, then we can at least justify the action of launching of the
prosecution against the revision petitioner for a moment. However, the
launching of the prosecution contemplated under sub-sections (1), (5) and (8)
of section 209A has been restricted by the provisions themselves and subjected
to a condition to be performed before launching the prosecution as was rightly
contended by learned counsel for the revision petitioner. In this context it is
meaningful to advert to sub-section (2) of section 209A which reads as follows
:
"It
shall be the duty of every director, other officer, or employee of the company
to produce to the person making inspection under subsection (1), all such books
of account and other books and papers of the company in his custody or control
and to furnish him with any statement, information or explanation relating to
the affairs of the company as the said person may require of him within such
time and at such place as he may specify."
In
the context of the abovesaid sub-section (2) for the purpose of appreciation of
the rival contentions involved in this case, suffice it for me to refer to the
above said sub-section (2) only and the rest are unnecessary for the disposal
of the instant case. This sub-section (2) has cast the mandatory duty on the
inspecting officers to require all the books of account and papers of the
company to be produced by the company or its employees specifying the time
within which they should produce and the place for the production and
inspection of the same. Therefore, it has become imperative on the part of the
inspecting officers constituted under the company law, where no books of
account and papers of the company were produced before them for inspection, to
require the company or its employees to produce such books of account or the
papers of the company within such time as they may think fit and fixing the
place to comply with the same by specifying the above said aspects impliedly in
writing to the company or its employees. This condition which has been built in
sub-section (2) of the section itself, is not only mandatory in nature, but
appears to be a sine qua non for the authorities acting under the company law
to launch any criminal prosecution against any company or its director for any
offence under section 209A (8).
The
words referred to in the said sub-section (2) "the said person"
directly refer to the inspecting authorities constituted under the law
exercising the power to act under section 209A (1) and with regard to which
there cannot be any doubt or two views to be projected before any court of law.
Similarly, the last sentence "the said person may require of him within
such time and at such place as he may specify", clearly projects and
adverts, to that such person, namely, the prosecuting authority in the instant
case or the Registrar or the person appointed for such inspection may specify
the time, date and place where the company or its staff should comply with
their requirements and the word "specify" particularly indicates that
specification includes and would mean only specification made in writing.
Perhaps P.Ws.-1 and 2 on being fully conscious of subsection (2) and its mandatory
obligations cast upon them issued exhibits P-5 notice to the revision
petitioner and others on February 17, 1986. Suffice it for me at this stage to
refer to the last two paragraphs of exhibit P-5 which read as follows :
"You
are, therefore, being the managing director of the above mentioned company,
requested to show cause within 10 days from the date of issue of this notice,
as to why penal action, as provided under section 209A(5) of the Companies Act,
1956, should not be taken against you for non-compliance with the provisions of
section 209A (1) of the Act and the proviso thereto, you are requested to
submit your reply in triplicate.
Please
take notice that if no reply is received or cause shown within the above stipulated
time, it will be presumed that you have nothing to say in the matter and
prosecution will be launched against you without any further reference in the
matter."
Thus,
the above requirement clearly specified by P.W.-2 to be complied with by the revision
petitioner was seen on full compliance of what has been mandated or required in
sub-section (2) of section 209A. It is seen further that this notice, exhibit
P-5, has been duly served on the revision petitioner on February 20, 1986,
under exhibit P-6. The same day on which the official liquidator sealed off the
registered office of the company and took custody and charge of all the
properties and records of the company in question as I have already referred
to. But what is more interesting in this case, as rightly pointed by Mr.
Harikrishnan, learned counsel for the revision petitioner, is that the revision
petitioner was not silent on the receipt of exhibit P-5 under exhibit P-6. He
had written three letters as evidence from exhibits D-3, D-4 and D-5. It has to
be noticed that the revision petitioner had addressed a letter to the
Additional Registrar of Companies on February 27, 1986, under exhibit D-3
wherein he has stated that one S. Radhakrishnan, director, has since been
entrusted with the day to day running of the company from February, 1985,
onwards, that since the said Radhakrishnan died on November 17, 1985, the
required documents of the company could not be produced when inspection was
made from August 1, 1985, to August 3, 1985, and that, therefore, to procure
the said documents and papers from the custody of the said Radhakrishnan and to
produce before the authority he wanted 30 (thirty) days time. This was followed
by another notice sent to the revision petitioner by P.W.-1 on April 15, 1986,
and then exhibit D-5 had been addressed to P.W.-1 on behalf of the company. The
perusal of exhibits D-3, D-4 and D-5 has clearly established the cause and
reasoning for the non-production of the books of account and papers of the
company not only during the inspection made from August 1, 1985, to August 3,
1985, but also within the time specified and required under exhibit P-5 and
exhibit D-4. While taking into consideration D-5, I have no hesitation to hold
that ample and convincing cause has been shown by the revision petitioner on
behalf of the company to the authorities concerned for having not produced the
books of account or the papers of the company as required. But strangely either
P.W.-1 or P.W.-2, the competent persons to act upon the cause shown on behalf
of the company for the non-compliance with sub-section (1) of section 209A has
not exercised their mind on the question as to whether that they had accepted
the cause shown by the revision petitioner or rejected the same. In short,
there was no response at all to the explanation and cause shown to the notice
given under exhibits P-5 and D-4. One other clinching circumstance available in
favour of the revision petitioner in this case is that P.Ws.-1 and 2 inspected
the company from August 1, 1985, to August 3, 1985, and found the
non-compliance with sub-section (1) of section 209A of the Act by the revision
petitioner. But significantly till February 17, 1986, for a period of more than
six months they were silent and did not proceed against the accused, the delay
is to be taken as relevant in the context of the opportunity provided under
sub-section (2) of section 209A made available to the accused herein to tender
his explanation or cause for their non-compliance, if any. Thus, a combined
reading of the sub-sections of section 209A of the Act demonstrably clinches
the fact that if the authorities found that the mandatory clause of sub-section
(1) of section 209A of the Act has been contravened, before launching of the
prosecution for the offence under sub-section (8) against such defaulters of
the company, they should be heard by providing an opportunity to them with a
view to facilitate them to explain their inaction, otherwise known as
non-compliance with the mandatory provision by giving and specifying ample time
and place in writing and then only the prosecution can be launched. In the
instant case, it has to be noticed that P.Ws.-1 and 2 have not acted upon nor
exercised their mind on the cause shown by the revision petitioner about their
explanation tendered in compliance with exhibits P-5 and D-4. Without doing so
on the principle built in, in all the sub-sections of section 209A of the Act,
launching the prosecution against such defaulters in the context of their
explanation would clearly be not only against the spirit of the mandatory
obligations provided in the section itself, but also against the principles of
natural justice and thus in my firm view, the launching of prosecution by
P.Ws.-1 and 2 would clearly be in the teeth of the maxim audi alteram partem.
In
the context of what has been observed above, I feel it rather unnecessary to go
into the factual aspects of the case with regard to which there is not much
controversy at the Bar. Enough for me at this stage to hold that in rendering the
judgment of conviction and sentence against the revision petitioner both the
trial court as well as the lower appellate court dearly and totally overlooked
the above said legal aspects and did not even attempt to consider these aspects
while rendering the judgment on a criminal charge being framed and tried
against a person and thereby, to sustain a conviction against him. In this
regard for the reasons stated above, I am satisfied to subscribe my view fully
in favour of the contentions raised on behalf of the revision petitioner by
learned counsel.
One
another important aspect available in this case, however, perhaps, has been
lost sight of in spite of the specific plea taken on behalf of the first
accused/revision petitioner is that, after exhibit P-5, as I have already
adverted to, the accused or any other directors were not in the custody of any
of the books of account or papers of the company as the official liquidator
pursuant to the order of this court sealed the registered office and took
custody of all the properties including the books of account and papers of the
company in question. If that is so, it is rather strange for P.Ws.-1 and 2 to
expect the first accused/revision petitioner to comply with section 209A of the
Act warranting to launch the criminal prosecution against him. As stated above,
all the above said legal aspects have been totally overlooked by both the
courts below in maintaining the judgment of conviction and sentence, which in
my firm view, is clearly an erroneous approach, cannot be sustained and,
therefore, the instant case totally warrants the interference of this court to
set aside the said judgment of conviction and sentence recorded by both the
courts below.
In
the result, the revision case succeeds and accordingly it is allowed. The
conviction and sentence recorded by both the courts below against the revision
petitioner are hereby set aside and the accused is set at liberty. The fine
amount paid, if any, is directed to be refunded to the revision petitioner
immediately.
[1986]
60 Comp. Cas. 889 (Mad)
High Court OF Madras
v.
S. Seshamal Pandia
Bhaskaran J.
MARCH 14, 1986
P. G. Thamaraiselvi for the
Appellant.
S. Sampath Kumar for the Respondents.
Bhaskaran J.—This appeal has been filed against the order of acquittal
passed by the Third Metropolitan Magistrate, Madras, of the three directors of
the United Pharma (India) P. Ltd. on a complaint filed by the Assistant
Registrar of Companies, Madras, under sections 209A(2) and 209A(8) of the
Companies Act.
The complaint has been laid
by the Assistant Registrar of Companies against the three directors, the
respondents herein under sections 209A(2) and 209A(8) of the Companies Act,
alleging that the respondents are the directors of the above-mentioned company,
that during the inspection of the company at its registered office on March 15,
1975, March 17, 1975, and March 19, 1975, certain irregularities were found by
the Assistant Registrar of Companies, that subsequently a report was sent to
the Government of India under section 209A(6) of the Companies Act, and that,
thereafter, exhibit P-1 notice was sent to the directors of the company on
August 23, 1975, pointing out the omissions and calling upon the directors to rectify
the omissions and to submit a report. Several letters were exchanged and
finally the notice, exhibit P-21, dated December 29, 1976, was sent calling
upon them to submit their report within a period of 15 days. In spite of the
notice to rectify the irregularities, as the directors did not comply with the
final notice also, the complaint was laid on August 10, 1977.
On the evidence, the
learned Magistrate found that the prosecution has proved the guilt of the accused
of the offence under section 209A(2) and section 209A(8) of the Companies Act,
but dismissed the complaint on the question of limitation.
The defence raised a
contention that the complaint is barred by limitation, that the complaint
should have been filed within one year from the date of the last inspection,
that is, on March 19, 1975, or in any event within fifteen days from the issue
of exhibit P-1 notice, the time given in the notice, since the offence is
punishable with the sentence of imprisonment up to a period of one year. The
contention on behalf of the prosecution was that limitation would start only
from the expiry of the fifteen days' time given in the final notice under
exhibit P-21. The learned Magistrate negatived the contention of the prosecution
and held that limitation would start from the expiry of 15 days from the date
of the first notice under exhibit P-1. Admittedly, since the complaint is filed
more than a year after the expiry of fifteen days from exhibit P-1 notice dated
August 23, 1975, the learned Magistrate held that the complaint is barred by
limitation and, therefore, dismissed the complaint. In the appeal, the learned
public prosecutor submitted that the order of acquittal is not sustainable and
reiterated the same contentions. The learned public prosecutor submitted that
since the accused had been given final notice giving them opportunity to
rectify the mistakes within a specific period mentioned in the notice,
limitation would start only from the date of the expiry of the time mentioned
in the final notice. I do not agree with the learned public prosecutor. In
fact, the learned Magistrate considered the point whether the offence is a
continuing one or not and found that it is not a continuing offence after
referring to sections 162 and 209 A(2) of the Companies Act. Under section 162
of the Companies Act, a daily fine of Rs. 50 is prescribed for every day's
default, whereas in this case under section 209A(2) of the Companies Act, a
minimum sentence of fine of Rs. 5,000 is provided. The learned public
prosecutor did not contend that the offence is a continuing one, before me.
Therefore, when the offence is not a continuing one, it has to be taken that
the offence has taken place on the particular date on which it was committed
and not subsequent to the same and the period of limitation cannot be extended
by the prosecution as they choose. For violation of section 209A(2) of the
Companies Act, for which the complaint has been laid, punishment is provided
under section 209A(8). Section 209A(2) says that it shall be the duty of every
director, other officer or employee of the company to produce to the person
making inspection all such books of account and other books and papers of the
company in his custody or control. So, the first part of it regarding
inspection makes it clear that the officer in charge of the company or the
director is expected to produce all the records called for at the time of
inspection. If action has been taken on the basis of the allegation that at the
time of inspection the account books were not produced, the default must be
deemed to have been committed at the time of inspection itself. Then the period
of limitation would start from that day itself. In the same clause, it is also
provided that the inspecting authority may also call upon the directors to
furnish such statement, information or explanation relating to the affairs of
the company within such time and at such place as he may specify. Based on this
provision, the Assistant Registrar of Companies pointing out the omissions has
called upon the directors of the company under exhibit P-1 to rectify the
mistake and also produce the necessary documents. It is significant to note
that section 209A(2) does not say that the inspecting authority may call upon
them (directors) to give information or produce documents within such time or
within the extended time. It only says that the inspecting officer may require
them to give information "within such time". In other words, the time
fixed by the Assistant Registrar in the first notice itself, within which the
directors should comply and rectify the mistakes, is the criterion. The
Assistant Registrar has no power to extend the time under the section.
Therefore, if the directors did not comply with the demand within the period
prescribed in the first notice, exhibit P-1, the offence must be deemed to have
been committed and, therefore, limitation would start only from that date. The
subsequent letters or the final letter given by the Assistant Registrar giving the
opportunity to the directors to rectify the mistake will not extend the period
of limitation. Therefore, I entirely agree with the learned Magistrate that the
period of limitation starts from the expiry of the period mentioned in exhibit
P-1 and the complaint is barred by limitation since admittedly the complaint is
filed one year after the expiry of fifteen days' time given under exhibit P-1.
Therefore, the complaint has been rightly dismissed.
In the result, the appeal
fails and the same is dismissed.