Section 210
ANNUAL
ACCOUNTS AND BALANCE SHEET
[1982] 52 COMP. CAS. 535 (
HIGH COURT OF
Commissioner of Income-tax,
v.
National Industrial Corporation.
S. RANGANATHAN AND LEILA SETH, JJ.
NO. 157 OF 1975.
G.C. Lalwani for the Applicant.
Leila Seth, J.—The assessee, M/s. National
Industrial Corporation Ltd., New Delhi, is a private limited company dealing in
alcohol. The assessment year under reference is 1964-65, and the relevant
previous year is the financial year ending 31st March, 1964.
In the course of the assessment, the assessee claimed
a development rebate under s. 34(3)(a) of the Income-tax Act, 1961 (in
short "the Act"). This rebate was claimed as the assessee had
installed fermentation tanks valued at Rs. 1,40,000.
However, in the original profit and loss account drawn up for the year ending
31st March, 1964, no appropriation had been made for development rebate reserve
relating to those items. But after the accounts were audited in November, 1964,
and placed before the general body of the shareholders it was resolved by them
that such a provision should be made in the accounts for the year ending 31st
March, 1964, itself. The auditor thereafter advised that it was not necessary
to draw up a fresh balance-sheet to implement this and the necessary
appropriation and adjustment could be indicated in the balance-sheet for the
year ending 31st March, 1965. Accordingly, in the accounts for the year ending
31st March, 1965, the opening balance for the development rebate reserve is
shown as modified and a note to that effect is recorded by the auditor. Despite
this, the ITO did not consider the assessee's claim of Rs. 28,100 for
development rebate.
The assessee being aggreived, appealed to the AAC who
by his order dated 11th April, 1969, confirmed the disallowance.
On further appeal to the Income-tax Appellate
Tribunal, the assessee produced the balance-sheet for the relevant period along
with the auditor's report and a copy of the ledger account wherein a provision
for the development rebate had been made. The directors' report in respect of
the succeeding financial year in which it was specifically stated that the
provision for development rebate had been made "in the account of the
previous year itself" was also shown. On the basis of this material and
evidence, the Tribunal, while remanding the case by its order dated 18th
November, 1970, observed:
"As the
facts are not clear, we think it would be reasonable and fair to send the case
back to the Appellate Assistant Commissioner to reconcile this conflict of
opinion and ascertain the correct facts. If a provision had already been made
in the accounts either in that year or in the next year, we see no good reason
as to why the assessee should be deprived of the benefit of development rebate
provided, of course, the other particulars are furnished."
When the
matter came before the AAC, he did not agree with the assessee's contention
that all that the Tribunal had desired was a verification of the facts. He once
again examined the matter and came to the conclusion that the assessee was not
entitled to the allowance of development rebate. This he did by his order dated
27th November, 1972.
The assessee
appealed to the Income-tax Appellate Tribunal. The Tribunal noticed that the
only point in issue was whether the assessee had substantially complied with
the requirements "of section 34(3)(a)
by debiting 75 per cent, of the development rebate to the profit and loss
account of the relevant previous year and making a corresponding credit to a
reserve account". The Tribunal considered the circumstances and allowed
the appeal. It held that as the assessee was a company and the accounts did not
become final until they were passed by the general body of shareholders in
December, 1964, the non-provision of the development rebate reserve prior to
that date was not material. Since the shareholders decided that the sum be appropriated to the development rebate reserve, the
accounts stood amended accordingly. It must, therefore, be held that the
development rebate reserve was created at the end of the year. The mere fact
that the assessee did not revise the balance-sheet for the year ending 31st
March, 1964, and that too on the advice of the auditor, "did not detract
from the efficacy or validity of the decision of the shareholders to create the
development rebate reserve and to read the accounts of the company on that
footing". The decision of the Supreme Court in Indian Overseas Bank Ltd. v. CIT [1970] 77 ITR 512 and of the Madras High Court in CIT v. Veeraswami Nainar [1965] 55 ITR 35, were held to be not relevant
as they pertained to different situations.
The Revenue,
being dissatisfied with the decision, moved for a reference. As a result, the
following question of law has been referred for our opinion:
"Whether,
on the facts and in the circumstances of the case, the Tribunal was legally
correct in holding that the assessee was entitled to development rebate under
the provisions of section 34(3)(a) of the Income-tax Act, 1961?"
Mr. G.C.
Lalwani, appearing for the Commissioner of Income-tax, contended that the
development rebate deduction could not be allowed unless the amount had
been debited to the profit and loss account and credited to a reserve account
before the accounts were closed.
In order to appreciate the point in issue it is
necessary to set out the relevant provisions.
Section 34(3)(a) of the Act reads:
"(3)(a) The deduction referred to in
section 33 shall not be allowed unless an amount equal to seventy-five per
cent, of the development rebate to be actually allowed is debited to the profit
and loss account of the relevant previous year and credited to a reserve
account to be utilised by the assessee during a period of eight years next following
for the purposes of the business of the undertaking, other than—
(i) for distribution by way of dividends or profits ; or
(ii) for remittance outside
On a plain reading of the provision, there can be no
dispute with the proposition that the deduction will not be allowed unless 75
per cent, of the development rebate to be actually allowed is debited to the
profit and loss account and credited to the reserve account. The query is, has
this to be done before the finalization of the account ?
And if so, has this been done in the present case ?
The question of the time within which the development
rebate reserve has to be created has been considered in many cases. In Indian Overseas Bank Ltd. [1970] 77
ITR 512, the Supreme Court, while dealing with the question of development
rebate reserve under the prov. (b)
to s. 10(2)(vib) of the Indian I.T. Act, 1922, has
held that the grant of the rebate is a concession subject to the fulfilment of
the conditions prescribed, and the creation of a separate development rebate
reserve fund is essential. Approving of the decision in Veeraswami Nainar [1965] 55 ITR 35 (Mad), it notes (p. 514):
"The entries in the account books required by
the proviso are not an idle formality. The assessee being obliged to credit the
reserve fund for a specific purpose, he cannot draw upon the same for purposes
other than those of the business and that amount cannot be distributed by way
of dividend."
In Addl. CIT
v. Shri Subhlaxmi Mills Ltd. [1975]
100 ITR 188, the Gujarat High Court has held that the development rebate
reserve can be created merely by a book entry. But the necessary debit entry
for purposes of creation of the reserve and the corresponding credit entry for the
reserve account must be done before the profit and loss account is finally
closed. If this is not done, then the condition for getting the benefit of
development rebate will not be satisfied. The Gujarat High Court has followed
this view in three of its subsequent decisions, in Addl. CIT v. Nagardas Bechardas & Bros. Pvt. Ltd. [1976] 104 ITR 123 and CIT v.
Mihir Textiles Ltd. [1976]
104 ITR 167 while dealing with a reserve created which fell short of the
required amount, and in Keshavlal
Vithaldas v. CIT [1976]
105 ITR 601.
In R.
Venkatasubramaniam v. CIT [1973]
91 ITR 220, the Madras High Court has followed its decision in Veeraswami Nainar [1965] 55 ITR 35
(Mad) and of the Supreme Court in Indian
Overseas Bank Ltd. [1970] 77 ITR 512. At p. 222 (of 91 ITR) Ramaswami
J., speaking for the court, has observed:
"A reading of this provision makes it clear that
the debiting of the profit and loss account and crediting of the development
rebate reserve account should be at the time when the profit and loss account
is made or finalised. It may be that the assessee could amend or correct his
accounts before he submits the return to the Income-tax Officer but that is not
to say that the assessee could readjust the accounts for the purpose of
claiming development rebate at any time he chooses. Section 10(2)(vib) being a concession or an
exemption, subject to the fulfilment of the conditions under the proviso, the
conditions will have to be strictly complied with before the benefit under that
section could be claimed."
However, there is a catena of cases taking a more
liberal view and permit the reserve to be created so long as there are
proceedings pending before the OTO, for example, even after filing a return but
while filing a revised return : CIT v. Narula Cold Storage & Ice Factory [1976] 104 ITR 148
(Orissa); before completion of the assessment: CIT v. Sardar Singh
Sachdeva [1972] 86 ITR 387 (P & H), CIT v. Modi Spinning
& Weaving Mills Co. Ltd. [1973] 89 ITR 304 (All) and Tata Iron & Steel Co. Ltd. v. N.C. Upadhyaya [1974] 96 ITR 1 (Bom)
or even rectification proceedings: Addl.
CIT v. Saran Engineering Co.
Ltd. [1978] 115 ITR 270 (All).
But in the present case the assessee has taken such
steps as it considered necessary for the creation of the reserve even before
the filing of the return and long before the assessment proceedings were taken
up by the ITO. It is, therefore, unnecessary to go into this controversy for
the purposes of the present case. As such, we proceed to examine the matter on
the footing that the reserve contemplated by s. 34(3)(a) must be created, before the profit
and loss account of the relevant year is finalised by the assessee. The
question is whether in the present case this has been done.
We have, therefore, to examine whether the development
rebate reserve has been created before finally making up the accounts. The
facts are not in dispute. The tanks were installed in the relevant year and had
been utilized for the whole year. The assessee closed the account books for the
accounting year 1963-64 and these were duly audited in November, 1964. No
development rebate reserve had been created. However, when the accounts were
placed before the general body of shareholders of the assessee at the annual
general meeting on 30th December, 1964, they resolved and directed that the
development rebate reserve be created. This was done. In the balance-sheet for
the succeeding accounting year 1964-65, the auditor's observation in Note 8 of
his report is clear; an adjustment of Rs. 28,100 for development rebate has
been made "in the previous year accounts itself as per shareholders'
resolution passed in the same annual general meeting held on 30th December,
1964".
It would, therefore, appear to us that what we have
to consider is the effect of the resolution of the general body of shareholders
on the accounts. If the general body resolution is the final word with regard
to the accounts, then it must be construed that in fact the development rebate
reserve has been created in the relevant year.
Under s. 210 of the Companies Act, 1956, the board of directors of a company are required to lay before
the company the balance-sheet and profit and loss account for that period at
the annual general meeting. The balance-sheet is a formal arrangement of facts
and figures in an intelligible manner indicating therein the total value of
assets and liabilities on a particular date. Its function is to endeavour
"to show the share capital, reserves (distinguishing those which are
available for distribution as dividends from those not regarded as so
available) and liabilities of the company at the date at which it is prepared,
and the manner in which the total monies representing them are distributed over
the several types of assets".
The responsibility for preparing the annual accounts
and the balance-sheet and laying it before the annual general meeting is placed
on the directors, the members of the company not being in a position to
personally direct the business. The balance-sheet and profit and loss account
have to be approved and authenticated in terms of s. 215 by the directors and
submitted to the auditor. The auditor is the representative of the shareholders
and owes no duty to the management. If any confidential or other report is made
by him to the management it must be attached to the balance-sheet. The report
of the board of directors is also to be annexed.
Section 216 of the Companies Act requires that the
profit and loss account be annexed to the balance-sheet as also the auditor's
report including the auditor's separate, special or supplementary report.
These documents are to be made available to the
shareholders not less than twenty-one days before the date of the meeting as
per s. 219. It is only after the balance-sheet and the profit and loss account have
been laid before the company at the annual general meeting that they are to be
filed with the Registrar under s. 220. Section 220(2) provides that if an
annual general meeting of a company before which a balance-sheet is laid as
aforesaid does not adopt the balance-sheet, a statement of that fact and of the
reasons therefor shall be annexed to the balance-sheet and to the copies
thereof required to be filed before the Registrar. Section 205 is also
pertinent which provides for the payment of dividend out of profit. Though an
interim dividend may be paid by the board of directors at their discretion, a
final dividend can be declared and paid only after the balance-sheet and profit
and loss account are presented to the shareholders at the annual general meeting
and approved by it.
It is, therefore, clear from the above provisions
that it is only after these accounts have been placed before and considered by
the general body of shareholders that they are finally accepted/adopted. It is
only thereafter that a final dividend can be declared. It is only then that a
true and fair view of the company's affairs is available. It would, therefore,
be correct to conclude that the balance-sheet and accounts of a company are in
a sense finalised only after the seal of approval of the shareholders is
obtained.
Taking this factor into consideration we have to see
whether in fact a development rebate reserve had been created in the relevant
year of account. It would appear so to us that the resolution of the shareholders
clearly directed this to be done. The auditors indicate that this has been
done. The accounts are adjusted accordingly. The next year's balance-sheet and
opening balance of accounts indicate this. However, the assessee does not draw
up a fresh balance-sheet for the relevant year (on the advice of the auditors
that this is not necessary) as the appropriations and adjustments have been
made. There is no delay in complying with the specific directions of the
members given while considering the accounts. As such, in the facts and
circumstances of this case, we are clear that the development rebate reserve
has been created before the finalisation of the accounts.
For the reasons outlined above, we answer the
question in the affirmative and in favour of the assessee.
[1961] 31 COMP. CAS. 1 (SC)
SUPREME COURT
OF
State of
v.
Bandhan Ram Bhandani
S.
J. IMAM, A.K. SARKAR AND K. C. DAS GUTA, JJ.
CRIMINAL
APPEAL NOS. 93 AND 94 OF 1958
SEPTEMBER
23, 1960
SARKAR, J.-The respondents were directors of Hirjee
Mills Ltd. They were prosecuted before the Chief Presidency Magistrate,
The learned
magistrate found that no general meeting of the company had been held in the
year concerned. Following Imperator v. Pioneer Clay and Industrial Works Ltd.
[1948] 18 comp.cas. 31 he acquitted the respondents, being of the view, that no
offense under either section could be committed till the general meeting had
been held. The learned magistrate did not go into the merits of the cases on
the facts. Appeals by the appellant to the High Court at
It appears
that respondent No. 7, N.K. Firodia, was discharged by the learned magistrate
because it was conceded at the trial that he was not a director of the company
at any material time. He has been made a respondent to the present appeals
clearly through some misapprehension. The appellant, the State of Bombay, does
not and cannot proceed against him. The name of the respondent, Firodia,
should, therefore, be struck out from the records of this appeal. Respondent
no.5, Fateh Chand Jhunjhunwala, died while this appeal was pending in this
court. The appeal is, therefore, concerned with the remaining five respondents
only.
Sub-section
(1) of section 32 requires a company once at least in every year to make a list
of its shareholders as on the date of the first or only ordinary general
meeting in the year. Sub-section (2) requires that the list shall contain a
summary specifying various particulars mentioned in it. Sub-section (3) states
that the list and summary shall be completed within twenty-one days after the
day of the first or only ordinary general meeting in the year and the company
shall forthwith file a copy with the Registrar together with a certificate from
a director or the manager or the secretary of the company that the list and
summary state the facts as they stood on the day aforesaid. Sub-section (5)
contains the penal provision, that “If a company makes default in complying
with the requirements of this section, it shall be liable to a fine not
exceeding fifty rupees for every day during which the default continues, and
every officer of the company who knowingly and wilfully authorises or permits
the default shall be liable to the like penalty.”
It is said on
behalf of the respondents that there is no default in complying with the
requirements of the section until a general meeting is held. That, it is said,
follows from the language of the section, for it requires certain things as at
the date of the meeting to be stated in the list and summary and also requires
these to be filed within a certain time of the meeting. So, it is said, that,
the section requires certain things to be done only after the meeting has been
held and no question of performing those things arises till the meeting has
been held.
A contrary
view has been taken in
It is true
that under section 76 of the Act a general meeting of a company has to be held
once at least in every calendar year and if a default is made, the company and
every director or the manager of the company who is knowingly and wilfully a
party to the default shall be liable to a fine not exceeding five hundred rupees.
That, however, is, in our opinion, no reason for saying that a person charged
with a failure to file the list and summary as required by section 32 where a
meeting had not been held, could only be prosecuted under section 76 and not
under section 32. Section 76 imposes an obligation to hold a meeting and
attaches a penalty to a failure to perform that obligation. In the case of
section 32 it is necessary that the meeting should be held in order that the
requirements of that section may be carried out. It is no less necessary to
call a meeting for performing the obligations imposed by section 32, because
under section 76 there is an obligation to call a meeting the breach of which
entails an independent penalty. The two sections deal with different matters
and section 76 in another part of the Act or not. Without a provision like
section 76 a delinquent officer of the company may make section 32 infructuous,
and, therefore, as already stated, it must be held that liability under section
32 would be incurred where the officer has wrongly assisted in the meeting not
being held. The result cannot be different because of the presence of a
provision like section 76.
Nor do we
think that sub-section (5) of section 32 by imposing a daily fine during the
continuance of the default indicates that the default is not committed till the
meeting has been held. In order that the default may continue it has, no doubt,
first to occur. In our view, it occurs after the expiry of 21 days from the day
when the meeting should have been held within the year.
The
respondents referred to the case of Queen v.
Another case
to which we were referred on behalf of the respondents was Dorte v. South African Super-Aeration Ltd.[1984] 20 TLR 425 There, a
company was convicted for a failure to file the list and summary in a case
where the general meeting had not been held and fined 1d. and
1d. per day up to a certain day. Subsequently, a
further summons against it was taken out in respect of the same default for
further penalties from that day to another later day. It was held that the word
“default” implied a willful and continued neglect to do an act required and
that the company could not be liable to a continuing daily fine for an omission
which it was impossible to remedy. The report does not set out the arguments nor the judgment and it is not clear on what grounds the
decision was given. It appears, however, that LORD ALVERSTONE was one of the
judges who decided that case. In Park’case (supra).
LORD ALVERSTONE himself observed with regard to Dorte’s case (supra) that
there, “there was no question of the defendant being also in default as to the
general meeting, and that decision, therefore, in no way conflicts with the
earlier authorities.” We do not think, therefore, that Dorte’s case (supra)
assists the respondents at all. It is authority only for the proposition that a
continuing daily fine will not be exacted where, owing to no meeting having
been held, it is impossible to remedy the default: see Buckley’s Company Law
[13th edition], page 311.
Turning now to
section 131, we find that it requires the directors of a company, once at least
in every calendar year, to lay before the company in
general meeting a balance-sheet and profit and loss account of the company.
Sub-section [3] of section 133 makes the company and every officer of it who is
knowingly and wilfully a party to the default in carrying out the provisions of
section 131, punishable with fine which may extend to five hundred rupees. As
in the case of section 32 and for the same reasons, here also it is no defence
to the charge for breach of section 131 to say that a meeting was not called.
As regards
Imperator v. Pioneer Clay and Industrial Works Ltd.[1948]
18 comp.cas.31 on which the courts below held that the respondents must be
acquitted, we find that it turned on section 134 of the Companies Act, 1913.
The language of that section is to a certain extent different from the language
used in sections 32 and 131. The section 134(1) says, “After the balance-sheet,
and profit and loss account....have been laid before the company at the general
meeting, three copies thereof.....shall be filed with the Registrar....”
Sub-section (4) of this section provides a penalty for breach of section 134,
in terms similar to those contained in sub- section (5) of section 32. If the
language of section 134(1) makes any difference as to the principle to be
applied in ascertaining whether a breach of it has occurred or not-as to which
we say nothing in this case- then that case can be of no assistance to the
respondents. If, however, no such difference can be made, then we think that it
was not correctly decided. We observe that CHAGLA C.J., who delivered the
judgment of the court in that case, did not question the correctness of the
decision in Park’s case (supra) asked to follow. All that he said with regard
to that case was that the scheme and terms of the section on which it turned
were different from section 134 of the Companies Act, 1913. That may or may not
be so. There is, however, no difference between section 26 of the English
Companies Act, 1908, on which Park’s
case (supra) turned, and which apparently through some mistake CHAGLA C.J.
cited as section 36, and section 32 of the Indian Companies Act of 1913, except
that the English section required the summary to include a statement in the
form of a balance-sheet containing certain particulars mentioned, whereas our
section does not require that. Section 131 of our Act contains some provision
about the laying of the balance-sheet before the general meeting. This
provision was inserted in the Act by the amending Act of 1936. The fact, that
one of the requirements of the English section 26 is not present in section 32
of our act cannot create any material difference between section 32 of our Act
and section 26 of the English Act. If the principle that a person charged with
an offense cannot rely on his own default as an answer to the discharge is
correct, as we think it is, and which we do not find CHAGLA C.J. saying it is
not, then that principle would clearly apply when a person is charged with a
breach of section 32 of our Act.
We think,
therefore, that the appeal should be allowed. The case will now go back to the
learned Presidency Magistrate and be tried on the merits according to the law
as laid down in this judgment.
Appeals allowed.
[1978] 48 COMP. CAS.
243 (ORI)
HIGH
COURT OF ORISSA
v.
Radhika Prasad Nanda
R.N. MISRA AND P.K. MOHANTI JJ.
CRIMINAL
APPEAL NO. 96 OF 1974.
J.G. Panda for
the Appellant.
R.Ch.
Mohanty for the Respondents.
R.N. Misra J.—This is an appeal against the
judgment of acquittal passed by the learned Sub-Divisional Judicial Magistrate
of Cuttack in a prosecution under section 210(5) of the Companies Act of 1956
(hereinafter referred to as the "Act").
Messrs. Utkal Distributors Private Ltd. is a
company registered under the Companies Act. The two respondents were the members
of the board of directors of the company at the material time. Under the
provisions of the Act, the company was required to hold its annual general
meeting on or before the 30th of September, 1970, and the balance-sheet and
profit and loss account for the financial year ending on March 31, 1970, had to
be laid before the company at its annual general meeting by the board of
directors as required under section 210(1) of the Act. As the board failed and
neglected to take reasonable steps for compliance of the aforesaid statutory
requirement, the Registrar of Companies filed a complaint for the offence
punishable under section 210(5) of the Act.
The defence was that the company had become defunct
since 1968, some of the accounts had been seized by the Central Bureau of
Investigation and some had been taken away by the accountant. The managing
director had given notice for the meeting but none attended nor co-operated. As
such the meeting could not be held and the documents could not be placed.
Each party examined one witness. The learned
Sub-Divisional Judicial Magistrate advanced the following reason for recording
the judgment of acquittal :
"The liability of the accused persons
arises only when they do not take reasonable steps to lay the balance-sheet
before the annual general meeting of the company. It is the duty of the
prosecution to prove that in fact the annual general meeting was held and that
the accused persons did not take steps to lay the balance-sheet therein. In the
instant case, the prosecution has failed to prove that the annual general
meeting was held. In the absence of such proof the prosecution case cannot
stand.
The balance-sheet of a company is to be filed
before the Registrar of Companies after the same is duly laid before its annual
general meeting [Vulcan Industries (P.) Ltd. v. Registrar of
Companies [1972] 42 Comp Cas 326 (Orissa) followed]. Unless the annual general meeting is
held, the balance-sheet cannot be submitted to the complainant. So the
non-submission of balance-sheet is no ground to presume that the accused
persons failed to take reasonable steps to lay the balance-sheet before the
annual general meeting."
Against this judgment of acquittal, the
Registrar of Companies had carried this appeal.
When the appeal was placed
for hearing before a learned single judge, the Bench decision in the case of Vulcan Industries (P.) Ltd. v. Registrar of
Companies [1972] 42 Comp Cas 326 (Orissa) was
relied upon in support of the defence stand. The learned single judge found
that certain observations of the Division Bench ran contrary to a catena of
authorities on the point including a Supreme Court decision. He, accordingly,
directed that the appeal be placed before a Division Bench for hearing. That is
how the appeal has now come before us.
Provision for annual general meeting has been
made in section 166 of the Act and its non-compliance has been made punishable
under section 168. Provision has been made for laying
before the annual general meeting of the company the balance-sheet and the
profit and loss account in section 210(1). Default thereof has been made
punishable under subsection (5) of that section. Section 220(1) casts the duty
on the management to file three copies of the balance-sheet and the profit and
loss account with the Registrar of Companies and default is punishable under
sub-section (3). Holding of the annual general meeting, laying the
balance-sheet and the profit and loss statement before the annual general
meeting and filing of the balance-sheet and the profit and loss statement in
triplicate before the Registrar are thus three independent points in the
connected process. The relevant provisions contained in these three sections
may be extracted :
"166. Annual general meeting.—(1) Every company shall in each year
hold in addition to any other meetings a general meeting as its annual general
meeting and shall specify the meeting as such in the notices calling it ; and not more than fifteen months shall elapse between
the date of one annual general meeting of a company and that of the next
:.....................".
"210. Annual accounts and balance-sheet.—(1)
At every annual general meeting of a company held in pursuance of section 166, the board of
directors of the company shall lay before the company—
(a) a balance-sheet as
at the end of the period specified in sub-section(3); and
(b) a profit and loss
account for that period..................
(3) The profit and loss account shall
relate................
(b)
in the case of any subsequent annual general meeting of the company, to the
period beginning with the day immediately after the period for which the
account was last submitted and ending with a day which shall not precede the
day of the meeting by more than six months, or in cases where an extension of
time has been granted for holding the meeting under the second proviso to
sub-section (I) of section 166, by more than six months and the extension so
granted..........."
"220. Three copies of balance-sheet, etc., to be
filed with Registrar.— (1) After the
balance-sheet and the profit and loss account have been laid before a company
at an annual general meeting as aforesaid, there shall be filed with the
Registrar within thirty days from the date on which the balance-sheet and the
profit and loss account were so laid—
(a) three copies of the
balance-sheet and the profit and loss account, signed by the managing director,
manager or secretary of the company, or if there be none of these, by a
director of the company, together with three copies of all documents which are
required by this Act to be annexed or attached to such balance-sheet or profit
and loss account :
Provided that in the case of a private company copies
of the balance-sheet and copies of the profit and loss account shall be filed
with the Registrar separately :........
(2) If the annual general meeting of a company
before which a balance-sheet is laid as aforesaid does not adopt the
balance-sheet, a statement of that fact and of the reasons therefor shall be
annexed to the balance-sheet and to the copies thereof required to be filed
with the Registrar..."
According to the prosecution case, the board of
directors was responsible to call the annual general meeting in accordance with
the requirement of section 166(1) of the Act and if they failed to call the
meeting in discharge of their statutory obligation, they cannot take the stand
that as there was no annual general meeting, their failure to place the
balance-sheet and the profit and loss statement cannot amount to an offence.
This position was examined by the Supreme Court in the case of State of Bombay v. Bhandan Ram Bhandani [1961] 31 Comp
Cas 1. In that case, the directors of a company were charged with the offence
punishable under sections 32(5) and 133 of the Companies Act of 1913, as they
knowingly and wilfully failed to file the summary of share capital as envisaged
under section 32(3) of that Act and for failure to lay before the company's
annual general meeting the balance-sheet and profit and loss account as
required under section 131. No general meeting of the company had been held
during the year in question and the defence was that a general meeting having
not been held, the directors could not be said to be at fault. The court negatived
the defence plea by saying (See [1961] 31 Comp Cas 1, 4) :
"A contrary view has been taken in
Section 291 of the Act provides for the general
powers of the Board and sub-section (1) thereof in clear terms says :
"Subject to the provisions of this Act, the
board of directors of a company shall be entitled to exercise all such powers
and to do all such acts and things, as the company is authorised to exercise
and do :................."
Obviously, the company by its corporeal
character could only act through some agency and the board of directors is the
constituted statutory agency so far as calling of the annual general meeting.
We may refer to a decision under the English Act which is almost on similar
terms in this regard. In In re El
Sombrero Ltd. [1958] 3 All ER 1 ; 28 Comp Cas
619, 624 (Ch D), it has been stated :
"There is a clear statutory duty on the
directors to call the meeting whether or not the accounts, the consideration of
which is only one of the matters to be dealt with at an annual general meeting,
are ready or not. It cannot possibly serve as an excuse for failing to perform
that statutory duty."
The board of directors had thus failed to call
the annual general meeting and they are not entitled to fall back upon their
own laches as a defence when prosecuted under section 210(5) of the Act. The
decision in the case reported in [1961] 31 Comp Cas 1
(SC) (State of Bombay v. Bandhan Ram Bhandani) has thus direct
application. Before us reliance is placed on the Bench decision in Vulcan Industries case [1972] 42 Comp
Cas 326 (Orissa) which in its turn had relied upon a Full Bench decision of the
Andhra Pradesh High Court in the case of Andhra
Provincial Potteries v. Registrar
of Companies [1969] 39 Comp Cas 1000 (AP) [FB]. This court came to
hold—See [1972] 42 Comp Cas 326, 332, 333 (Orissa) :
"Reading sections 166, 168, 210 and 220,
it becomes clear that omission to hold a general meeting, to lay the
balance-sheet and the profit and loss account before the company at its annual
general meeting and to file with the Registrar the balance-sheet and the profit
and loss account so laid before the company within the time specified in the
section constitute, each, a separate offence and are separately punishable. The
acts, omissions of which are punishable, are to be performed at different
times, by different authorities or different officers. Each act contemplated to
be performed under sections 166, 210 and 220 may be dependent upon the acts of
others and omission to perform such acts may be due to circumstances beyond the
control of the person who is under statutory obligation to perform the acts.
Therefore, defaults are punishable only when they are wilful."
In that case, the prosecution was under section
220(3) of the Act. In section 210(5) of the Act, a clear distinction has been
maintained between an offence committed wilfully and where there is absence of
mens rea. In the case of wilful commission of the offence, the court is
entitled to sentence the offender to imprisonment. The prosecution is not, therefore,
called upon to establish wilful commission of the offence by the delinquent
directors for conviction under section 210(5). The Full Bench decision of the
Andhra Pradesh High Court was affirmed by the Supreme Court in appeal in the
case of State of A.P. v. A.P. Potteries [1973] 43 Comp Cas
514, 516, 517, 520 (SC). The court noticed its earlier decision reported in
[1961] 31 Comp Cas 1 (SC) and observed :
"In that case this court had taken the
view that a person charged with an offence cannot rely on his default as an
answer to the charge and so, if he was responsible for not calling the general
meeting, he cannot be heard to say in defence to the charges brought against
him that because the general meeting had not been called, the balance-sheet and
profit and loss account could not be laid before it. In that case the directors
of a company were prosecuted under sections 32(5) and 133(3) of the Companies
Act, 1913, for breaches of sections 32 and 131 of that Act for having knowingly
and wilfully authorised the failure to file the summary of share capital for
the year 1953 and being knowingly and wilfully parties to the failure to lay
before the company in general meeting the balance-sheet and profit and loss
account as at March 31, 1953............."
"As we have noticed, this court was not
dealing there with the provisions of section 134 of the 1913 Act which
corresponds to section 220 of the 1956 Act. That question now directly arises
for decision in this case. As we said earlier, most of the High Courts which
have considered this question after the decision of this court have proceeded
on the basis that the decision necessarily led to the conclusion that even in a
prosecution under section 134 of the 1913 Act (corresponding to section 220 of
the 1956 Act), the
company and its directors could not rely upon their failure to call the general
body meeting as a defence to the
prosecution........................................... Therefore
the condition precedent or the essential prerequisite of the balance-sheet and
the. profit and loss account being laid before
the general meeting of the company not being fulfilled, the requirement of
section 134 cannot be complied with. While the appeal to a question of
principle might be attractive we cannot ignore the clear words of the section.
Where the words of the section are very clear it is unnecessary to consider
whether it embodies any principle and whether that principle is consistent with
the principle as embodied in certain other sections which are differently worded.
In interpreting a penal provision it is not permissible to give an extended
meaning to the plain words of the section on the ground that a principle
recognised in respect of certain other provisions of law requires that this
section should be interpreted in the same way."
In the decision of
this court in Criminal Appeal No. 236 of 1973 [Registrar of Companies v. Radhika
Prasad Nanda—[1978] 48 Comp Cas 102 (Orissa)] disposed of on 4th August,
1975, one of us (Mohanti J.) examined the correctness of an acquittal of the
members of the board of directors of this company in a prosecution under
section 210(5) of the Act and rightly the learned judge distinguished the
decision in Vulcan Industries' case
[1972] 42 Comp Cas 326 (Orissa) on the footing that the conviction there was
one under section 220(3) of the Act and relied upon the ratio laid down by the
Supreme Court in the case reported in [1961] 31 Comp Cas 1 (State of Bombay v. Bandhan Ram Bhandani).
For the reasons
indicated above, we are
satisfied that the acquittal recorded by the learned Magistrate was on an
erroneous view of the legal position. The prosecution has established the
charge and the respondents are clearly guilty of the offence under section
210(5) of the Act. The appeal is accordingly allowed, the order of acquittal is
vacated and the respondents are convicted under section 210(5) of the Act and
each of them is sentenced to pay a fine of rupees fifty or in default suffer
simple imprisonment for a term of one week.
Mohanti J.—I concur.
[1979] 49
COMP. CAS. 651 (
HIGH COURT OF
Assistant Registrar of Companies
v.
Mati Begum Safaran Khatoon
MONOJ KUMAR MUKHERJEE, J.
Criminal
Appeal No.
367 of 1976
Monoj Kumar Mukherjee,
J.—The appellant filed a complaint against the two, accused-respondents in the court of the learned Chief
Judicial Magistrate, Jalpaiguri, for an, offence punishable Under s. 210(5) of the Companies Act, 1956, hereinafter referred to as
"the Act". In the complaint it has
been alleged that the two accused-respondents, who are the directors of a
private company named and styled as Rahimpur Tea Company Private Ltd, having
its registered, office at Rahaman House, Jalpaiguri,
were under an obligation, under s. 210(1) of the Act, to lay before the annual
general meeting of the company, which was required to be held by June
30, 1975, the balance-sheet and the profit and, loss account for the financial
year ending on December 31, 1974. As they failed and neglected to take all
reasonable steps to comply with the said provision of s. 210(1) in spite of
repeated references made and reminders issued by the complainant,
they were punishable, under s. 210(5) of the Act.
The learned Magistrate took
cognizance of the said complaint and issued process against the two
accused-respondents by his order dated June 16, 1976. On July 26, 1976, the
learned Magistrate heard both the sides as regards offence, if .any, disclosed
by the petition of complaint and thereafter by his order dated July 28, 1976,
discharged the two accused-respondents on the, finding that the facts alleged
in the complaint do not constitute an offence under s. 210(5) of the Act.
Aggrieved by the said order the complainant filed the present appeal with
special leave of this court.
Though the order of the learned Magistrate is one of
discharge, the same must be treated as one of acquittal as the offence under s.
210(5) of the Act is triable as a summons case.
In arriving at his finding that the complaint did not
disclose any offence under s. 210(5) of the Act the learned Magistrate took the
view that since the case of the prosecution was based on the premise that no
annual general meeting was held by June 30, 1975, the question of laying the
balance-sheet and the profit and loss account as required under s. 210(1) of
the Act did not arise. The above view of the learned Magistrate cannot be
supported inasmuch as the same is diametrically opposite to the view expressed
by the Supreme Court in the case of
State of Bombay (now Maharasira) v. Bandhan Ram Bhandani [1961] 31 Comp Cas 1. A similar ques tion
came up for consideration under the Companies Act, 1913, in that case and the
Supreme Court held that if the person charged with the failure to carry out the
requirements of the section could have called the meeting, he cannot defeat the
provisions of the section simply by not calling the meeting wilfully. In the
said decision while considering the provisions of ss. 131 and 133(3) of the
Companies Act, 191.3, the language of which is almost similar to the provisions
of s. 210 of the Act/the Supreme Court further held that it is no defence to
the charge for breach of s. 131 to say that a meeting was not called.
In view of the above decision of the Supreme Court it
must, therefore, be held that the provisions of s. 210(5) of the Act are
attracted eves in . a case
where no general meeting was held. In view of my above finding it is not
necessary for me to consider as to whether the Explanation to s. 159 of the Act was applicable to the facts of
the instant case as was contended by the learned lawyer for the appellant in
the trial court.
In the result, the appeal is allowed. The order
of the learned Magistrate dated July 28, 1976, is hereby set aside and the
learaed Magistrate is directed to proceed with the
case from the stage it reached prior to the passing of the impugned order, in
accordance with law and in the light of the observations made hereinbefore.
[1978] 48 COMP. CAS. 102 (ORI)
HIGH COURT OF ORISSA
v.
Radhika
Prasad Nanda
P.K. MOHANTI J.
CRIMINAL APPEAL NO. 236 OF 1973.
R.K. Mohapatra for
the Appellant.
Mohanti J.—This appeal has been preferred by the Registrar of Companies,
Orissa, Cuttack, from the judgment of the learned S.D.M. Cuttack, Sadar,
acquitting the accused persons (respondents here) of an offence under section
210(5) of the Companies Act, 1956 (hereinafter referred to as "the
Act").
The respondents are directors
of Utkal Distributors (Private) Ltd., a company registered under the Act. They
were prosecuted under section 210(5) of the Act for failure and neglect to take
all the reasonable steps in laying the balance-sheet and the profit and loss
account for the financial year ending on March 31, 1971, before the annual
general meeting of the company held in pursuance of section 166 of the Act.
The plea of the respondents
was that as no annual general meeting could be held due to want of quorum, the
question of laying the balance-sheet and the profit and loss account did not
arise. The learned S.D.M. acquitted the accused persons on the ground that the
failure was not wilful and that the default was beyond the control of the
accused persons. He relied on a decision in Vulcan Industries (Pvt.) Ltd. v. Registrar of Companies [1972] 42 Comp Cas
326 (Orissa) for the aforesaid findings.
Mr. R.K. Mohapatra, the
learned counsel appearing on behalf of the appellant, contended that the view
taken by the learned magistrate is erroneous as the accused could not take
advantage of their own failure to hold an annual general meeting of the company
and that they are liable for the default in laying the balance-sheet and the
profit and loss account before such meeting. The decision in State of Bombay v. Bandhan Ram Bhandani [1961] 31 Comp Cas 1 (SC) has been cited in support of this contention.
In the Supreme Court case
cited above, one of the two offences with which the accused was charged was
under section 133(3) of the Indian Companies Act, 1913, which corresponds to
section 210(5) of the Act. Their Lordships held that if the person charged with
the failure to carry out the requirements of the section could have called the
meeting, he cannot defeat the provisions of the section simply by not calling
the meeting wilfully. It appears that the above decision of the Supreme Court was not
brought to the notice of the learned S.D.M.
The
ruling in Vulcan Industries (Pvt.) Ltd. v. Registrar of
Companies [1972] 42 Comp Cas 326 (Orissa)
relates to an offence under section 220 of the Act and it has no bearing on a
case involving an offence under section 210 of the Act. Section 220 of the Act
corresponds to section 134 of the Indian Companies Act, 1913. It imposes a
liability upon the company and its officers to file with the Registrar three
copies of the balance-sheet and the profit and loss account signed by the
managing director, managing agent, etc., together with three copies of all
documents which are required by the Act to be annexed or attached to such
balance-sheet or profit and loss account. The default in this behalf is
punishable under section 220(3) of the Act.
In
Andhra Provincial Potteries Ltd. v.
Registrar of Companies [1969]
39 Comp Cas 1000 (AP) [FB], the question for consideration was whether under
section 220 of the Act the holding of an annual general meeting of a company
and laying before it the balance-sheet and the profit and loss account are
prerequisites for a prosecution under section 220(3) of the Act. Their Lordships
held that while it was open to the Registrar to prosecute the persons who had
committed default under sections 166, 159 to 161 and 210 by wilfully not
holding a meeting and not fulfilling the requirements of these provisions, any
prosecution under section 220 would be premature without such a meeting being
in fact held. Their Lordships observed as follows (page 1017):
"It is clear
that the default in not holding an annual general meeting and preparing
statements or returns and filing them before the Registrar,
or in not laying the balance-sheet and the profit and loss account before that
meeting as required under sections 166, 159 to 161 and 210 cannot be pleaded in
defence of prosecution."
The
aforesaid Full Bench decision of the Andhra Pradesh High Court was affirmed in State of Andhra Pradesh v. Andhra Provincial Potteries Ltd. [1973]
43 Comp Cas 514 (SC). It would be pertinent to extract some of the observations
of their Lordships which are as follows (page 519):
"It was urged
before us that the principle accepted by this court in State of Bombay v. Bandhan
Ram Bhandani [1961] 31 Comp Cas 1 (SC) that a company or its directors
in a prosecution under section 32 and section 133 of the 1913 Act could not in
defence to such prosecution rely upon their own failure to call the general
body meeting, applies with equal force to a prosecution under section 134 of
the Act. But it appears to us that there is a very clear distinction between
sections 32 and 133 on the one hand and section 134 on the other........... The
difference in language is very clear and pointed.
The responsibility of sending three copies of the balance-sheet and profit and
loss account or the income and expenditure account, as the case may be, arises
only after they have been laid before the company at the general meeting.
Without so laying, copies could not be sent to the Registrar and even if they
are sent it would not be a compliance with the provisions of the section."
The conspectus of the
decisions cited above is that the failure to hold a general meeting cannot be
pleaded as a defence for default committed in laying the balance-sheet and the
profit and loss account before the company. One cannot plead one's own default
in defence. The directors of the company are primarily responsible for calling
a general body meeting and having failed to call such a meeting and thereby
contravened section 166, they cannot be permitted to take advantage of their
failure and neglect and then plead that they could not lay the balance-sheet or
profit and loss account because no meeting was held.
Under the provisions of
section 166(1) of the Act the company has to hold in each year a general
meeting as its annual general meeting not more than 15 months from the date of
the previous general meeting, unless, of course, the Registrar, for any special
reason, extends the time within which any annual general meeting, not being the
first annual general meeting, shall be held, by a period not exceeding three
months. It is apparent from these provisions that an annual general meeting,
not being the first annual general meeting, is to be held within 15 months or
18 months, where it is extended, from the date of the last general meeting.
According to section 174 of the Act, if the quorum is not formed, the meeting
shall stand adjourned to the same day in the next week, at the same time and
place, or to such other day and at such other time and place as the board may
determine and if at the adjourned meeting the quorum is not formed, the members
present in the meeting shall be a quorum. Therefore, the directors cannot avoid
holding of the annual general meeting on the ground of want of quorum. There is
nothing on the record to show that the directors took any step to hold the
annual general meeting. The plea that the duty of laying the balance-sheet and
the profit and loss account could not be performed by reason of there being no
annual meeting is not a valid defence.
As regards the finding of
the learned S.D.M. that the default was not willful, it is to be noted that in
this respect there is a clear distinction between section 210 of the Act and
section 133 of the Indian Companies Act, 1913. According to the provisions of
sub-section (3) of section 133 of the old Act, an officer of the company could
be held liable for punishment only if he was "knowingly and
willfully" a party to the default. But under sub-section (5) of section
210 of the Act, a director of a company is made punishable with fine even if
the default by him is not willful and he merely fails to take all reasonable
steps to comply with the provisions of the section. The intention of the
legislature appears to be clear that the directors of a company should incur a
penal liability merely on account of the default. The qualifying expression
"knowingly and wilfully" appears to have been deliberately omitted.
In their capacity as directors they must be deemed to be parties to the default
even though some of them might have been indifferent or negligent in the due
discharge of their duties. I am fortified in this view by two decisions in State v. Linkers (Pvt.) Ltd. [1970] 40 Comp Cas 17 (Pat) and Gopal
Khaitan v. State [1969]
39 Comp Cas 150 (
In view of my above
findings, the appeal is allowed and the order of acquittal passed by the
learned S.D.M. is set aside. The three respondents are convicted under section
210(5) of the Act and sentenced to a fine of Rs. 50 (fifty) each.
[1962]
32 COMP. CAS. 341 (PUNJ.)
v.
Registrar, Joint Stock Companies,
G.
D. KHOSLA CJ. AND SHAMSHER BAHADUR J.
DECEMBER
6, 1961
This
judgment will dispose of Letter Patent Appeals Nos. 9-D of 1961 and 119-D of
1960, both arising out of the orders of Tek Chand J. dated 30th December, 1960,
ad 28th October, 1960, respectively.
An application
was present by Ram Krishan Dalmia and other directors of the Asia Udyog Private
Ltd. under section 633 of the companies Act, 1956, for relieving them form
liability under section 210 and 220 of the Act. The books of the company were
seized by the special Police Establishment in November, 1953, under search
warrants issued under the authority of the District Magistrate,
Under section
210 of the Companies Act, 1956, the board of directors of a
company are under a statutory duty to lay in the annual general meeting
of the company the balance-sheet and a statement of profit and loss account.
Three copies of these balance-sheets and profit and loss accounts submitted in
the annual general meetings are to be filed before the Registrar of Companies
under section 220. Default in compliance with these provisions involves
penalties form which the petitioners, in their desire to save themsleves have
invoked the protection section 633 of the Act where with this court can
relevant them.
The matter
came up before Tek Chand J., in the first instance, who
made an order on 28th October, 1960, in which two moths period was allowed to
the company for compliance of the statuary conditions. When the case came up
again on 30th December, 1960, the petitioner pleaded their inability to comply
with the statutory requirements and an order was thereupon passed by the learned
single judge ;to this effect :
"The
statutory conditions have not been compelled with. The Registrar is now at
liberty to proceed again the company's officers in accordance with law as he
may be advise."
Separate
appeals have been filed form the two orders passed by the learned judge as
already; mentioned.
The contention
of the learned counsel for the appellants if that the seizure of the company's
books made it impossible ;for the petitioners to
comply with the statutory requirements. It is not dispirited
;that the companies still carrying on its business and day-to-day
accounts are maintained. The company soon after the orders of Tek Chand J. on
28th October, 1960, wrote to their auditors to prepare the balance-sheet and
profit and loss account of the company. the Special
Police Establishment was approached and also the Commission of Inquiry that the
books may be made accessible to the auditors. The auditors wrote bank to say
that they are unable to prepare the balance-sheet ad the profit and loss account ;within the period of two months. It was also stated
by them that the entries in the books had to be ticked for purposes for audit
and the secretariat of the Commission of inquiry would not agree to any
markings to be made on the books. Faced with this position, the appellants
contend that they are prevented by reasons beyond their control to prepare the
balance- sheet and the profit and loss account as required by law. Reliance is
also placed on an order of Falshow J. dated 18th March, 1960, in which on
similar considerations relief was granted to the petitioners under section 633
of the Companies Act, 1956.
It seems to us ;that the petitioners had ample time for preparation of
balance-sheet and profit and loss account which primarily is the ;concern of
the company; and not the auditors. the auditors, after
the balance sheet is prepared, have to certify that the figures are in
conformity with the entries in the books which are regularly maintained and
have been examined by the auditors. As stated in section 215 of the Companies
Act, every balance-sheet and profit and loss account has ;to
be authenticated by the directors. It follows that it is the primary
responsibility of the directors to have these documents prepared. It is later
that they are submitted to the scrutiny of the auditors and it is only; after
their shareholders.
The company
has been carrying on it as busices despite the seizure of books. there is no conceivable reason why the balance- sheet and
profit and loss accounts could not be prepared without assistance ;of the books
which are with the Commission of Inquiry. It may; ;be that the auditors require
the old books for checking the entries and figures in the balance-sheet but it
dies not provide any;; excuse for the company to carry on their business
without drawn up proper balance-sheet and profit & loss accounts. It may; ;be observed in passing that even Falshow j. in his order
of 18th March, 1960, afforded relief to the directors on the condition that
"within two moths statement of income and expenditure and receipt as and
payments of the year ending 31st July 1958.....are finished, and also a
statement of the particulars required under section 159 of the Act as nearly as
possible in conformity with the form.......". The concession was allowed
by Falshow J. for the statement of accounts ending with 31st July, 19589, and
there is no convincing reason why the petitioners should not have maintained
regular accounts for subsequent years.
Reported as
The counsel
for the Registrar has submitted that this court has no jurisdiction to grant
the relief under section 633 of the companies Act of 1956 which governs the
present application. under the amendment in the
Companies Act made in 1960 to sub- section (2) of section 633 such a relief is
possible. there is some difference of opinion as to
whether the unamended section enables the court to grant relief against
possible criminal prosecutions. A single judge of the Allahabad High court,
A.P. Srivastava j., Thakur Dan Singh Bist v. Registrar of Companies, held the
view that the court has no such power while a silage judge of the Kerala ;High
Court, Raman Nayar j., in In re Bank of Deccan Ltd., held the opposite view. It
is not necessary to decide this question as, in our view,
the petitioners had no justification for non-compliance with the statutory
requirements.
Moreover, it
is the discretion of the judge to grant relief under section 633 We have not been persuaded that the learned judge in declining
the relief has exercised his powers injudiciously. In this view so the matter,
we see no force in these appeals which fail and are dismissed with costs.
[1937] 7 COMP. CAS. 80 (MAD.)
HIGH COURT OF
v.
Emperor
PANDRANG ROW, J.
B. Jagannadha Das and
J. Krishnamurthy, for
Petitioners.
K.
Venkataraghavachari, for the Crown.
These revision petitions
arise out of ten connected cases tried by the Sub-divisional Magistrate of
Guntur in respect of offences punishable under Ss. 131(4) and 134(4) of the
Indian Companies Act of 1913. Cases Nos. 345 to 349 are in respect of offences
punishable under S. 134 and the others are in respect of offences punishable
under S. 131, and they relate to the five years 1921 to 1925. S. 134 relates to
the non-sending of a copy of the balance sheet after it had been laid before a
general meeting of the company. S. 131 relates to the auditing of the balance
sheet of the accounts of the company and placing the same before a general meeting
of the company. It is obvious to my mind that in respect of the same years the
same persons cannot be charged with offences punishable both under Ss. 131 and
134 because S. 134 clearly contemplates the sending of a copy of the balance
sheet only after it has been placed or laid before the company at a general
meeting and where, as in this case as is seen from the prosecutions under S.
131, there was no such placing of the balance sheet before the company at a
general meeting the offence under S. 134 cannot possibly have been committed. I
am therefore of opinion that the convictions under S. 134 (4) of the Indian
Companies Act in these cases, that is to say, the convictions concerned in Cr.
R.C. Nos. 345 to 349 are wrong and must be set aside. The convictions and
sentences in these cases are accordingly set aside and the petitioners in these
cases are acquitted of the offences charged against them in these cases and the
fines, if any, paid by them must be refunded.
As regards the other set of
cases under S. 131 of the Act, I am of opinion that so far as the petitioners 2
and 3 are concerned, they cannot be held liable in respect of the default made
in preparing a balance sheet or placing it before a general meeting of the
company which took place long before they ever became directors or officers of
the company, and indeed before they were even share holders. The view to the
contrary entertained by the learned magistrate is really not supported by the
decision to which he referred, namely, Tola
Ram v. Emperor, which
relates to a continuing offence. The convictions and sentences so far as the
petitioners 2 and 3 are concerned must therefore be set aside and the fines if
any paid by them must be refunded. So far as the convictions of the 1st
petitioner in these five cases 351 to 355 are concerned; they appear to be right and the sentences did
not appear to be unduly severe. So far therefore as he is concerned, these five
revision petitions are dismissed.
[1979] 49 COMP. CAS. 462 (
HIGH COURT OF
v.
Assistant Registrar of Companies
P.C.
BOROOAH
AND
S.C. MAJUMDAR, JJ.
Criminal Revision Case No. 965 of 1978
Dilip Kumar Dutt and
Subrata Ray for the Applicant.
J.N. Ghosh and Anjan Kumar Mukherjee for the Respondents.
Chaitanya Chandra Mukherjee for the State.
JUDGMENT
P.C. Borooah, J. —The petitioners, who are directors of Aviquipo of India
Private Ltd. having its registered office at 22, Chittaranjan Avenue, Calcutta,
have in this application impugned the validity of Case No. C/3044 of 1977,
pending in the court of the Metropolitan Magistrate, 9th Court, Calcutta, which
was initiated on a complaint filed by the opposite party, viz., the Assistant Registrar of
Companies, West Bengal, under s. 210(5) of the Companies Act, 1956, for
violation of s. 210(1) and (3) of the said Act, The allegations made against
the petitioners and the company were that the company failed to place the
balance-sheet for the year ending November, 1975, at its annual general meeting
which was held on the 29th May, 1976, but was placed in the adjourned annual
general meeting which was held on the 15th of July, 1976.
In our view, the
prosecution is misconceived and this view is shared by Mr. J.N. Ghosh, learned
advocate appearing on behalf of
the Assistant Registrar of Companies.
In case the annual accounts
of a company are not ready for laying at the annual general meeting it is open
to the company concerned to adjourn the said annual general meeting to a
subsequent date by an appropriate resolution and the accounts may be laid at
the adjourned annual general meeting. This was done in the instant case and
this is in accordance with the circular bearing No. 35/9/72-CL. III, dated
February 2, 1974, issued by the Company Law Board, Ministry of Law, Justice and
Company Affairs.
In view of what has been
stated above, this rule is made absolute and the proceeding pending against the
petitioners and others in Case No. C/3044 of 1977 in the court of the
Metropolitan Magistrate,
S.C. Majumdar, J.—I agree.
[1977] 47 COMP. CAS. 0128 (GUJ)
HIGH COURT OF
Bhavnagar Vegetable Products Ltd.,
In re
D.A. DESAI J.
COMPANY
APPLICATION NO. 190 OF 1976 IN COMPANY PETITION NO. 57
OF 1976 CONNECTED WITH COMPANY APPLICATION NO. 74 OF 1976.
B.R. Shah for the Official Liquidator.
K.S. Nanavati for the Directors.
D.A. Desai J.—This summons is taken out by the liquidator, Bhavnagar
Vegetable Products Ltd. (in liquidation), representing the court to direct the directors
of the company to sign and authenticate the audited balance-sheet and profit
and loss account as required by section 215 of the Companies Act and to give
necessary authentication of certificates of basic data and particulars entered
into accounts and also the information and explanations as required in the
draft report and the letter dated 29th November, 1976, of the auditors. Further
direction sought was that Tungabhadra Industries Ltd. (sponsor for short) and
Dena Bank, United Commercial Bank, State of
The company was ordered to
be wound up by an order made by this court on 15th September, 1976. In an
appeal preferred against the order of winding up the company, stay of operation
of the order was granted but I was informed that the stay is vacated. Therefore,
at present, there is no stay of the winding-up order. This court made an order
on 7th May, 1976, directing the liquidator to appoint auditors to audit the
books of account of the company so as to be able to arrive at a reasonable
clear picture of the state of affairs of the company. In order to satisfy the
requirements of the proviso to section 391(2), it was necessary to have the
latest balance-sheet and profit and loss account of the company and, therefore,
the direction was given that M/s. Kantilal Patel and Company, chartered
accountants, be appointed to audit the books and submit a report showing the
position of the company as on 31st December, 1975. The auditors have prepared a
draft report and in the course of auditing, they came across certain things for
which they want the explanation of the directors who are responsible for the
same and are not offering explanation. A letter dated 29th November, 1976,
annexure "A" to the affidavit in support of the summons by which the
auditors requested the liquidator that steps should be taken for authentication
of the statement of account prepared by them by the directors and secretary of
the company as well as authentication of the certificates of the basic data and
particulars entered into the accounts. The draft also sought certain
information which the auditors requested the liquidator to furnish. Thereafter,
the liquidator took out the present summons. It has been served upon the
directors, the petitioning-creditor, the sponsor of the scheme and various banks
who claim to be the creditors of the company.
Mr. A.H. Mehta, learned
advocate who appeared for director No. 5— Indrajit Jamnadas Thakkar, No.
14—Navinchandra Gaurishankar Vyas and No. 16—Nissarhusein Abdulhusain Merchant,
led on behalf of the objecting directors and most of bis arguments were adopted
by others who raised objection to the summons being granted. It is, therefore,
necessary to dispose of the objections raised by Mr, Mehta.
In respect of the first
contention, Mr. Mehta contended that this court has no jurisdiction under
sections 215 and 217 calling upon the directors to sign and authenticate the
audited balance-sheet and profit and loss account nor even the court has power
to direct the directors to appear before the auditors and submit explanation
sought by the auditors. In short, the objection was that section 215 does not
confer any power on the court to give such direction.
For the purpose of the
present direction, it may be assumed that those who object to the summons were
the directors of the company because it is in their capacity as directors that
they are being called upon to do various things by the liquidator. The question
that would then arise is whether those who are directors can be called upon by
the court to do various things as prayed for by the liquidator in the summons.
This would necessarily require examining the duties of the director. It is now
indisputable that directors stand in fiduciary position with the company. Apart
from various statutory liabilities which they undertake on becoming directors,
this is the position which is beyond controversy that directors stand in
fiduciary position in relation to the company. This is a position of utmost trust. Professor Gower in his Principles of Modern Company Law, 3rd
edition, after referring to the articles
styled "fiduciary relationship" and "the director as
trustee", has observed that the correct position of a director has been
settled by Romer J. when he said that the directors are agents of the company
and are in fiduciary relationship to their principal, the company. The duties
of good faith which this fiduciary relationship imposes are virtually identical
with those imposed on trustees and, to this extent,
the description "trustee" still has validity. It is this duty of a
director which must be kept in view before deciding whether they can be asked
to do what the liquidator wants them to do.
However, at the inception,
it would be necessary to refer to some of the statutory provisions with respect
to the duty of the directors. Section 209 provides that every company shall
keep proper books of account with respect to various things mentioned in that
section. Section 209A requires the books of account, other books and papers of
the company to be kept open for inspection during business hours by the
Registrar of Companies or by such officer of the Government as may be
authorised by the Central Government in this behalf. Section 210(1) imposes an
obligation on the board of directors of the company to lay a balance-sheet as
at the end of the period specified in this behalf and profit and loss account
for that period before every general meeting of the company held in pursuance
of section 166. On a combined reading of these sections, it is crystal clear
that the company must maintain books of account, that the books of account are
open for inspection by the Registrar without any previous intimation and that
at the end of the financial year, the balance-sheet and profit and los3 account
is to be prepared and it is to be laid before the general meeting. That duty is
cast on the board of directors. In order to discharge the last duty, viz., getting prepared the statements of
account, balance-sheet and profit and loss account, it will be the duty of the
directors to see that regular books of account of the company are kept. That
would again be the duty of the board of directors. If they are required to
maintain books of account, it would be their duty to see that correct and
regular books of account are kept, They should
exercise such care and skill and such degree of supervision as would enable
them to see that provisions of section 209 onwards are faithfully and
effectively carried out. If any director neglects to provide for maintenance of
books of account for the whole year, I fail to see how at the end of the year,
they would be able to carry out the obligations and duties imposed on them by
section 210(1). Balance-sheet and profit and loss account can be prepared or
compiled on the basis of the accounts maintained during the year. It is no
argument that only if a general meeting is to be convened and at such general
meeting, a statement has to be produced that accounts are required to be
maintained and as there is no question of calling the general meeting because
the company is ordered to be wound up, and, therefore, section 210 does not
come into play. Now, can one look forward to the end situation that just before
the time the general meeting is to be convened, the company would be wound up
and, therefore, the directors were free from the liability of keeping accounts. It is, therefore, indisputable that the board of
directors has to make necessary arrangements for maintaining and keeping
regular books of account which should be available for inspection and which
should be according to the prescribed standard and on the basis of which the
balance-sheet and profit and loss account will be prepared by the board of
directors.
Now, section 224 imposes a
duty on the company to appoint, at each annual general meeting, auditor or
auditors to hold office from the conclusion of the meeting until the conclusion
of the next annual general meeting. Duty to appoint auditors is thus statutory.
Section 226 prescribes qualifications of auditors. Then comes
section 227 which is material. It provides that every such auditor of a company
shall have a right of access at all times to the books and accounts and
vouchers of the company whether kept at the head office or elsewhere and shall
be entitled to require from the officers of the company such information and
explanations as the auditor may think necessary for the performance of his
duties as auditor. An auditor thus enjoys a statutory right to call for
explanations from officers. Expression "officer" is defined in
section 2(30) to include any director, managing agent, secretaries and
treasurers.........., etc. Now, if I remove the word "officer" from
section 227 and read the word "directors", then section 211 will read
"..............the auditors shall be entitled to require from the
directors of the company such information and explanations as the auditors may
think necessary for the performance of his duties as auditor". It thus
becomes a statutory duty of the directors to keep the accounts or arrange to
maintain the accounts of the company, to prepare balance-sheet and profit and
loss account and before it can be so done, to offer explanations and
information called for by the auditors.
Mr. Mehta does not dispute
this position but his contention was that this obligation is imposed upon the
directors of a company which is functioning and if the company is ordered to be
wound up and the liquidator steps in, the directors cease to enjoy the status
of directors and hence could not be asked to discharge a function which they
were b and to discharge if they continued to be directors. If that were to be
so, it would only mean that the provisions onwards from section 433 of the
Companies Act would be rendered totally nugatory. Once a winding-up order is
made, the board disappears. But the obligations and liabilities incurred during
the period the company functioned are not discharged on the making of a
winding-up order. If accounts are kept for a financial year and they are
examined either by the auditor appointed at the general meeting or appointed by
the court but the accounts relate to the period when board of directors was in
charge of the company, then notwithstanding the winding-up order, directors are
liable to render explanation. Mr. Mehta's argument comes to this that if the
accounts are being audited by the auditors for the period for which there were
some directors, the duty of the directors under section 227 came to an end as
soon as a winding-up order is made. If this company was functioning and there
was no winding-up order, under section 227 the auditors would have a right to
call upon the directors to submit explanations. If a winding-up order
intervenes, the position in law in this behalf does not undergo change.
Directors may cease to enjoy power, but obligations and liabilities incurred
during the period they were directors do not evaporate with the passing of the
winding-up order. In fact they can be enforced at the hands of the liquidator.
This is the scheme of the winding-up provisions of the Companies Act.
Mr. Mehta had an extreme
argument to offer in this connection. He said that if directors had committed
any offence, they should be prosecuted but the liquidator cannot call them to
offer explanation. I have not been able to fully grasp the meaning of this
submission. I would prosecute.
There would be no
hesitation in doing so. But that does not put an end to the liability to give
explanation. The argument is that if cailed upon to explain, they will be
squarely bound by the explanation which may hamper their defence in the
prosecution that may be launched against them. That was Mr. Mehta's passing
apprehension. But the argument which in terms was posed is that the various
provisions herein discussed do not confer any power on the court to call upon
the directors to explain something which happened during the period they were
directors because the auditors appointed by the court and not one appointed by
general meeting seeks their explanation. Fact situation is slightly different
though I do not propose to rest this order on that position. Auditors appointed
by the general meeting disclosed their disinclination to audit accounts.
Therefore, the court appointed the auditor. But the irrefutable and important
fact is that the auditor has audited accounts for the period when there was a
board of directors. And directors of such board are called upon to render
explanation when they were in office. Accounts are required to be maintained
statutorily. The duty to explain arises under the statute. Vacation of the
office of director does not ipso facto bring to an end the liability to offer
explanation which was statutorily placed there under section 227. Therefore,
there is no substance in the contention of Mr. Mehta that the court cannot call
upon the directors to appear before the chartered accountants and auditors
appointed by the court to submit explanations on the questions and queries
raised by them.
There is one apprehension
of Mr. Mehta against which I would like to guard. He said that the direction
sought is a composite direction. He is right. He says that, by composite
direction, the directors are called upon to appear before the auditors, give
explanations, sign the accounts and authenticate the certificates. He says that
after offering explanations, the auditors may prepare same accounts and/or other
accounts and the directors cannot be asked to sign the same. At present, I
propose to confine myself to one part of the prayer, viz., to appear before the auditors and to submit explanations.
Authentication will come at a later stage. Under this guise, the directors
cannot be allowed to escape. Therefore, I confine my attention in this summons
to that part of the prayer by which the directors are called upon to give explanations in respect of queries
and points raised by the auditors in their draft report submitted by them to
the liquidator. To that, there cannot be much objection, viz., that the director is being
called upon to be a party to a document to which he does not subscribe. If
there is statutory liability to sign, I will examine it later on. For the
present, I will grant a part of the prayer in the summons.
Mr. A.L. Shah, learned
advocate on behalf of director No. 3—Ahmedhusen Abdulhusen Merchant—urged that
A A. Merchant resigned from the office of director with effect from 1st
October, 1974. Mrs. K. A. Mehta on behalf of director No. 7—Mohmedhusein
Abdulhusen Merchant—stated that he resigned in June, 1975. Mr. D.U. Shah,
learned advocate for director No. 6 —Mohmedhusein Noormohmed Merchant—and No.
8—Fidahusen Noor-mohmed Merchant, urged that they were minority directors since
1971 and they did not participate in the management of the office and resigned
from the office of directors on 4th October, 1974. Their resignations were
accepted on 30th April, 1975. Miss S.M. Madan, learned advocate on behalf of
director No. 10—Sultanali Kasamali Ladiwala—urged that the director, S.K.
Ladiwala, resigned from the office of the director on 9th December, 1975. All
these advocates invited me to hold that they are not liable to give any
explanation as sought by the auditors.
In order to dispose of this
summons, it is necessary to state that the relevant period for which accounts
are prepared commence from 1st November, 1974, and ends on 31st December, 1975.
If anyone who was a director daring this relevant period, he must give
explanation. If he is a minority director and did not participate in the
management, that would be his answer. Resignation of a director becomes
effective from the day on which it is accepted. If any other construction is to
be accepted, the result would be that all of them can walk out on the day
preceding the date on which the accounting year comes to a close and on the
last day they would pocket the balance in their hands and nothing can be done
to them because they cannot be asked to explain. The period for which the
accounts are compiled ipso facto determine the liability of the directors to
explain things arising from the accounts for the period and would fasten upon
those persons who during the period, for long or for short, for a day or for a
month, were directors. Mr. D.U. Shah pointed out that directors Nos. 6 and 8
were minority directors since 1971 and they were not participating in the
management. It may be true. But it cannot dispose of the liability if till
April, 1975, viz., the date of
resignation, the public register of the company showed them as directors. It is
true that they may give an explanation that as they were not participating in
the management, they cannot offer any explanation. If this statement is
correct, the answer is to be accepted. But, can it be an argument that because
during a part of the period for which accounts are compiled, a person walked
out from the office of the director, his liability to explain statutorily cast
under section 227(1) would be discharged or he would be freed from the
liability ? It cannot be so. Therefore, all these gentlemen who said that they
have resigned but appear to have been on the public register of this company as
directors for some period of time out of the period for which the accounts are
compiled by the auditors and explanations are sought, they would be liable to
answer. Mr. G.N. Shah, learned advocate for directors No. 2— Dhirajlal Babubhai
Sanghvi, No. 4—Kiritkumar Ratilal Gandhi and No. 9—Nagardas Ranchhoddas
Sanghvi, stated that keeping open all the contentions, they agree to appear
before the chartered accountants to offer whatever explanation they can offer
after taking inspection of the books if they want to take and then submit
statement of concurrence in respect of statement of affairs filed by the other
directors. There is no other contention on his behalf.
Accordingly, this summons
is granted in respect of prayer (a) to the effect that the directors shown at
serial Nos. 2 to 16 should appear before the chartered accountants within a
period of three weeks from to-day according to the date appointed by the
chartered accountants and to offer explanations in respect of queries raised by
the chartered accountants in the draft report submitted by them to the
liquidator in respect of the accounts of the company for the period November 1,
1974, to December 31, 1975. Summons is also granted in terms of prayer (b) that
all of them are called upon to submit in writing their acceptance of the
inventory of the stock and goods made by M/s. General Superintendence Company (
[1980] 50
COMP. CAS. 346 (
HIGH COURT OF
v.
Assistant Registrar of Companies
P.C. BAROOAH AND A.N. BANERJEE, JJ.
CRIMINAL REVISION NO. 1386 OF 1978
Dilip Kumar Datta, D.P. Ray and Debabrata
Mukherjee for the Petitioner.
J.M. Gosh and Anjen Mukherjee for
the Respondent.
B. Mitra, and Asit Kumar Goswami for
the State.
P.C.
Barooah J.—The three petitioners
before us, who are directors of Simplex Concrete Piles (India) Private Ltd.
(hereinafter the "Company") having its registered office at 13, Camac
Street, Calcutta-17, have in this application impugned the legality of a
proceeding instituted against them and the others under s. 210(5) of the
Companies Act, 1956 (hereinafter "Act"), on the basis of a complaint
filed by the opposite party No. 1, the Assistant Registrar of Companies, West
Bengal, in the Court of the Chief Judicial Magistrate at Alipore and have
prayed that the proceedings pending against them be quashed.
The
allegations made in the aforesaid complaint in brief was that the balance-sheet
and profit and loss account of the company for the year ending December 31,
1975, was placed in the adjourned annual general meeting held on July 30, 1976,
after a period of more than six months from the date when the accounts were
last submitted and as such there was a violation of s. 210(3)(b) of the Act.
It appears
that the company called the annual general meeting on June 29, 1976, but as on
that date, for reasons stated in the petition, the accounts were not ready for
laying, the meeting was adjourned till July 30, 1976, when the profit and loss
account and the balance-sheet were duly laid.
Mr. Dilip
Kumar Dutta, learned advocate, appearing on behalf of the petitioners,
submitted that no offence can be deemed to have been committed by the company
as it acted in accordance with a circular letter No. 35/9/72-C. L.III dated
February 2, 1974, issued by the Company Law Board, Ministry of Law, Justice and
Company Affairs. The relevant portion of the circular is as follows:
"In case
the annual accounts are not ready for laving at the appropriate annual general
meeting, it is open for the company concerned to adjourn the said annual
general meeting to a subsequent date when the annual accounts are expected to
be ready for laying. This may be done by suitable resolution adjourning the
said annual general meeting to a specified date or to a date to be specified
later on".
Mr. J.N.
Ghosh, learned advocate, appearing on behalf of the Assistant Registrar of
Companies,
In the case
of Sudhir Kumar Seal v. Assistant Registrar of Companies, being
Criminal Revision Case No. 965 of 1978, reported in [1979] 49 Comp Cas 462
(Cal), where the directors of Aviquipo of India (Private) Ltd. were prosecuted
under s. 210(5) of the Act for violation of sub-ss. (1) and (3) of s. 210 of
the Act on the ground that the balance-sheet for the year ending November,
1975, was not placed at the annual general meeting of the company which was
held on May 29, 1976, but was placed in the ajourned annual general meeting
held on July 15, 1976, Mr. J.N. Ghosh accepted the position that the
prosecution was misconceived in view of the aforesaid circular of the Company
Law Board and the proceedings against the directors of the company were quashed
by this court which expressed a view in conformity with the circular.
In the
premises aforesaid the prosecution in the instant case has also to be quashed.
Moreover, if the company had acted in accordance with the circular issued by
the Company Law Board it was not open to the Assistant Registrar of Companies
to launch the prosecution against it. It was of course open to the Company Law
Board to modify the circular which they have not done. Furthermore, when the
accounts of the company were not ready for laying at the annual general meeting
and the annual general meeting was adjourned by an appropriate resolution after
transaction of some business to a subsequent date for laying of the accounts,
the adjourned meeting must be deemed to be a continuation of the earlier annual
general meeting and not a new meeting. In that view of the matter also the
instant prosecution has no legs to stand upon.
In the result,
this application succeeds, the rule is made absolute
and the proceedings pending against the petitioners and others in Case No.
C-1663 of 1977 in the Court of the Chief Judicial Magistrate, Alipore, are quashed.
We may add in
this connection that Mr. Ghosh submitted before us that he is still of the same
view which he had when he made his submissions in Criminal Revision Case No.
965 of 1978 but he made the submissions in the instant case strictly on the
instructions of the Assistant Registrar of Companies, West Bengal.
A.N. Banerjee
J.—I agree.
[1969] 39 Comp. Cas. 119 (
HIGH COURT OF
v.
State
T.P. MuKHERJI, J.
CRIMINAL REVISION CASE NOS. 637 TO 643 OF 1964
Rathindranath Das and Nirendra Krishna Mitra for the petitioner.
Nikhil Chandra Talukdar for respondent.
Sarathi Mohan Sanyal for the State.
The
seven complaints out of which these seven revision cases arise were registered
as seven cases in the court of the Chief Presidency Magistrate of
The
petitioners in both sets of cases obtained the present rules against their
conviction under sections 162(1), 168, 220(3) and 210(5) of the Companies Act,
1956, and the sentence of a fine of Rs. 50 on each count passed on each of them
thereunder. Madan Gopal Dey and Sm. Anjali Dey were sentenced to suffer simple
imprisonment for 14 days each in default of payment of fine and half of the
fine imposed in all these cases was directed to be paid to the Registrar of
Joint Stock Companies, if realised, as cost.
T.
Dey and Co. (Private) Limited was incorporated on December 12, 1960, and Madan
Gopal Dey and Sm. Anjali Dey were declared to be its first directors. The
charge under section 162(1) of the Companies Act relates to the failure of the
company as well as of its directors to prepare and file with the Registrar
under section 159 of the Act the annual return within 42 days of the annual
general meeting. The charge under section 168 of the Act arises out of the
failure of the company as well as of its two directors to hold the first annual
general meeting as required by section 166 of the Act. The charge under section
220(3) of the Act relates to the violation of the requirement of section 220(1)
thereof which requires the company and every officer of the company in default
to file the balance-sheet and the profit and loss account of the company with
the Registrar, while the charge under section 210(5) relates to the failure of
the directors to place before the annual general meeting of the company the
balance-sheet and the profit and loss account for the specified period as
required in section 210(1) of the Act.
The
default in the matter of submission of the annual return, in
holding the annual general meeting and in placing the balance-sheet and profit
and loss account at the meeting and in
filing the same with the Registrar were all admitted by the petitioners. The learned advocate
appearing on behalf of the petitioners took objection to the amalgamation of
the cases for the purpose of a joint trial and contended that section 234 and
section 239 of the Criminal Procedure Code would bar both the joinder of the charges
in the cases as well as the joinder of different sets of persons for the
purpose of a single trial. The second contention that was raised before me was
that, although the company in Criminal Revision Cases Nos. 640-643 of 1964
might be liable for the defaults under the relevant sections, there is no basis
for the conviction of the two directors in the absence of a finding that they
knowingly or wilfully authorised or permitted the defaults concerned.
It appears from the
Magistrate's records that when the seven cases came up for trial on the same
date the learned Magistrate examined the two directors on the charges under the
four heads in one record and the trial of all the seven cases in respect of
these charges thereafter proceeded jointly against the company as well as its
directors. If the joint trial were held under section 234, Criminal Procedure
Code, so far as the two directors are concerned, the same obviously would be
bad in law inasmuch as that section permits a person to be charged with and tried
at one trial for any number of offences of the same kind not exceeding three
which might have been committed by him within the space of twelve months from
the first to the last of such offences. On behalf of the petitioner I was
referred in this connection to the case, Satish
Chandra Chakrabarty v. Subrata
Majumdar, wherein
it was held that beyond the ambit of section 284, Criminal Procedure Code,
there is no provision for amalgamation of cases that by strict adherence to the
provisions of the Code are required to be tried separately. In that case 3
complaints by different complainants, one under sections 323 and 504, Indian
Penal Code, and the other two under section 323, Indian Penal Code, only for
offences committed on different dates were amalgamated and sought to be tried
together. This order for amalgamation was set aside and the cases were directed
to be tried separately.
Mr. Talukdar appearing on
behalf of the opposite party in these cases referred to the case, Dulal Chandra Bhar v. State
of
Quite
obviously the charges in these cases could not be joined for the purpose of a
single trial under section 234 of the Code in the present cases. The section
itself is the clearest authority on the point. If, however, the offences which
are the subject-matter of the charges in these seven cases were committed in
the course of the same transaction, section 235 of the Code would authorise
their joinder for the purpose of a single trial. The question is whether the
offences under sections 162(1), 168, 220(3) and 210(5) could be said to be so
connected together as to form the same transaction. The term "
same transaction " has nowhere been defined. The term suggests a
continuity of action and purpose and it has been held that the real and
substantive test for determining whether several offences are so connected
together as to form one transaction depends upon whether they are related
together in point of purpose or as cause and effect or as principal and
subsidiary acts so as to constitute one continuous action. If a continuous
thread runs through the acts complained of, charges arising out of those acts
would be liable to be joined together under this section. Continuity of action,
therefore, seems to be a very important test in the matter.
The
substance of the charges framed against the petitioners in these cases is that
they had failed to hold the annual general meeting and that they had failed to
place the balance-sheet and profit and loss account at the meeting and they had
further failed to file with the Registrar the annual return and copies of the
balance-sheet and profit and loss account within the specified periods
following the annual general meeting. A limited company holding public funds is
liable to account for those funds to the shareholders and also to the Registrar
of Joint Stock Companies to whom the company is also liable to submit an annual
return embodying certain specified particulars regarding its management and
other affairs. The requirements of the law in these regards fall into a pattern
and the action that is to be taken to satisfy those requirements carries a
sense of continuity in the matter of the administration of the company. The failure
to act up to the legal requirements in these regards and the defaults in the
matters mean a failure to pursue that continuity of action. A continuity of
action when the charge is default or failure to take action is not
inconceivable. If the action required to carry a thread of
continuity, the failure to take the action would constitute omissions which,
connected together, will have a continuous thread of common purpose running
through them. In my view the defaults and omissions in the present cases
constitute a series of acts which are so connected as to form the same
transaction and as such whatever offences might have been committed in the
course of that transaction are liable to be joined together under section 235
of the Code for the purpose of a single trial. Section 239 of the Code permits the joinder at the same
trial of persons accused of the same offence committed in the course of the
same transaction. The directors as well as the company were thus liable to be
jointly tried and the learned Magistrate cannot be said to have fallen into an
error of law in jointly trying the petitioners in these seven cases at the same
trial.
Coming
now to the second contention raised on behalf of the petitioners, as I have
already stated, exception was not taken to the conviction of the company in the
cases out of which arise Criminal Revision Cases Nos. 641-643 of 1964. No
exception could be and was also taken to the conviction of the two directors
under section 210(5) of the Companies Act in the case out of which arises Criminal Revision Case No. 640 of 1964. Section
210(5) makes liable every director of a company who fails to take all
reasonable steps to comply with the provisions of section 210(1) which requires
the placing of the balance-sheet and the profit and loss account before the
general meeting. This leaves us to consider the legality of the sentence passed
in the three cases out of which arise Criminal
Revision Cases Nos. 637-639 of 1964.
The
convictions of the directors in the above three cases were under sections
162(1), 168 and 220(3). So far as the directors of the company are concerned,
it is only "every officer of the company who is in default" that
becomes liable. The term "officer" is defined in section 2(30) of the
Act as including any director and the term "officer who is in
default" is defined in section 5 of the Companies Act. According to that
definition, "officer who is in default" means any officer of the
company who is knowingly guilty of the default or who knowingly and wilfully
authorises or permits such default. Any director of the company who is
knowingly guilty of the default or who knowingly or wilfully authorises or
permits such default would be an "officer who is in default" under
the above section. There is no dispute that the petitioners in Criminal
Revision Cases Nos. 637-639 of 1964 were the promoters of the company and were
its first directors.
Reference
was made on behalf of the petitioners to the case Rajkumar Kusari v. Emperor, wherein it was
held that, for the purpose of convicting a person under section 76 of the
Companies Act corresponding to section 166 of the present Act, it has to be
shown at the first instance that the accused had knowingly been a party to the
default in holding the general meeting and where that question was not enquired
into at all the case has not been properly tried and the conviction cannot
stand. The accused in the case was the secretary of a company and not a
director and, unless it could be proved that he had any duty in the matter of
calling the general meeting and there had been default knowingly and wilfully
in the performance of that duty necessarily, he could not be convicted. A
secretary, without more, has no duty under the Act in that regard.
The
case, Surendra Nath Sarkar v. Emperor, is another
case cited on behalf of the petitioner on this point. That was a case where the
managing director of a company was convicted under section 32 corresponding to
section 162(1) of the present Act for wilful default in submitting the annual
return. It was held that, before he could be so convicted, it must be found
that he was responsible for the default. The managing director, as the report
of the case shows, had previously been convicted under section 76 of the Act
for default in respect of the holding of the general meeting. This case no
doubt supports the petitioners' contention.
The
learned advocate for the petitioners also referred to the case, In re Bank of Deccan Ltd. The
subject-matter of the decision in that case was the scope of section 633(1) and
the powers of the High Court under section 633(2) of the Companies Act. There
relief was granted to the company for its failure to prepare the balance-sheet
and profit and loss account on the ground that, in the circumstances of that
case, it was not possible for the company to do so, or, in other words, that
there had been no default knowingly and wilfully in the matter.
On
behalf of the opposite party Mr. Talukdar referred to the case, Bhagirath Chandra Das v. Emperor. The
prosecution in that case was under sections 32(5) and 134(4) which correspond
to section 162(1) and section 220(3) of the present Act. It was observed by the
learned judge that:
"It is clearly the duty of all directors to see that the particular returns, the list and summary under section 32 and the copies of the balance-sheet and profit and loss account are submitted under section 134. There is nothing on record to show that these directors made any attempt to see that these returns, list and statement were properly submitted or that they were prevented in any way from seeing that the proper list, statement and returns were submitted If directors, who are responsible for the management of a company and who presumably know the duties imposed upon them by law, make no attempt to see that those duties are carried out, there is justification for holding, in my opinion, that they have wilfully and knowingly permitted the company to fail to carry out those duties".
In
the case, In re Arcot Citizen Bank
Ltd., the
directors of the bank were prosecuted under section 32(3) corresponding to
section 162(1) and under section 131(1) corresponding to section 210(5) and,
while considering the question as to how far the petitioners could be liable
thereunder, it was held:
"....it would be
enough if the evidence makes out blameful inadvertence on the part of the
offender, that is, first, the accused must be shown under this third group to have had
guilty knowledge that the forbidden event is happening. Secondly, that the
accused with such knowledge and being in a position to prevent the event
happening does nothing about it".
This
case quoted with approval a portion of the judgment in the case, Bhagirath Chandra Das v. Emperor, referred to in
the previous paragraph.
The
relevant provisions of the Companies Act have been enacted to protect the
shareholders and, in some cases, to protect the general public and they impose
definite duties on the directors. When the directors fail to perform their
statutory duty, they bring themselves within the mischief of the penal
provisions of the law. In order that a conviction, under the sections involved
in the present cases, of "an officer of the company" may be
sustained, the only thing to prove is that that particular officer knowingly
and wilfully authorised or permitted these defaults. The offence is complete if
the officer of the company knew of the defaults and permitted the same.
So
far as the present cases are concerned, it would appear that, since its
incorporation, nothing was done either by the company or by its two directors
to comply with the provisions of the Indian Companies Act. It is the
petitioners' case that the company did not function and so it was impossible
either to call a general meeting of the company or to prepare the balance-sheet
and the profit and loss account or to submit the annual return. If the company
did not function, the Act provides for winding-up proceedings. It is not for
the Registrar of Joint Stock Companies to know whether a company is functioning
or not. All that he is concerned with is compliance with the provisions of the
Act, which are meant for protecting the interest of the shareholders. So long
as the company is not wound up, nothing stood in the way of the company and its
directors holding a meeting or in preparing blank balance-sheet and profit and
loss account and in submitting the annual returns. The fact that the company
did not function is, in my view, no excuse, though it might extenuate the
offence to some extent. The petitioners in Criminal Revision Cases Nos. 637-640
are the promoters and first directors of the company. It was for them to take
the necessary actions, for failure to take which the prosecutions against them
were started. Nobody else comes into the. picture
regarding these matters. If they were required to to take those actions and if they
have defaulted to take the same, certainly they are "officers in
default", as defined in the Companies Act. In view of this and in view of
what I have stated earlier, I am of the view that the petitioners in these
seven cases have been rightly convicted. The rules must accordingly be
discharged.
It
is ordered accordingly.
[1958] 28 COMP. CAS. 255 (KER.)
Assistant
Registrar Of Joint Stock Companies Tellicherry
V.
SANKARAN J.
SANKARAN J.-In all these revision cases the points raised are the same and the parties are also the same. The
respondents in all these cases are four of the directors of an incorporated
company known as “The Food & Farm
2. If the
convictions against the accused in these cases were to stand, there can be no
doubt that the sentence awarded is grossly inadequate and even ridiculous. In
justification of the award of such a sentence,the
Magistrate has stated : “I consider that in the circumstances of the case, a
nominal sentence of fine should suffice, the offence being only technical.”
This view of the Magistrate is clearly erroneous. It is in the interest of the
general public and particularly to safeguard the interest of the shareholders
of a company that specific provisions have been made in the Companies Act
casting certain duties on the officers of the company. Wilful default in the
discharge of these duties has also been made punishable. It will not be correct
to say that an offence of that nature is only a technical offence. In the
present case the offences consist in the default to comply with the directions
contained in section 76 and 133 of the Companies Act and the maximum sentence
that could be awarded under sub-section (2) of section 76 and under sub-section
(3) of section 133 is a fine of Rs. 500. This is clear indication that the
Legislature considered the offence under these sections t be
real offences deserving substantial punishment. No doubt the Legislature has
only fixed the maximum of the sentence that could be awarded in a particular
case being left to the discretion of the court. Such discretion has to be
judicially exercised. the court must be guided by a
sense of proportion in fixing the quantum of fine in any particular case. It
must bear some reasonable proportion to the upper limit sanctioned by the
statute. To disregard that limit altogether and to award only a nominal
sentence would have the result of reducing the prosecution itself to a mockery
ad thus defeating the very object of such penal provisions. In the present case
the learned Magistrate had obviously lost sight of all these aspects when he
awarded the ridiculous sentence of one rupee to each of the accused for the
offence for which the maximum sentence fixed is Rs. 500. It follows therefore
that the sentence will have to be substantially enhanced in case the conviction
is sustainable.
In resisting
the mode for an enhancement of the sentence awarded to the respondents in these
cases as per the orders of the learned Magistrate, it is contended on their behalf
that the conviction itself is unsustainable on the evidence on record. To take
up such a stand is clearly within their right by virtue of the provisions
contained in sub-section (6) of Section 439 of the Code of Criminal Procedure.
The
sub-section runs as follows:
“Notwithstanding
anything contained in this section any convicted person to whom an opportunity
has been given under sub-section (2) of showing cause why his sentence should
not be enhanced shall, in showing cause, be entitled also to show cause against
his conviction.”
In the
exercise of the revisional jurisdiction under section 439 the court is
competent to exercise the appellate jurisdiction also as indicated in
sub-section (1) . In the present case the respondent
could not file any appeal against their conviction and sentence because the
sentence was only to pay a finance of one rupee they cold only have filed a
revision against such conviction and sentence. Even though they did not file
any formal application in that direction they are entitled to request the court
to exercise its revisional jurisdiction under section 439 and toe examine the
sustainability of the conviction recorded against them.
4. What is
contended on behalf of the respondents is that the prosecution has not adduced
any evidence against them to make out the essential ingredients of the offences
punishable under sub-section (2) of section 76 and sub- section (3) of section
133 of the Companies Act. It is clear from these sub-sections that for every
default in complying with the requirements of the respective sections, the
officers of the company maintained between the company and its officer. As
against the company it is enough to prove that there has been a default as
contemplated by the sections. But as against the officers of the company,
something more has to be proved. It must be shown that the officer concerned
was knowingly and wilfully a party to the default and then only he will be
liable to be punished. This is made clear by the closing portions of sub-section
(2) of section 76 and sub-section (3) of section 133 wherein the penal
provision is couched in substantially the same terms. What is significant to
note is that any director or any other officer of the company becomes liable to
be punished under these sub-section only if he is knowingly and wilfully a
party to the default contemplated by the respective sections. The force and
significance of the expression “knowingly and wilfully a party to the default”
cannot be lost sight of in any prosecution under these auction against the
directors and officers of the company. It is was the intention of the
Legislature that they should incur a penal liability merely on account of the
default mentioned in these sections, the above expression would not have found
a place in the sub-section. This qualifying expression appears to have been
deliberately used to afford protection to innocent defaulters and to punish
only those who are consciously and intentionally committing default. There may
be instances where the default may have occurred and some at least of the
directors of the company may be totally ignorant of the same. It could be said
that they have been indifferent or negligent in the due discharge of their
duties as directors of the company. In their capacity as directors they must be
deemed to be parties to the default. But it will not be correct to say that
they have been knowingly and wilfully parties to such default in the absence of
any evidence to support such an inference. There must be some evidence, director
or circumstantial, to sustain an inference that they also contributed to the
default with full consciousness of their responsibility in the matter. That
appears to be the purport of the expression “knowingly and wilfully” as used in
the two sub- sections. A similar expression “wilful and neglect or default”
came up for consideration in In re City Equitable Fire Insurance Co. Ltd., and
there the scope of that expression was explained as follows:
“An act, or an
omission to do an act, is Wilful where the person who acts or omits to act,
knows what he is doing and intends to do what he is doing, but if that act or
omission amounts to a breach of that persons duty, and therefore to negligence,
he is not guilty of wilful neglect or default unless he knows that he is
committing, and intends to commit, a breach of his duty, or is recklessly
careless in the sense of not carrying whether his act or omission is or is not
a breach of his duty.”
Sub-section
(5) of section 32 of the Indian Companies Act states:
“Every officer
of the company who knowingly and wilfully authorises or permits the default
referred to in that section, shall be liable to a fine not exceeding Rs. 50 for
every day during which the default continues.”
The scope of
the expression “knowingly and wilfully authorises or permits the default” came
up for consideration in Sundar Das v. Emperor, and there it was held that
default in filing copy of the list of shareholders and also summary described
in section 32 should be intention and not merely inadvertent to sustain a
conviction. The significance of the expression “knowingly or wilfully” as used
in the section to determine the penal liability of the officers of the company
as distinguished from the company itself has been explained in Public Prosecutor
v. B.V.A. Lury Company in the following terms:
“A company as
corporate body cannot either `know’ or `will’. That the Legislature did not
personify companies and impute to them minds is made clear by the working of
the relevant sections. The punitive clause of section 32 for example, reads :`If a company makes default in complying with the
requirements of this section, it shall be liable to a fine not exceeding Rs. 50
for every day during which the default continues, and every office of the
company, who knowingly and wilfully authorises or permits the default, shall be
liable to the like penalty’. It is to be noted that the words`knowingly’ and
`wilfully’ are used with reference only to the officers of the company and not
to the company itself, obviously for the reason I have given above. The company
is always liable where the return is not sent in ; but
the officers of the company are liable only if they knowingly or wilfully
authorises or permit the default.”
These
principles have to be kept in view while examining the prosecution evidence
against the respondents in the four cases under consideration.
5. P.W. 1 is
the solitary witness examined on behalf of the prosecution in all these four
causes. He has no court asserted that so far as the respondents’ company is
concerned there has been default in respect of the matter referred to in
section 76 and 133 of the Companies Act. He has also stated that the
respondents were directors of the company curing the relevant period. the witness has admitted that his information regarding
these matters are those gathered from the records and that he has no direct
knowledge as to how the affairs of the company were being carried on. This
witness has not been able to speak to any fact or circumstance which would lead
to a legitimate inference that the respondents were knowingly and wilfully
parties to the default complained of thus there is a total absence of evidence
to prove that essential ingredient of the offence for which the respondents
prove that essential ingredient of the offence for which the respondents are
sought to be made liable. The respondents are therefore right in their
contention that the evidence adduced by the prosecution in each of these four
cases is not sufficient to sustain the conviction recorded against them. The
conviction has only to be quashed and hence no question of enhancement of
sentence can arise in these cases.
6. The result
is that the conviction recorded against the respondents in each f the four
cases ad the sentences awarded to the respondents by the learned Magistrate are
quashed and the respondents are acquitted of the offences charged against them.
Consequently all the four revision cases are dismissed.
[1970] 40 COMP. CAS. 17 (PAT)
HIGH COURT OF
v.
SHAMBHU PRASAD SINGH, J.
GOVERNMENT APPEALS NOS. 38 AND 39 OF 1965
MAY 11, 1967
Mrs. Leila Seth for the appellant.
B. P. Samaiyar, J P. Samaiyar and Nakuleshwar Prasad for the respondents.
Shambhu
Prasad Singh, J.—These two appeals by the State of
Respondent No. I of Government Appeal No. 33 of 1965 is
a private company incorporated under the Companies Act, 1956, having its
registered office at
The
company and its directors failed to file with the Registrar of Companier,
Bihar,
The
defence of the respondents in general in the case under section 220(3) of the
Companies Act was that as the auditors did not check the account in time and the
balance-sheet could not be made ready, the annual general meeting of the
company was not called in time and that unless there was an annual general
meeting there could be no question of filing with the Registrar of Companies
copies of the company's balance-sheet and other documents. Two of the
respondents, Parmeshwar Singh and Srinandan Prasad, also said in their
statements under section 542, Criminal Procedure Code, that there was no
mistake on their part in not filing the balance-sheet and other documents.
Perhaps, they intended to say that it was the duty of the other directors who
were managing the company to file it. The defence of the respondents in general
in the other case, i.e., the
case under section 210(5) of the Companies Act, was also similar to their
defence in the other case, that due to non-receipt of audit report in time no
annual general meeting could be convened in time and the balance-sheet and
profit and loss account could not be laid before it. The defence of one of the
respondents, Srinandan Prasad, in this case too, was that he had not committed
any mistake. Badrinath Bahri, Aruna Maldahiyar and Parmeshwar Singh took
specific defence in this case that it was the duty of the managing director and
not theirs to convene the annual general meeting. The learned Magistrate, Mr.
A. N. K. N. Sinha, who tried both the cases, in his judgments, has held that as
the prosecution failed to show that there were general meetings of the company,
there could be no question of the accused, in both the cases, committing an
offence either under section 220 or section 210 of the Indian Companies Act.
Accordingly, he has acquitted the accused in both the cases.
Mrs.
Leila Seth, appearing for the State, has urged that the fact that no general
meeting of the company was held was no defence of the charges inasmuch as it
was the duty of the directors to convene the general meeting and a person
charged of an offence could not rely on his own default as an answer to the
charge. In support of the contention she relied on the decision of the Supreme
Court in the case of State of Bombay v.
Bandhan Ram Bhandani.
That was a case where the directors of a company were separately
prosecuted for two offences under the Companies Act, 1913, as amended by Act
XXII of 1936. The charge against them in one of the cases was that they
knowingly and wilfully authorised the failure to file the summary of share
capital for the year 1953 and thereby were guilty of an offence under
sub-section (5) of section 32 of the Act, for a default in carrying out the
requirements of that section. The charge in other case was that they were
knowingly and wilfully parties to the failure to lay before the company in
general meeting, the balance-sheet and profit and loss account as at March 31,
1953, and thereby became punishable under section 133(3) of the Act, for a
default to the requirements of section 131. The trial court found that no
general meeting of the company had been held in the year concerned and, relying
on the decision in the case of Emperor
v. Pioneer Clay and Industrial
Works Ltd.,
acquitted the respondents. Appeals were filed by the State before the High
Court at
Sub-section
(1) of section 131 of the old Act provided that the directors of every company
should at a date not later than 18 months after the incorporation of the
company and thereafter once at least in every calendar year, lay before the
company in general meeting a balance-sheet and profit and loss account in the
case of a company trading for profit. The first of such accounts was to cover
the period since the incorporation of the company and subsequent accounts since
the preceding account made up to a date not earlier than the date of the
meeting by more than 9 months. In the case of companies not carrying on
business or having interest outside
Three
of the directors, Badrinath Bahri, Aruna Maldahiyar and Parme-shwar Singh, the
first two through their lawyer, in their statements under section 312, Criminal
Procedure Code, stated that it was for the managing director to convene the
meeting. The first proviso to sub-section (5) of section 210 of the new Act
says that in any proceeding against a person in respect of an offence under the
section it shall be a defence to prove that a competent and reliable person was
charged with the duty of seeing that the provisions of this section were
complied with, and was in a position to discharge that duty. The aforesaid
three directors could have got advantage of this proviso provided they had
brought on the record some paper of the company to show that the managing
director was charged with the duty of calling the annual general meeting and
laying before it the balance-sheet and profit and loss account. A mere
statement on their behalf under section 342, Criminal Procedure Code, will not
exonerate them from the liability as the proviso requires that they must prove
that some other competent and reliable person was charged with the duty
aforesaid and was in a position to discharge that duty and, if the statement
was true, better evidence in the form of some docu-ment must have been there in
their possession. It, therefore, appears that the judgment of the learned
Munsif Magistrate in Case No. 12(2) of 1964/T.R. No. 66 of 1964 is in direct
conflict with the decision in . the
aforesaid Supreme Court case and has to be set aside. All the five respondents
in Government: Appeal No. 39 of the 1965 are guilty of
an offence under section 210 of the new Act.
Sub-section
(1) of section 134 of the old Act provided that after a balance-sheet and
profit and loss account had been laid before the company at the general
meeting, a copy of the balance-sheet signed by the manager or secretary of the
company should be filed with the Registrar at the same time as the copy of the
annual list of members and summary prepared in accordance with the requirement
of section 32 (old Act). Sub-section (4) provided that if a company made
default in complying with the aforesaid requirement, the company and every
officer of the company who knowingly and wilfully authorised or permitted the
default, would be liable to the like penalty as was provided by section 32 for
a default in complying with the provisions of that section. Section 32,
sub-section (1), of the old Act, required every company having a share capital,
to make within 18 months from its incorporation and thereafter once at least in
every year, a list of all persons who, on the day of the first or only ordinary
general meeting in the year, were members of the company and of all persons who
had ceased to be members since the date of the last return or (in the case of
the first return) of the incorporation of the company. Sub-section (2) provided
how the aforesaid list was to be prepared and what should be its contents. The
list was to contain a summary distinguishing between shares issued for cash and
shares issued as fully or partly paid up otherwise than in cash, and specifying
the particulars as required by clauses (a)
to (m) of the sub-section.
Sub-section (3) required that the above list and summary should be contained in
a separate part of the register of members and should be completed within 21
days after the day of the first or only ordinary general meeting of the year
and the company should forthwith file with the Registrar a copy signed by a
director or by the manager or the secretary of the company together with a
certificate from such director, manager or secretary that the list and summary
stated the facts as they stood on the day aforesaid. Sub-section (5) laid down
that if a company made a default in complying with the requirements of the
section, it would be liable to a fine not exceeding fifty rupees for every day
during which the default continued, and every officer of the company who
knowingly and wilfully authorised or permitted the default would be liable to
the like amount of penalty. There can be no doubt, as was pointed out by their
Lordships of the Supreme Court, that there was to a certain extent difference
in the language of sections 134(1) and 32(3) inasmuch as section 134(1) said
that the balance-sheet and profit and loss account were to be signed by the
manager or secretary of the company and to be filed with the Registrar after they were laid before the company at
the general meeting, whereas the annual list and the summary of share
capital which were to be filed with the Registrar according to section 32(3),
were not required to be laid before the company at a general meeting of it. As
stated earlier, section 131 required the directors to lay before the company at
a general meeting a balance-sheet and profit and loss account. This section, thus,
dealt with what was to be done by the directors before the general meeting and
at the general meeting, whereas section 134(1) dealt with what was required to
be done by them after the general meeting. However, this difference in the
language of section 134(1) and sections 32 and 131 did not make any difference
as to the principle to be applied in ascertaining whether a breach of section
134(1) had occurred or not. Though section 32 did not require a company to lay
at its general meeting the annual list of members and the summary of share
capital, the list and summary were to be completed and filed with the
Registrar, according to sub-section (3) of the section, only after the holding
of the general meeting of the company just as the balance-sheet and profit and
loss account were to be filed with the Registrar after the holding of the
general meeting of the company as required by section 134(1). It further
appears from section 134(1) that the balance-sheet and profit and loss account
were to be filed at the same time as the copy of the annual list of members and
summary prepared in accordance with the requirements of section 32. It is
important to note that section 134(1) fixed no time limit for filing of the
balance-sheet and profit and loss account but since they were required to be
filed along with the annual list of members and summary of share capital, the
time limit for filing the balance-sheet and profit and loss account was also 21
days after the day of the first or only ordinary general meeting in the year as
fixed by section 32(3). It does not, therefore, appear possible to hold that
the language of section 134(1) made any difference between the principle to be
applied in ascertaining whether a breach of it had occurred or not, and the one
to be applied in the case of a breach of section 32, and that, in similar
circumstances, the company and its directors could be guilty of an offence only
under section 131 but not of one under section 134.
The
language of section 220 of the new Act is similar to the language of section
134 of the old Act. Therefore, the principle enunciated by their Lordships of
the Supreme Court in the case of Stale
of Bombay v. Bandhan Ram
will also apply in ascertaining whether a breach of section 220 of the
new Act has occurred or not. My attention was drawn to sub-section (3) of
section 220 which uses the term "officer of the company who is in
default", the meaning of which has been explained in section 5 as "an
officer of the company who is knowingly guilty of the default, non-compliance,
failure, refusal or contravention........or who knowingly and wilfully
authorizes or permits such default, non-compliance, failure, refusal or
contravention". This, however, makes no difference as to the application
of the principle enunciated by their Lordships of the Supreme Court in the
aforesaid case inasmuch as sections 134(3) and 32(5) of the old Act also
provided that an officer of the company would be liable only if he knowingly
and wilfully authorized or permitted the default. In Case No. 563(2) of 1963/T.
R. No. 42 of 1964, out of which Government Appeal No. 38 of 1965 arises, two of
the directors, no doubt, in their statement under section 342 of the Code of
Criminal Procedure stated that it was not their mistake, meaning thereby that
the other directors who were managing the company were responsible for filing
the balance-sheet and the profit and loss account, but that statement on their
part is of no help to them inasmuch as there is no provision in section 220 of
the new Act like that of section 210 of the Act that it shall be a defence to
prove that a competent and reliable person was charged with the duty of seeing
that the provisions of the section were complied with and was in a position to
discharge that duty. Secondly, nothing has been brought on the record to show
that any of the directors or any other officer was specifically charged with
the duty of calling the annual general meeting and filing the balance-sheet and
the profit and loss account with the Registrar of Companies. Three of the
directors (through their lawyer) in their statement under section 342 of the
Code of Criminal Procedure stated that, as the auditor did not check the
account in time, the annual general meeting could not be called in time. On
behalf of one of them it was further stated that it was on that account that it
could not be submitted to the Registrar in time. The same lawyer in the
statement under section 342 of the Code of Criminal Procedure on behalf of
respondent No. 1, the company, made the statement that, as the audit report was
not submitted, the annual general meeting could not be called. It is remarkable,
however, that the same lawyer made an inconsistent statement under section 342
of the Code of Criminal Procedure as to the reason why the auditor could not
submit the audit report in time. While making the statement on behalf of two of
the directors he said that it was due to illness of some staff of the auditor
that the audit report could not be submitted in time. While making the
statement on behalf of one of them he said that it was due to heavy pressure of
work that the auditor did not audit the accounts in time. Later on, while
making the statement on behalf of the company itself he attempted to reconcile
this inconsistency by stating both the reasons. All these show there was no
substance in the plea that the annual general meeting could not be held as the
audit report was not submitted by the auditors. Further, there is nothing on
the record to indicate that the directors did anything to get the audit report
expedited by the auditor, so that the annual general meeting could be called in
time, which they ought to have done in discharge of their normal duties. In the
circumstances, it can safely be held that they were knowingly and wilfully
guilty of the default in not filing the balance-sheet and the profit and loss
account and in not calling the general meeting. It may be mentioned here that
section 220(3) uses the term "officer" and not "director"
but section 2(30) says that "officer includes a director". The
respondents, therefore, appear to be guilty of an offence under section 220 of
the Companies Act, 1956, in Case No. 563(2) of 1963/T.R. No. 42 of 1964.
As
a result of the aforesaid considerations, the orders of acquittal in both the
cases are set aside and both the Government appeals are allowed. The
respondents in Government Appeal No. 38 of 1965 are convicted of an offence
under section 220(3) of the Companies Act, 1956, and sentenced to pay a fine of
Rs. 200 each. According to section 162 of the Companies Act, no doubt, they can
be fined at the rate of Rs. 50 for every day of the default, but as it appears
from the evidence of P.W. 1, the balance-sheet and the profit and loss account
were filed with the Registrar of Companies after some time. In the
circumstances, the aforesaid sentence will meet the ends of justice. In case of
default, respondents Nos. 2 to 6 shall have to undergo simple imprisonment for
two months each. All the respondents in Government Appeal No. 39 of 1965 are
convicted of an offence under section 210(5) of the Companies Act, 1956, and
sentenced to pay a fine of Rs. 200 each ; in default of payment of fine, to
undergo simple imprisonment for two months each.
[1964] 34 COMP. CAS. 31 (ORI.)
HIGH COURT OR ORISSA
V.
NARASIMHAM,
C.J.
CRL. REVISION NOS. 525 & 528 OF 1962
MAY
8,1963
JUDGMENT
These four
petitions were heard together and are disposed of in one judgment.
There is a
private company named Sambalpur Transport and Trading Company (Private) Ltd. at
Bargarh of which one Sevaram Pansari (petitioner in Criminal Revisions Nos. 525
and 526 of 1962) is the managing director and Ganapatram Pansari and Khemchand
Agarwalla are the directors. It has been held as a fact that for the two
financial years ending on October 31, 1958, and on October 31, 1959, no general
meeting of the company was held (either during that year or within nine months
thereafter). This amounts to a contravention of section 166 of the Companies
Act, 1956, which is punishable under section 168 of that Act. Similarly it has
been found as a fact that the balance-sheet and the profit and loss account of
the company for the said two years were not laid before the annual general
meeting as required by sub-section (1) of section 210 of that Act. This amounts
to an offence punishable under sub-section (5) of that section.
For the
offence under section 168 of the Companies Act, the aforesaid firm and its
directors (including the managing director) were prosecuted and fined Rs. 100
each, and their appeal was dismissed. Criminal Revisions Nos. 527 and 528 of
1962 arise out of this conviction and sentence. So far as these two revisions
are concerned, Mr. Mohanty pressed them only on the question of sentence, but
in my opinion the fine of Rs. 100 is not excessive and does not call for
interference.
As regards the
prosecution under sub-section (5) of section 210 of the Companies Act, the
trial court convicted the managing director and the other two directors, but
the appellate court set aside the conviction of the other two directors, and
held that the managing director alone was responsible for the failure to lay
the balance-sheet and the profit and loss account of the company within the
period fixed, and therefore upheld his conviction and sentence. Criminal
revisions Nos. 525 and 526 were filed by the managing director against his
conviction and sentence passed for the offence under section 210(5) of the Act.
Mr. R. Mohanty
for the managing director, namely, Sevaram Pansari, urged that the offence
under sub-section (5) of section 210 of the Companies Act is practically
included in the offence under section 168 and consequently as the managing
director had already been convicted and sentenced for the latter offence he
could not be convicted and sentenced for the former offence.
Section 166 of
the Companies Act says that every company shall each year hold the annual
general meeting within a specified date and the board of
directors have the power to call for such meeting. For failure to call
for such meeting section 168 says that the company and every officer of the
company who is in default shall be liable to fine. Sub-section (1) of section
210 says that at every annual general meeting of a company held in pursuance of
section 166 the board of directors of the company shall lay before the company
(a) the balance-sheet at the end of the period specified in sub-section (3) and
(b) the profit and loss account for that period. The penal provision, viz.,
sub-section (5) of that section, says :
"If any
person being a director of a company, fails to take
all reasonable steps to comply with the provisions of this section, he shall,
in respect of each offence, be punishable with imprisonment for a term which
may extend to six months, or with fine which may extend to Rs. 1,000, or with
both."
According to
Mr. Mohanty, once it has been found that no annual general meeting of the
company was held, in pursuance of the requirements of section 166, the question
of laying the balance-sheet or the profit and loss account does not arise, and
consequently there can be no separate conviction under sub-section (5) of
section 210 apart from the conviction under section 168 of the Companies Act.
In my opinion
this argument cannot prevail. Firstly, an offence under section 168 of the Companies
Act is distinct from the offence under section 210(5) of the Act. The former deals with omission to call an annual general meeting of
the company within the statutory period. The latter
deals with omission of the director of a company to take all reasonable steps
to lay the balance-sheet and profit and loss account at the annual general
meeting. Reasonable steps for laying the profit and loss account and
balance-sheet could be taken even before the actual date on which such meeting
is held and where there is omission to take such steps the offence under
sub-section (5) of section 210 is complete. The principle of section 26 of the
General Clauses Act would apply only if the same act or omission amounts to an
offence under two enactments, in which case though there may be separate trials
there may not be two separate sentences. But here where it is held that the act
or omission which constitutes the offence under section 168 of the Companies
Act is distinct from the Act or omission which constitutes the offence under
section 210(5), the aforesaid provision in the General Clauses Act cannot
apply, and it is immaterial as to whether the contravention of section 210 was
brought about on account of the commission of the offence under section 168 by
the same person.
Moreover, it
is a well known principle that a person should not be permitted to take
advantage of his own wrong. The managing director was primarily responsible for
calling a general meeting of the company, and having failed to call such a meeting
and thereby contravened section 166 be cannot be permitted to take advantage of
this omission, and then plead that he could not lay the balance-sheet or profit
and loss account because no meeting was called. This well known principle was
emphasised in Park v. Lawton [1911] 1 K.B. 588 and has been followed in India
in a Calcutta decision in Debendra Nath Das Gupta v. Registrar of Joint Stock
Companies 1 L.R. (1918) 45 Cal. 486, followed in Gangipati Appayya, In re
(1952) 22 Comp. Cas.78 and B.N. Viswanathan v. Assistant Registrar of Joint
Stock Companies, Madras (1953) 23 Comp. Cas. 63, while
construing the corresponding provision of the old Indian Companies Act of 1913
(sections 76 and 133). Mr. Mohanty then relied on some observations in
Narasimha Rao v. Emperor (1937) 7 Comp. Cas. 80, but
that case is fundamentally distinguishable on facts, and hence, it is
unnecessary to discuss this point further. I must accordingly hold that the
conviction of the managing director for the offence under section 210(5) was
justified in law. The sentence is also not severe.
All the
revision petitions are dismissed.
[1983] 53 COMP. CAS. 54 (
v.
Registrar of Companies
P. C. BAROOAH AND A, N. BANERJEE
JJ.
CRIMINAL REVISION CASE NO. 687 OF 1978.
Jitendra Nath Bose for
the Petitioners.
Biren Mitter for
the Public Prosecutor.
Asit K. Goswmi for
the State.
J. N. Ghose and Anjan Kumar Mukherjee for the Registrar of Companies.
P.C. Barooah J.—On the basis of a complaint filed by the Assistant
Registrar of Companies on October 19, 1976, in the Court of Chief Metropolitan
Magistrate,
It is submitted on behalf
of the petitioners by Mr. Jitendra Nath Bose, learned advocate for the
petitioners, that the offence was complete on June 27, 1975, and an application
under s. 473 of the Cr. PC for condoning the period of limitation not having
been filed, the proceedings are barred by limitation under the provisions of s.
468(2)(b)
of the Code. It is further submitted that the Registrar of Companies is not the
person aggrieved and the knowledge of the Registrar is immaterial in computing
the period of limitation.
We find no substance in the
arguments of the learned advocate for the petitioners. Under s. 621 of the
Companies Act read with s. 2(40) of the Act, the Asst. Registrar of Companies
was a person competent to file such a complaint. That being so, the Asst. Registrar
of Companies was the person aggrieved in the instant case.
According
to para. 3 of the petition of complaint
the fact that the balance-sheet and the profit and loss account for the year
ending December 31, 1974, were not filed (sic)
in time came to the knowledge of the complainant-opposite party for the
first time from the annual return filed by the company on October 23, 1975, and
finally from the certified copy of the proceedings of the annual general
meeting filed in the office of the complainant on February 23, 1976. As such
the petition of complaint was in time in accordance with s. 469(1)(b) of the
Cr. PC.
The application is thus
dismissed and the rule is hence discharged.
A.N.
Banerjee J.—I agree.
[2001] 32 SCL 175 (Kar.)
High Court of Karnataka
v.
Registrar
of Companies
S.R.
VENKATESHA MURTHY, J.
Criminal
PETITION NOS. 258, 259 AND 270 OF 1997
JULY 24, 2000
Section 210, read with sections 159, 162 and 220, of the
Companies Act, 1956 - Annual accounts and balance sheet - Whether technical
offences that are identified under various laws which do not relate to either
money or money related matters, which are intended to furnish statistical
information to parties or to inform parties as to the status of those persons
in relation to a company, as under sections 210(5), 159, 162 and 220(3) can be
understood as economic offences - Held, no - Whether merely because the
offences under the Companies Act are tried by the Special Court for economic
offences it can follow that all offences tried by that court are economic
offences - Held, no - Whether, therefore, continuation of criminal proceedings
for technical offences committed under Companies Act, after expiry of
stipulated period as per directions given by Supreme Court in ‘Common Cause’ a
Registered Society v. Union of India AIR 1996 SC 1619, would be improper -
Held, yes
Facts
The respondent filed criminal petitions against petitioners for alleged failure to hold annual general body meeting latest by 26-9-1987 and to lay the balance sheet and profit and loss accounts for period in question as stipulated under section 210, for failure to file before it the copies of balance sheets under section 220 and certain return under section 159. The petitioners moved the High Court seeking quashing of the complaints on the ground that the trial had not commenced notwithstanding the expiry of the period stipulated in the Supreme Court’s judgment in ‘Common Cause’ a Registered Society v. Union of India AIR 1996 SC 1619 and as per directions contained therein.
Held
Admittedly the
jurisdiction to try the offences under the Companies Act is conferred on the
Money and money
related offences would become subject of an economic offences.
Technical offences that are identified under various laws which do not relate
to either money or money related matters, which are intended to furnish
statistical information to parties or to inform parties as to the status of
those persons in relation to a company, as in the instant cases, could not be,
and are not, understood as economic offences. In these circumstances, it was
clear that the offences under the Companies Act referred to above in these petitions
could not, by any stretch of imagination, be regarded as economic offences to
which directions in ‘Common Cause’ a Registered Society’s case (supra) would be applicable. In these circumstances, the petitions were
allowed and the trial court was directed to close the cases against the
petitioners.
Case referred to
‘Common
Cause’ a Registered Society v. Union of
S.G. Bhagwan for the Petitioner. G. Bhavani Singh for the Respondent.
Order
1. These three cases are consolidated for purpose of disposal by a common order.
2. In Criminal Petition No. 258 of 1997, the petitioners who are accused in CC No. 1281 of 1988 on the file of the Special Court for Economic Offences, Bangalore seek to challenge the continuance of the proceedings against them as being contrary to the directions given in ‘Common Cause’ a Registered Society v. Union of India AIR 1996 SC 1619. The case against the petitioners is that they are guilty of an offence under sub-section (5) of section 210 of the Companies Act, 1956 for an alleged failure to hold the annual general body meeting latest by 26-9-1987 and to lay the balance sheet and profit and loss accounts for the period in question. The offence is admittedly punishable with imprisonment for six months and/or fine of Rs. 1,000. The case against accused 1 to 4 were dismissed on account of the inability of the prosecution to secure their presence. The petitioners seek quashing of the complaint on the ground that the trial has not commenced, notwithstanding the expiry of the period stipulated in the common causes judgment.
3. In Criminal Petition No. 259 of 1997, the petitioners are prosecuted for
an offence under section 159, read with section 162 of the Act in CC No. 1279
of 1988 on the file of the
4. In Criminal Petition No. 270 of 1997, the offence alleged before the Trial Court was failure to file before the Registrar of Companies, three copies of the balance sheets under sub-section (3) of section 220 of the Act. The offence was punishable with a fine of Rs. 50 per day for default. The petitioners also prayed the Magistrate to drop the proceedings. Hence, the petitions under section 482 of the Code of Criminal Procedure, 1898.
5. The point for consideration is, whether the offences under the Companies Act are to be characterised as ‘Economic Offences’ specified in the common causes judgment to be continued even beyond the time stipulated in directions 1 and 2, therein.
6. Admittedly the jurisdiction to try the offences under the Act is
conferred on the
“4. Directions (1) and (2) made herein above shall not apply to cases of offences involving (a) corruption, misappropriation of public funds, cheating, whether under the Indian Penal Code, Prevention of Corruption Act or any other statute, (b) smuggling, foreign exchange violation and offences under the Narcotic Drugs and Psychotropic Substances Act, (c) Essential Commodities Act, Food Adulteration Act, Acts dealing with Environment or any other economic offences, (d) offences under Arms Act, Explosive Substances Act, Terrorists and Disruptive Activities Act, (e) offences relating to the Army, Navy and Air Force, (f) offences against public tranquility; (g) offences relating to public servants, (h) offences relating to coins and Government stamp, (i) offences relating to election, (j) offences relating to giving false evidence and offences against public justice, (k) any other type of offences against the State, (l) offences under the Taxing enactments, and (m) offences of defamation as defined in section 499, IPC.” [Emphasis supplied] (p. 1621)
A reading of the above paragraph would show that directions 1 and 2 are made inapplicable to various categories of offences which are regarded as serious offences. Amongst the various offences identified, the Supreme Court has used the expression ‘or any other economic offences’. The intention was to include within its compass any offence relating to economic matters. Obviously, the Supreme Court did not seek to identify all those economic offences which could come under the expression referred to above. It is clear, therefore, that the expression should be understood as a common parlance expression. Money and money related offences would become subject of an economic offence. Technical offences that are identified under various laws which do not relate to either money or money related matters, which are intended to furnish statistical information to parties or to inform parties as to the status of those persons in relation to a company, as in these cases, cannot be, and are not, understood as economic offences. In these circumstances, it is clear that the offences under the Companies Act referred to above in these petitions cannot, by any stretch of imagination, be regarded as economic offences to which directions 1 and 2 in the common causes cases would be applicable. In these circumstances, the petitions are allowed and the trial court shall close the cases against the petitioners herein.
Petitions allowed.