Andhra HC (Pre-Telangana)
Nutech Agros Ltd. And Ors. vs Ch. Mohan Rao And Anr. on 7 December, 1999
Equivalent citations: 2000(1)ALD(CRI)255, 2000(1)ALT(CRI)305
Author: J. Chelameswar
Bench: J. Chelameswar
JUDGMENT Chelameswar, J.
1. This is a petition filed under Section 482 of the Code of Criminal Procedure, 1973, praying that an order dated July 15, 1999, passed by the learned Special Judge for Economic Offences at Hyderabad in Crl. M. O. No. 527 of 1999 in C. C. No. 7 of 1999 be quashed. The petitioners herein are the accused while the first respondent herein is the complainant in the above-mentioned C. C.
2. The first respondent filed a complaint under Sections 205 and 207 of the Companies Act, 1956 (hereinafter referred to as the "the Act") against the petitioners herein. According to the complaint, the first respondent is a shareholder in the first petitioner-company holding 46,600 shares. Petitioners Nos. 2 to 4 are the directors of the first petitioner-company. The first petitioner declared a dividend of 10 per cent, for the accounting year 1994-95 in the annual general body meeting held on December 30, 1995. By virtue of the said decision, the first respondent is entitled to a sum of Rs. 46,600 as dividend on the shares held by him in the first petitioner-company. The complaint of the first respondent is that in spite of the declaration of the dividend for the year 1994-95, no dividend in fact had been paid to the first respondent. Similarly, the first respondent complains that with reference to the accounting year 1995-96 the first petitioner-company in its annual general body meeting again declared a dividend of 10 per cent, and in spite of the declaration, the amount is not paid to the first respondent.
3. During the course of the trial, the complainant the first respondent filed a miscellaneous petition in Crl. M. P. No. 527 of 1999 with a prayer to summon certain documents from the Central Bank of India, Adoni branch and another miscellaneous petition in Crl. M. P. No. 474 of 1999 to summon the manager of Central Bank of India, Adoni branch to give evidence in order to establish the case of the complainant. The said two petitions were allowed. Aggrieved by the said order, the present petition is filed.
4. Learned counsel for the petitioner Mr. B. Nalin Kumar argued that the documents sought to be summoned and the evidence of the manager of the Central Bank of India, Adoni branch are wholly irrelevant for the purpose of the case and on the other hand, it would amount to permitting the respondents to have a roving enquiry into the affairs of the company which is neither the scope of the prosecution nor permissible under law.
5. On the other hand, learned counsel for the first respondent argued that in view of the stand taken by the accused that the dividend amount in fact was despatched by way of cheques to the first respondent and it becomes relevant and necessary for the respondent to establish that no such amounts were ever despatched by way of cheques. For the purpose of establishing that the amounts were not despatched, it also becomes necessary and relevant to examine the documents and to examine the branch manager of the Central Bank of India, Adoni branch.
6. Section 205 of the Act declares that no dividend shall be declared or paid by any company for any financial year except out of the profits of the company for that year. The manner of arriving at the fact that there was a profit for the financial year is further described under Section 205 of the Act.
7. Section 205A of the Act provides that where a dividend is declared by a company but the same is not paid or claimed within 42 days from the date of the declaration, the company shall, within 7 days from the date of the expiry of the said period of 42 days, transfer the total amount of the dividend which remains unpaid or unclaimed, to a special account to be opened by the company. Sub-section (4) thereof further stipulates that whenever there is a default in transferring the total amount of unpaid or unclaimed dividend as required under Section 205A(1) of the Act, the company shall pay interest at the rate of 12 per cent, per annum from the date of such default and the interest accruing on such amount shall enure to the benefit of the members (shareholders) of the company in proportion to the amount remaining unpaid to them. Further, it provides under Sub-section (5) that even after such transfer to the special account, the persons entitled to receive the dividend do not claim the amount within a period of 3 years from such transfer, the company shall transfer the amount lying in that special account to the general revenue account of the Central Government. Subsection (8) stipulates that any company which fails to comply with the requirements of Section 205A and every officer of the company who is in default, shall be punishable with fine which may extend to Rs. 500 for every day during which the failure continues.
8. From the language of Sub-section (8) of Section 205A of the Act, it can be seen that the failure, insofar as it is relevant for the purpose of the present case, to comply with the requirements of Section 205A of the Act may arise in more than one way. The failure could be : (1) on account of the non-opening of a special account (unpaid dividend account). (2) it could be on account of failure to transfer the amounts lying in the special account for more than 3 years to the general revenue account of the Central Government.
9. Section 205B of the Act enables the person entitled to receive any dividend to claim the same even after the amount is transferred to the general revenue account of the Central Government subject to the procedure prescribed under the said sub-section.
10. Section 205, Sub-section (3) declares that no dividend shall be payable except in cash. In my view, the expression "cash" is used in contradistinction to payment in kind, but it is not the intention of Parliament that the dividend should always be paid directly in currency. This is made clear from Sub-section (5)(b) which says that any dividend payable in cash may be paid by cheque or warrant.
11. Section 207 stipulates that where a dividend is declared by a company but the same has not been paid, or the warrant in respect thereof has not been posted within 42 days from the date of the declaration to the shareholder entitled for the payment of the dividend ; the various persons mentioned in Section 207 of the Act shall be punishable with simple imprisonment for a term which may extend to 7 days and shall also be liable for fine.
12. On the analysis of the above provisions, it emerges that whenever a company declares dividend, it is required to be paid within 42 days from the date of the declaration. The payment may be made by directly tendering currency or by way of a cheque or by issuing a dividend warrant. If the dividend is paid by tendering currency within 42 days it poses no further problem. But if the dividend is sought to be paid by way of issuing a cheque or by sending a dividend warrant in favour of the person entitled to receive the dividend amount, it may so happen that the person entitled may not be able to encash the cheque or dividend warrant within 42 days depending on various factors like--the date of despatch of the instrument the date of the receipt of the same and the date on which the shareholder presents either the cheque or the dividend warrant for encashment etc.
13. The amount earmarked for the payment of dividend of a particular year would continue to be in the general pool funds of the company for a period of 42 days from the date of the declaration of the dividend. After the 42nd day, if for any one of the reasons mentioned earlier, some of the shareholders do not actually receive the payment, the amount due to such members shall be transferred to the special account known as "unpaid dividend account". The purpose in making the provisions appears to be that the amount earmarked for the payment of the dividend shall not be available to the company any more for the purpose of the utilisation of the same in its day to day business.
14. Though Section 205A of the Act, by necessary implication requires the payment of dividend within 42 days from the date of the declaration of the dividend, Parliament realising the possibility of the amount "not being paid", in the sense that the shareholders do not actually receive the cash within the stipulated period of 42 days for various reasons; some of which were referred to earlier, thought it fit to stipulate under Section 207 of the Act that:
"Where a dividend has been declared by a company but has not been paid, or the warrant in respect thereof has not been posted, within (forty-two days) from the date of declaration . . ."
thereby providing an immunity from penalty under Section 207 of the Act if the company and the persons responsible for the management of the company mentioned in the said section, establish that the dividend warrant had in fact been despatched by post to the shareholder within a period of 42 days. Though, technically, the dividend is not actually received by the shareholder, the company and the persons responsible for the administration of the company would be absolved of the guilt.
15. Therefore, it can be seen that it is the absolute responsibility of the company either to make the payment within 42 days from the date of the declaration of the dividend or at least despatch the instrument either a cheque or a dividend warrant within 42 days from the date of the declaration of the dividend to the shareholder. If the company does not discharge its responsibility by adopting one of the alternatives mentioned above, the company and the persons responsible for the administration of the company as mentioned in Section 207 of the Act are made liable for punishment.
16. Wherever there is a complaint by the shareholder that for a particular financial year, the company declared dividend, but he did not receive the dividend pursuant to the declaration, he can only establish (1) that the company declared a dividend for that financial year, (2) that he was a shareholder who is legally entitled to receive the dividend pursuant to the declaration. The fact that he did not receive the payment cannot be established by the shareholder as it is a negative fact. A shareholder can only make an allegation in that behalf. Logically, the burden of proof that the dividend had in fact been paid to the shareholder or at any rate, the steps recognised under law as discussed earlier for the payment of the dividend due to the shareholder in fact were taken by the company could only be proved by the company and the persons responsible for the management of the company. The best method of proving the actual receipt of the dividend by the shareholder would be to establish by proving the relevant entries in the accounts of the company. It is possible that in a given case notwithstanding the fact that the company did, in fact take the steps either by the despatch of the cheque or by dividend warrant for the payment of the dividend to a particular shareholder, the dividend amount might not have been actually received by the shareholder for various reasons like the loss of the instrument in transit or after it reached the shareholder but before its encashment or by virtue of the deliberate negligence on the part of the shareholder to encash the same. In which case, without troubling itself to establish as to what exactly are the reasons for which the dividend amount was not in fact received by the shareholder, the company can simply absolve itself by establishing the fact that the unclaimed or unpaid dividend amount had in fact been transferred to a special account as required under Section 205 of the Act. Once the company establishes that it had in fact transferred the amount to the unpaid dividend account specially created as required under Section 205 of the Act, the company discharges its responsibility and is no more liable for any punishment.
17. In the present case, the burden of establishing that the company took all the requisite steps as indicated above were taken is on the company and the petitioners herein. In my view the first respondent de facto complainant took an unnecessary step in seeking to summon the documents as it is no part of his obligation to establish the negative facts. Further even if the documents of the Central Bank of India, Adoni branch are summoned and even if it is established that the company did not open a special account for the unpaid dividend amount in that bank, the guilt of the petitioners is not automatically established as there is nothing in the law which requires the company or the other petitioners to open that special account as required under Section 205 of the Act in the Central Bank of India, Adoni branch alone. It is always open to the petitioners to establish that in fact such a special account was opened in some other branch of some other bank.
18. Looked at from any angle, the summoning of the documents from the Central Bank of India, Adoni branch as prayed for by the first respondent would be irrelevant and futile.
19. The criminal petition is allowed. The order dated July 15, 1999, passed by the learned Special Judge for the Economic Offences at Hyderabad in Crl. M. P. No. 527 of 1999 in C. C. No. 7 1999 is hereby quashed.