Kerala High Court
Kerala Chlorates And Chemicals Limited vs Registrar Of Companies And Anr. on 17 November, 1986
Author: K.T. Thomas
Bench: K.T. Thomas
JUDGMENT K.T. Thomas, J.
1. The Registrar of Companies, Kerala, filed a complaint against thirteen persons before the Court of the Addl. Chief Judicial Magistrate (Economic Offences), Ernakulam. The learned Magistrate took cognizance of the offence mentioned in the complaint (Section 294(2) read with Section 629A of the Companies Act) and issued summons to the accused. The petitioner herein, M/s. Kerala Chlorates and Chemicals Ltd. ("the company", for short) is the first accused in the complaint. This petition is filed under Section 482 of the Code of Criminal Procedure to quash the said complaint and other proceedings initiated thereon.
2. Accused Nos. 2 to 13 shown in the complaint are the members of the board of directors of the first accused company. The first accused appointed M/s. Shaw Wallace & Co. Ltd. (hereinafter referred to as "Shaw Wallace") as its consignment agent for marketing the products of the company with effect from March 16, 1982. It is stated in the complaint that the company ought to have obtained the approval for the appointment of Shaw Wallace in the first general meeting held after the date of the appointment of Shaw Wallace and that the company failed to obtain the approval and thereby the company violated the provisions of Section 294(2) of the Companies Act. When the Registrar of Companies required the company to offer comments on the aforesaid dereliction, the company contended, inter alia, that Shaw Wallace is not a sole selling agent within the meaning of Section 294 of the Companies Act. The explanation was not acceptable to the Registrar and hence he filed the complaint.
3. Shri K.A. Nayar, learned counsel for the company, raised mainly two points in this court. The first is that the prosecution is bad in law as the complaint is barred by limitation as provided in Section 468 of the Code of Criminal Procedure. According to him, Shaw Wallace was appointed by the company on March 23, 1982, and the next annual general meeting of the company was held on October 11, 1982. The complaint was filed on February 9, 1986, which is far beyond the six months' period for taking cognizance of the offence. I am not inclined to quash the complaint on the aforesaid ground, even if the argument is correct, because the accused did not raise such a contention before the trial Magistrate. Even if the complaint was filed after the period of limitation, the trial court can consider whether the delay has been properly explained. Even if there is no explanation for the delay, the trial court can still consider whether it is necessary to take cognizance of the offence in the interest of justice. It is so provided in Section 473 of the Code.
4. The second contention is that no offence is disclosed in the complaint and hence no cognizance should have been taken by the Magistrate.
5. Section 294(2) reads thus :
"After the commencement of the Companies (Amendment) Act, 1960, the board of directors of a company shall not appoint a sole selling agent for any area except subject to the condition that the appointment shall cease to be valid if it is not approved by the company in the first general meeting held after the date on which the appointment is made."
Sub-section (2A) provides that if the company in general meeting disapproves the appointment, it shall cease to be valid with effect from the date of the general meeting. Section 629A of the Companies Act provides penalty for contravention of any of the provisions of the Act.
6. So, in order to constitute the offence of contravention of Section 294(2) of the Act, there must be an allegation in the complaint that the board of directors of the company appointed Shaw Wallace as a sole selling agent without the condition that the appointment shall cease to be valid if it is not approved by the company in the first general meeting. There is no such allegation in the complaint. Even if no such condition is specifically stated in the appointment order or in the resolution by which the appointment is made, the consequence that the appointment shall cease to be valid if it is not approved by the company in the first general meeting cannot be averted. The learned Additional Central Government Standing Counsel contended that it is the duty of the board of directors to place the appointment for approval in the annual general meeting held immediately subsequent to the date of appointment. No such duty is enjoined on them by the provisions of the Companies Act and, therefore, the omission to place the appointment cannot be deemed to be a contravention of any provision of the Act. The learned standing counsel contended that what is provided in Section 294(2) is actually a condition imposed on the board of directors to place the appointment for approval in the annual general meeting. A reading of the sub-section will show that the condition mentioned therein is not one which obliges the board of directors to place the appointment in the annual general meeting. What is contemplated in the sub-section is that the appointment shall be made subject to the above condition. In other words, the appointment order should specify that the appointment is made subject to the aforesaid condition. This is how Tulzapurkar J. has interpreted the subsection in Arantee Mfg. Corporation v. Bright Bolts P. Ltd. [1967] 37 Comp Cas 758 (Bom). A Division Bench of the Calcutta High Court in Shalagram Jhajharia v. National Co. Ltd. [1965] 35 Comp Cas 706 (Cal) also placed the same interpretation on Section 294(2). I am in respectful agreement with the aforesaid interpretation.
7. It is not stated in the complaint that the appointment order (or the resolution by which the appointment is made) is shorn of the condition specified in Section 294(2). Without such an averment in the complaint, no offence can be spelled out from it and hence no cognizance of the offence should have been taken by the learned Magistrate. When the facts stated in the complaint fail to disclose the offence, this court will be justified in exercising the inherent powers to quash the complaint.
8. Accordingly, I allow this petition and quash the complaint in S. T. No. 37 of 1986 of the Additional Chief Judicial Magistrate (Spl.), Ernakulam.