Orissa High Court
Hrushikesh Panda vs State Of Orissa And Ors. on 23 February, 1996
Equivalent citations: [1997]89COMPCAS613(ORISSA), 1996CRILJ3622, 1996(83)ELT504(ORI)
Author: Dipak Misra
Bench: Dipak Misra
JUDGMENT Dipak Misra, J.
1. Being aggrieved by order dated March 5, 1993, passed by the learned Additional Chief Judicial Magistrate (Special), Cuttack, in Criminal Misc. Case No. 130 of 1983 refusing to recall the non-bailable warrant of arrest and distress warrant and further fixing the liability to pay fine for the company, namely, Utkal Equipment and Chemicals Limited, on the ex-managing director, the petitioner has preferred this criminal revision impugning the same.
2. The facts in a nutshell may be stated as follows :
The petitioner along with two others stood charged under sections 9(1)(b) and 9(1)(bb) of the Central Excises and Salt Act in 2(c) CC No. 541 of 1976 in the court of the Additional Chief Judicial Magistrate (Special), Cuttack. The petitioner was arrayed in the said case as managing director of the company. The company was described as accused No. 1, and accused No. 3 was the accounts officer. The learned Chief Judicial Magistrate came to hold that the accused persons were guilty and sentenced each of them to pay a fine of Rs. 200, in default, to undergo simple imprisonment for two months. Appeal was carried from the said order of conviction by the petitioner, but the same was not fruitful. Being unsuccessful in appeal, Criminal Revision No. 51 of 1985 was preferred before this court and the same was dismissed being devoid of merit. The petitioner deposited the fine before the trial court. The accounts officer who was arrayed as accused No. 3 also deposited the fine. As the fine imposed on the company was not deposited, a non-bailable warrant of arrest as well as distress warrant was issued against the petitioner to realise the fine. This exercise was done in Criminal Miscellaneous Case No. 130 of 1993. The petitioner after coming to know about this proceeding filed a petition on February 29, 1993, to recall the said non-bailable warrant of arrest and distress warrant. The grounds for recall were that the petitioner has ceased to be the managing director and the company having already been wound up in Company Act Case No. 4 of 1977 as per judgment dated April 23, 1982, the official liquidator has to pay the fine, and in any case, the petitioner was not personally liable to pay the fine for the company and, therefore, non-bailable warrant of arrest and distress warrant cannot be issued against him for realisation of the same.
3. The contentions urged did not find favour with the Chief Judicial Magistrate as he was of the view that the official liquidator has taken over the assets but not the liabilities and the petitioner being the managing director was liable to pay fine for the company.
4. Assailing the aforesaid order, Mr. B. Bhuyan appearing for the petitioner raises the following contentions :
(i) The petitioner, as managing director, was arrayed as accused No. 2 and he was not representing the company. Accused No. 1, the company, was also not represented by the managing director and, therefore, he is not liable to pay the fine for the company ;
(ii) Assuming the petitioner was initially liable for the company, the company having been wound up and the official liquidator having been appointed, the petitioner can no more be held liable and the Conclusion of the court below that the official liquidator has only taken over the assets is an apparent error of law ; and
(iii) in any case, issuance of NBW and DW against the petitioner to realise the fine in respect of the company is not permissible as the company has separate legal personality from that of the directors, and the directors cannot be made liable for the liability of the company.
5. Justifying the order passed by the court below Mr. A. B. Misra, the learned senior standing counsel (Central), has submitted that the liability having accrued at the time when the petitioner was the managing director, he is bound to pay the same. Furthermore, the company is presumed to have been represented by the managing director and the technical defect in the complaint cannot be capitalised by the petitioner. His further submission is that the managing director being liable to pay the fine for the company, there is no illegality in issuance of the non-bailable warrant of arrest and distress warrant against him to realise the same,
6. On perusal of the records it is apparent that the petitioner was not representing the company. The company was styled as accused No. 1. The petitioner was held liable in the personal capacity of the managing director and he was arrayed as accused No. 2. He was not held liable for the company. The liability of the company is distinct from the liability of its managing director. Fine has been imposed on the company and it is the liability of the company to pay the same. The company has its own legal identity and personality, in contradistinction to its directors or shareholders. The directors or the shareholders cannot be equated with the company. The company has its separate corporate existence. In this connection, reference may be made to the famous case of Saloman v. Saloman and Co. Ltd. [1897] AC 22 (HL), wherein it was held that companies are treated as separate legal entities from their directors and shareholders. Relying on the said decision in the case of M. P. Agarwal v. Union of India [1969] BLJR 127, it was held :
"It is well established that a limited company has separate legal personality from that of its directors who cannot, therefore, be made liable for the legal liability incurred by the limited company. The principle of the independent corporate existence of a company has been explained and emphasised by the House of Lords in the case of Saloman v. Saloman and Co. Ltd. [1897] AC 22 (HL)."
7. With regard to the corporate status or entity of a company, there never has been any dispute. It is worthwhile to quote a passage from Lindley on Companies, 6th edition, at page 1229, as extracted at page 323 in Harihar Prasad v. Bansi Missir, AIR 1931 Patna 321 ; [1932] 2 Comp Cas 32, 36 :
"The society (speaking of an Industrial Provident Society spoken of as the Co-operative Societies in England, see Halsbury Laws of England, volume 17, page 3) being incorporated, must sue and be sued by its corporate name, and its members are individually liable for its debts and engagement only so far as the statute allows. As in the case of companies registered under the Companies Act, 1862, so in the case of societies registered under the Act now in question, the members are not liable to have executions issued against them in respect of judgments obtained against the society."
8. In this connection, reference may be made to the decision rendered in Biswanath Modi v. Purna Chandra Misra [1992] 34 CJD 39 (Criminal), wherein while dealing with Section 16(1)(a)(ii) of the Prevention of Food Adulteration Act, 1954, A. Pasayat J. held as follows :
"The word 'person' in Section 16 of the Act includes a company in view of the definition of person given in Section 3(42) of the General Clauses Act. Section 16 of the Act applies both to juristic and natural persons. A custodial sentence in the case of a juristic person cannot be awarded, even though both imprisonment and fine are mandated in terms of Section 16. In such cases fine alone can be imposed . . ."
9. In the aforesaid decision, a distinction was drawn with regard to the liability of the company. Entities being different, liabilities are to be different. The indubitable conclusion is that the company stands on a distinctive footing in comparison to its directors.
10. It is well known that the company cannot act by itself but that does not necessarily mean that in the absence of any finding that someone is liable for the company, the fine imposed in a proceeding is to be realised from him. There may be cases where a company is represented by its chairman or the managing directors as they are the persons who normally represent the company but in actuality, the offence has been committed by someone else who is in charge of the affairs of the company and is directly involved in the alleged offence. It is relevant to state here that earlier under Section 9 of the Central Excises and Salt Act, 1944, the offence was relatable to one who avoided the payment of duty or removed any excisable goods in contravention of the provisions of the Act. Later on, Section 9AA was brought in by way of amendment by the Central Excises and Salt (Amendment) Act (79 of 1985), wherein it was provided that where an offence under the aforesaid Act has been committed by the company, every person who at the time of commission of the offence was in charge of and was responsible is deemed to be guilty, as well as the company, and is liable to be proceeded against and punished accordingly. This provision has made it clear that the person in charge as well as the company are liable. The person in charge suffers the punishment if found guilty. The company also suffers. There may be cases when the prosecuting agency may not choose to proceed against the company and may proceed against the person in charge. It is not necessary that in all cases, the company should be made an accused. It is imperative that a finding is necessary that the offence has been committed by the company but it is not a prerequisite that the company should be made an accused. A prosecution against a person who is in charge or responsible at the time of commission of offence is maintainable without the company being made a party to the proceeding. This view gains support from the decision rendered in the case of Sheoratan Agarwal v. State of Madhya Pradesh, AIR 1984 SC 1824. The ratio of this decision is of assistance to come to the conclusion that there are two categories of liabilities, viz., liability of the company and liability of the person in charge and one can exist without the other. In view of the aforesaid principle, it is quite clear that the company has to suffer its own liability.
11. Once it is concluded that the company has its own liability, the realisation of fine has to be made from the company. The mode for realisation is provided under Section 421 of the Code of Criminal Procedure, wherein it has been stipulated that the court has the authority to issue a warrant for the levy of the amount by attachment and sale of any movable property belonging to the offender and further can issue a warrant to the Collector of the District authorising him to realise the amount as arrears of land revenue or movable or immovable property or both of the defaulter.
12. The legal dues of a company can be realised only by attaching the assets of the company and not by putting the managing director or any of the directors in prison. It is to be kept in mind that the company is the offender or the defaulter. It is the company as a person from whom the fine is realisable. There may be cases where under the company law a managing director or director may be liable for the company. But in the absence of any fixation of liability on any particular person on behalf of the company, it is the liability of the company and company alone, and the company having a separate legal personality, having independent corporate existence, the issuance of a non-bailable warrant or distress warrant against the managing director or director to realise the same is not permissible.
13. The other submission of Sri Bhuyan that after the company has already been wound up and an official liquidator has been appointed, the petitioner as the managing director should not be proceeded against, has substantial force. It is the admitted position that the company in question has already been wound up. The finding of the court below that the official liquidator has only taken over the assets of the company but not the liability is an absolute legal misconception. It is settled in law that the official liquidator not only takes over the assets of the company but has obligations, if determined in accordance with law, to meet the liabilities from the assets of the company. Once it is held that the payment of fine by the company is its exclusive liability, steps are to be taken for realisation of the same in accordance with the provisions of the Companies Act, keeping in view that the company is now in liquidation. Under this changed circumstance, a non-bailable warrant or distress warrant cannot be issued against the ex-managing director in his individual capacity.
14. In view of the above analysis, I unhesitatingly conclude and hold that the petitioner is not to be proceeded against and there was no justification on the part of the court below to issue a non-bailable warrant of arrest and distress warrant against him. The application for recall of the same was justified in law. As the petitioner is not liable, I set aside the orders issuing non-bailable warrant of arrest and distress warrant and further set aside the order dated March 5, 1993, refusing to recall the same. The non-bailable warrant of arrest and distress warrant issued against the petitioner are hereby recalled. However, the Criminal Miscellaneous Case No. 130 of 1993 should proceed against the company in accordance with law for realisation of the fine amount.
15. The criminal revision is accordingly allowed.