Patna High Court
State vs Linkers Private Ltd. And Ors. on 11 May, 1967
Equivalent citations: AIR1968PAT445, 1968CRILJ1443, AIR 1968 PATNA 445, 1969 (1) COM LJ 240 40 COM CAS 17, 40 COM CAS 17
JUDGMENT Shambhu Prasad Singh, J.
1. These two appeals by the State of Bihar have been heard together and this judgment will govern both of them.
2. Respondent No. 1 of Government Appeal No 38 of 1965 is a private company incorporated under the Companies Act, 1956, having its registered office at Jamal Road. Patna. Respondents Nos. 2 to 6 are Directors of the Company. Respondents Nos. 1 to 5 of Government Appeal No. 39 of 1965 are same is respondents Nos. 2 to 6 of the other appeal.
3. The Company and its Directors failed to file with the Registrar of Companies, Bihar, Patna, by 12-8-1962 at the latest, three copies of the Company's balance sheet and other documents as provided in Section 220(1) of the Companies Act, 1956, for the financial year of the Company which ended on 31-12-61. A notice (Ext. 1) drawing the attention of the Company and its Directors to the said default and stating inter alia therein that the annual general meeting of the Company ought to have been held on 30-6-62 and the documents mentioned above filed with the Registrar of the Companies, Bihar, Patna. by 12-8-62, was issued to them on 25-8-62. They were also asked to make good the defaults within one month from the date of the issue of the said notice. Another notice (Ext. 1/1} was issued to them on 28-1-63 drawing their attention to the said default in spite of the notice (Ext. 1} and requesting them to make good the default within two weeks from the date of the issue of this notice, failing which it would be open to the Registrar of the Companies to launch prosecution against them without any further reference. The Company and its Directors failed to make good the default and on 30-7-63 a petition of complaint, alleging the aforesaid facts and stating that the Company had committed and the Director had knowingly and wilfully authorised or permitted, the default in complying with the provisions contained under Section 220(1) of the Companies Act and thereby had committed an offence punishable under Section 220(3} of the Act, was filed before the Sub-divisional Magistrate, Sadar, Patna, who took cognizance of the case and transferred it to a Munsif Magistrate exercising first class powers for disposal. The case was numbered as 563(2) of 1963. Government Appeal No. 38 of 1965 has arisen out of this case. The Directors of the Company did not lay before the Company in its annual general meeting, which should have been held, in pursuance of Section 166 of the Companies Act, by 30-6-63 at the latest, its balance sheet and profit and loss account for the financial year which ended on 31-12-62. Two notices dated 31-8-63 and 3-12-63 (similar to the notices in the other case and which were also marked Exts. 1 and 1/1 in this case) for making good the default, were issued to the Directors and when they failed to com-ply in spite of them, another complaint alleging that by their failure to call annual general meeting of the Company and to lay before it the balance sheet and profit and loss account for the financial year ending on 31-12-62, the Directors had committed an offence punishable under Section 210(5) of the Companies Act, was filed by the Registrar of Companies, Bihar, Patna, before the Sub-divisional Magistrate, Sadar, Patna on 10-1-64. Cognizance was taken in this case as well. It was also transferred to a Munsif Magistrate exercising first class powers for disposal. This case was numbered as 12(2) of 1964.
T. R. 66 of 1964 Government Appeal No. 39 of 1965 has arisen out of this case.
4. 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 Company's balance sheet and other documents. Two of the respondents, Parmeshwar Singh and Srinandan Prasad, also said in their statements under Section 342 Cr. P. C. 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 sny mistake. Badrinath Bahri, Aruna Mal-dahiyar 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 of-
fence either under Section 220 or 210 of the Indian Companies Act. Accordingly, he has acquitted the accused in both the cases.
5. 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 oi 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 report-ed in AIR 1961 SC 186 That was a case where the Directors of a Company were separately prosecuted for two offences under che 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 the 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., AIR 1948 Bom 357, acquitted the respondents. Appeals were filed by the State before the High Court at Bombay against the said orders of acquittal which were summarily dismissed. The State then moved the Supreme Court and were granted special leave to appeal to it. The Directors were noticed and after hearing them their Lordships of the Supreme Court allowed the appeal and remanded the case to the Magistrate for re-trial with observations which fully support the aforesaid contention of Mrs. Seth. With reference to the decision of the Bombay High Court in the case of AIR 1948 Bom 357 where the Directors of a Company had committed an offence under Section 134 of the Companies Act, 1913, their Lordships of the Supreme Court observed that the language of Section 134 was to a certain extent different from the language used in sections 32 and 131 and if the language made any difference as to the principle to be applied in ascertaining whether a breach of it occurred or not -- as to which they said nothing in that case -- then the judgment of the Bombay High Court was of no assistance to the respondents. At the same time they observed that if, however, no such difference could be made, then in their opinion the case was not correctly decided by the Bombay High Court. Section 134(1) of the Indian Companies Act, 1918 (hereinafter to be referred to as the old Act) corresponds to Section 220 of the Act of 1956 (hereinafter to be referred to as the new Act). Therefore, the question left open by their Lordships of the Supreme Court whether the language of Section 134 of the old Act (Section 220 of the new Act) was such as to make any difference as to the principle to be applied in ascertaining whether a breach of it has occurred or not, has to be decided in Government. Appeal No. 38 of 1965
6. 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 upto a date and 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 India, the period could also be extended by the Registrar, but not exceeding 3 months for any special reason. Sub-section (2) provided that the balance sheet and the profit and loss account should be audited by the auditor of the Company and auditor's report should be attached thereto or there shall be inserted at the foot thereof, a reference to the report and the report should be read before the Company in general meeting A default in carrying out the provisions of Section 131 was made penal by Section 133 of the old Act. Section 166 of the new Act lavs down when and how an annual general meeting of a company is to be held. It also provides that the Registrar may. for special reason. extend the time within which any annual general meeting, not being the first annual genera] meeting, shall be held by a period not exceeding three months Sub-section (1) of Section 210 of the new Act says that at every general meeting of a company held in pursuance of Section 166. the Board of Directors of the Company shall lay before the Company a balance sheet as at the end of the period specified in Sub-section (3) and a profit and loss account for that period. Subsection (3) provides the period to which the profit and loss account shall relate, The only difference in Sub-section (3) of Section 210 of the new Act and Section 131(1) of the old Act appears to be, that according to the new Act the profit and loss account to be placed before the annual general meeting of the Company other than the first annual general meeting shall relate to a period ending with a day which shall not ordinarily precede the day of the meeting by more than six months, whereas according to the old Act It could be nine months. Sub-section (5) of Section 210 of the new Act is similar to Sub-section (3) of Section 133 of the old Act inasmuch as it makes the non-compliance of the provisions of Section 210 penal. It would thus appear that decision of their Lordships of the Supreme Court in the aforesaid case is directly to the point on the question to be considered in Govt. Appeal No. 39 of 1965, According to the Supreme Court decision, it was the duty of the Directors to call a general meeting for discharge of liabilities imposed upon them by provisions of the Act and they did make themselves liable for the consequences for not discharging those liabilities by not calling a general meeting of the Company. According to the provisions of Sub-section (3) of Section 133 of the old Act an officer of the Company could be liable for punishment only if he was knowingly and wilfully party to a default. But under Sub-section (5) of Section 210 of the new Act, a Director of a Company is made punishable with fine even if the default by him is not wilful and he merely fails to take all reasonable steps to comply with the provisions of the section, No doubt the lawyer for Kumar Kamlesh Maldahiyar in his statement under Section 342 Cr. P. C said that the balance sheet and profit and loss account could not be laid before the annual general meeting as it was not received from the auditors. But there is nothing on the record to show that the Directors took any steps to get the audit report expedited for being made available in time. In the circumstances a mere statement under Section 342 Cr. P. C. on behalf of one of the Directors, who claimed to be the Managing Director, that the balance sheet and profit and loss account could not be laid before the meeting as they were not received from the auditors, will not exonerate the Directors from the liability imposed upon them under Section 210(1) of the new Act.
7. Three oi the Directors, Badri Nath Bahari, Aruna Maldahiyar and Parmeshwar Singh, the first two through their lawyer, in their statements under Section 342 Cr. P. C. stated that it was for the Managing Director to convene the meeting. 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 annual general meeting and laying before it the balance sheet and profit and loss account. A mere statement on their behalf under Section 342 Cr. P. C. 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 form of some document must have been there in their possession. It, therefore, appears that the iudg-
ment 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 1965 are guilty of an offence under Section 210 of the new Act. (8) 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. Subsection (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 ueneral 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 Secre-
tary of the Company and to be filed with 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 capitals, 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 balanct 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, appeal possible to hold that the language of Section 134(1) made any difference between the principle to be applied in ascertaining whether 3 breach it 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 cpuld be guilty of an offence only under Section 131 but not of one under Section 134.
9. 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 Lordship? of the Supreme Court in the case of AIR 1961 SC 186 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 wilfullv authorises 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 wilfullv authorised or permitted the default.
In case No. 563(2) of 1963.
T. R No. 42 of 1964out of which Government Appeal No. 38 of 1965 arises, two of the Directors, no doubt, in then 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 Drove 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 anv 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 the 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 Proce-dure on behalf of respondent No 1, the Com-pany, 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 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 itatement 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 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 account 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 thp plea that 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 guiltv of an offence under Section 220 of the Companies Act, 1956 in case No 563(2) of 1963 T. R.. No 42 of 1964
10. 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 the Companies after some time. In the circumstances the aforesaid sentences 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 I96R are convicted of an offence under Section 210 (5) of the Companies Act. 1956 and sentenced to pav a fine of Rs. 200/- each; in default of payment of fine to undergo simple imprisonment for two months each.