Calcutta High Court
Bhagwati Foods P. Ltd. And Basudeo Gupta ... vs Registrar Of Companies on 31 January, 2008
Equivalent citations: [2008]143COMPCAS531(CAL)
Bench: S.S. Nijjar, Indira Banerjee
JUDGMENT
1. We have heard learned Counsel for the parties. Let there be an order in terms of prayer (a) of the application admitting the appeal.)
2. This appeal is against an order dated April 9, 2007, of the learned single judge in an application of the appellants under Section 633(2) of the Companies Act, 1956, to the extent that the appellants have not been excused from liability for contravention of Sections 211(1), (2) and 628 of the said Act, as alleged in a show-cause notice dated May 5, 2005. The appellants have, however, by the order under appeal, been absolved of all liabilities for violation of Section 299(1) of the Companies Act, 1956, as alleged in five other show-cause notices also dated May 5, 2003.
3. Pursuant to a notice dated May 28/29, 2003, the books of account and other relevant documents of the appellant-company were inspected by the office of the Eastern Regional Director, Department of Company Affairs of the Government of India.
4. By a letter No. JD Inspn./Cal/01/03/3572 dated December 12, 2003 the Deputy Director (Inspection) alleged, that in course of inspection of the books of account and other documents of the appellant-company, the contraventions specified in the said letter had been noticed. The appellants were directed to submit their explanation with regard to the contraventions alleged in the said letter.
Paragraph 12 of the said letter dated December 12, 2003, is extracted hereinbelow for convenience:
It has been found from the records of the company that the company avoided the Central excise duty payment which is to be paid to the Central Government by way of suppression of actual production and clearances of goods clandestinely. The company has admitted the offences and having made voluntary payment of Rs. 28.5 lakhs in total during the month of May 2003, it is financial irregularities and misleading statements in the audited accounts which tantamount to violation of Sections 628 and 211(1) and (2) of the Companies Act, 1956. The explanation in this regard may be furnished.
5. In reply, the appellants wrote a letter dated December 22, 2003, explaining and/or controverting the allegations levelled in the said letter dated December 12, 2003. The appellants pointed out that the appellant company had paid Rs. 7.50 lakhs to the excise authorities and not Rs. 28.50 lakhs and that too in the circumstances mentioned in the said letter. The appellants categorically denied that they had either suppressed the production of any goods, or cleared any goods without payment of excise duty.
6. On the basis of an inspection report submitted on or about April 29, 2004, the Deputy Registrar of Companies, West Bengal, issued about 8 show-cause notices, all dated July 16, 2004, to the appellants, calling upon the appellants to show cause why penal action should not be initiated against the appellants for contravention of Sections 97(1), 193(1), 143(1), 209(5), 211(1) and (2), 301(1) and 303(3) of the Companies Act, 1956, as alleged in the said notices.
7. In the show-cause notice for alleged contravention of Section 211(1) and (2) of the Companies Act, 1956, it was alleged that the company had, inter alia, suppressed production figures in its accounts and made misleading statements, which would be evident from voluntary payment, in May, 2003, of Rs. 28.50 lakhs towards the demand of the excise authorities.
8. There was significantly, no allegation against the appellants, of making any false statement, knowing the same to be false or of suppression of any material fact, knowing the same to be material, either in the letter dated December 12, 2003, of the Deputy Director (Inspection) or in the show-cause notice. There were thus no ingredients of an offence under Section 628 of the Companies Act, 1956.
9. Even though there was a bare allegation of contravention of Section 628 in the letter dated December 12, 2003, the appellants were not required to show cause against penal action under Section 628 of the Companies Act, 1956.
10. It may thus be inferred that the authorities concerned, being satisfied that there was no dishonest intent on the part of the appellants, chose not to proceed against the appellants under Section 628 of the Companies Act, 19567.
11. By a letter dated July 28, 2004, the appellants gave a composite reply to the show-cause notices dated July 16, 2004, inter alia, submitting that their letter dated December 22, 2003, be treated as reply to the show-cause notices]
12. No proceedings were initiated against the appellants. Upon expiry of one year from the date of inspection, cognizance of the offence, if any, of contravention of Section 211(1) and (2) of the Companies Act, 1956, punishable under Section 211(4) of the said Act, became barred by limitation}.
13. On the same allegations as made in some of the show-cause notices dated July 16, 2004, the Deputy Registrar of Companies again issued 5 several show-cause notices, all dated May 5, 2005, calling upon the appellants to show cause why penal action should not be initiated against the appellants for contravention of Section 299(1) of the said Act, on account of the acts and omissions alleged in the said notices. Cognizance of an offence under Section 299(1) of the Companies Act, 1956, however, becomes time-barred upon expiry of six months from the date of the offence, or where the offence was not known, upon expiry of six months from the date of knowledge of the offence.
14. A sixth show-cause notice was issued, calling upon the appellants to show cause why penal action should not be initiated against the appellants for contravention of Sections 628 and 211(1) and (2) of the Companies Act, 1956. The relevant part of the said sixth notice is, for convenience, is extracted hereinbelow:
And whereas it is observed from the inspection report on inspection of the books of account and other relevant records of the company under Section 209A of the Companies Act, 1956, by an officer of the Ministry of Company Affairs, Kolkata, that the company has violated Sections 628 and 211(1) and (2) of the said Act. The nature of violation as pointed out in the said report is given below:
It has been found from the records of the company that the company avoided the Central excise duty payment which is to be paid to the Central Government by way of suppression of actual production and clearance of goods clandestinely. The company has admitted the offences and having made voluntary payment of Rs. 28.5 lakhs in total during the month of May 2003, it is financial irregularities and misleading statements in the audited accounts which tantamount to violation of Sections 628 and 211(1) and (2) of the Companies Act, 1956.
Now therefore, the company and its directors/officers-in-default is/are hereby called upon to show cause within 15 (fifteen) days from the date of this notice as to why penal action of the Companies Act, 1956, shall not be initiated against you/them for contravention of Sections 628 and 211(1) and (2) of the said Act.
The allegation on the basis of which the sixth show-cause notice has been issued is identical to the allegation in the earlier show-cause notice dated July 16, 2004, for contravention of Section 211(1) and (2) of the Companies Act, 1956.
15. At the time of issuance of the sixth show-cause notice, penal action under Section 211(7) for contravention of Section 211(1) and (2) had become time-barred. There being no allegation even in the sixth show-cause notice, of any of the concerned appellants making any false statement, knowing the same to be false, or of suppressing any material fact, knowing the same to be material, the sixth show-cause notice did not contain the ingredients of an offence under Section 628 of the Companies Act, 1956.
16. On July 27, 2005, the appellants moved an application under Section 633(2) in the company court praying that the petitioners be excused from liability under the provisions of Sections 211(1), (2), 299(1) and 628 of the Companies Act, 1956.
17. Sometime in June, 2006, while the application under Section 633(2) of the Companies Act, was pending in the company court, the appellants received a letter from the Deputy Registrar of Companies, the contents of which are for convenience, extracted hereinbelow:
Sub : Inspection under Section 209A of the Companies Act, 1956. With reference to the subject cited I am to state that the aforementioned inspection was conducted by an officer of the Central Government and different violations were pointed out which includes the violation of Sections 143(1), 193(1) and 303(1). The show-cause notices were also issued to the company and the directors and in reply, you have communicated a written statement by December 22, 2003, to the Deputy Director (Inspection).
Now, on the basis of your compliance you are hereby warned to be cautious in future to comply with the requirements of the aforementioned sections.
18. The explanation of the concerned respondent, that the appellants had been let off with a warning only in respect of contravention of Sections 143(1), 193(1) and 303(1), is difficult to accept, since proceedings for contravention of many of the other sections of the Companies Act, for which show-cause notices were issued, had become time-barred under Section 468 of the Code of Criminal Procedure, 1973.
19. From the language and tenor of the said letter, an inference might reasonably be drawn, that upon consideration of the letter of the appellants, dated December 22, 2003, which dealt with all the contraventions noticed at the time of inspection, the Deputy Registrar had deemed it fit to excuse the appellants and to warn the appellants against future contravention of the provisions of the Companies Act, 1956, including in particular Sections 143(1), 193(1) and 303(1). The Deputy Registrar of Companies did not, by his said letter, reserve the right to proceed against the appellants, for contravention of the other provisions of the Companies Act, 1956, noticed at the time of inspection.
20. Significantly, the show-cause notice as also the reply of the appellants to which reference was made in the said letter, covered all the contraventions alleged by the respondent authorities. Furthermore, one cannot but take note of the use, in the said letter, of the expression "different violations were pointed out, which includes the violation of Sections 143(1), 193(1) and 303(1)".
21. The concerned respondents, apparently being satisfied that there was no dishonest intent on the part of the appellants, decided not to proceed with penal action against the appellants for contravention of Section 628 of the Companies Act, 1956. Accordingly, there was no reference to Section 628 in any of the show-cause notices of July 16, 2004. The show-cause notice of July 16, 2004, or the sixth show-cause notice issued in May/June 2005, did not contain the requisite allegations that would constitute an offence under Section 628 of the Companies Act, 1956.
22. Even otherwise, conclusion of dishonest and deliberate suppression of material facts cannot be drawn just because the appellants went before the Settlement Commission and settled excise demands by making payment. The respondent authorities have apparently proceeded on the basis of settlement of demands of the excise authorities. The materials disclosed in the proceedings do not reveal any independent scrutiny of the accounts.
23. By me order impugned, the learned single judge excused the appellants of the liability in respect of first 5 show-cause notices pertaining to violation of Section 299(1) of the Companies Act, subject to payment of Rs. 5,000. In respect of the sixth charge, the learned single judge was of the view that the appellants should face appropriate criminal proceedings.
24. The learned single judge found that although there had been transgression of Section 299(1) of the Companies Act, 1956, as complained in the five show-cause notices dated May 5, 2005, there did not appear to be any dishonest intention, since the appellant-company was a private company and its shares held by a few persons either related to or acquainted with each other. The learned single judge, in effect, accepted the submission of the appellants of the breach being attributable to a mistake.
25. The learned single judge did not, however, exercise jurisdiction under Section 633(2), to excuse the appellants of the liability under Section 211(4) read with Section 628 of the Companies Act, 1956, having regard to the gravity of the allegation in the sixth show-cause notice, of suppressing actual production figures and making misleading statements in the audited accounts of the appellant-company.
26. A person seeking to be excused under Section 633(1) or (2) of the Companies Act, 1956, from penal liability for contravention of any of the provisions of the Companies Act, 1956, is required to satisfy the court that he acted honestly, reasonably and that having regard to the entire circumstances of the case, he ought fairly to be excused. The learned single judge was apparently not convinced that the appellants had acted honestly and reasonably.
27. It is imperative that, a notice to show cause against proposed penal action, which involves punishment of imprisonment, should be specific and unambiguous. The exact offence has to be stated. Absence of any specific allegation of dishonest intent in the show-cause notice, would give rise to presumption of innocence.
28. Moreover, for grant of relief under Section 633(2), the court is to take into account, the entire circumstances of the case. In the instant case, penal action for contravention of Section 211(1) and (2) of the Companies Act, 1956, has become time-barred. The allegations in the sixth show-cause notice do not constitute the ingredients of an offence under Section 628 of the Companies Act, 1956, as observed above]
29. It is now settled that this Court might in exercise of jurisdiction under Section 633(2) and excuse a person from liability, if the time for filing a complaint, for the offence alleged, as prescribed under Section 468 of the Code of Criminal Procedure, 1973, has become time-barred]
30. It is true, that relief under Section 633(2) of the Companies Act, 1956, is discretionary. No person can claim to be excused from liability as of right. We are, however, of the view that in the facts and circumstances of this case, discretion should have been exercised to excuse the appellants from liability in respect of the sixth show-cause notice too.
31. We are of the considered opinion that the learned single judge erred in not giving the same relief to the appellants with regard to the sixth show-cause notice. Consequently, the appeal is treated as on the day's list and allowed, however, subject to payment of costs of Rs. 5,000 as has been imposed by the learned single judge.
32. The application is, accordingly disposed of.
33. The undertakings, if any, given in the appeal are discharged.
34. Urgent xerox certified copy of this order, if applied for, be supplied to the parties subject to compliance with all requisite formalities.