Bombay High Court
Dushyant D. Anjaria vs M/S. Wall Street Finance Ltd. & Anr. on 18 October, 2000
Equivalent citations: 2001BOMCR(CRI)~, (2001)1BOMLR387, [2001]105COMPCAS655(BOM), 2001(1)MHLJ701
Author: R. M. Lodha
Bench: R.M. Lodha
JUDGMENT R. M. Lodha, J.
1. Rule, Returnable forthwith.
2. Mrs. Shakuntala Joshi, advocate waives service for first respondent. Mrs. U. V. Kejriwal, A.P.P., waives service for respondent No. 2.
3. By consent of the learned counsel for the parties, the criminal writ petition is being disposed of finally at this stage.
4. The first respondent M/s. Wall Street Finance Ltd. filed a complaint under sections 138 to 142 of the Negotiable Instruments Act, 1881 as amended by Act 66/88 and section 420 of I.P.C. against (1) M/s. Integra Funds Management Ltd.; (2) Mr. Sumir Nagar; (3) Mr. D. D. Anjaria; and (4) Ms. Shakuntala Nagar in the Court of 4th Chief Metropolitan Magistrate, Girgaum, Mumbai. According to the complainant, the accused No. 1 is the company and accused Nos. 2 to 4 are directors of the said company who are responsible for day-to-day conduct of the business of the company. The accused company approached the complainant for finance for purchase of the machineries and accordingly, lease agreement was executed on 31st January. 1997 between the complainant and the accused company. The lease agreement was for Rs. 31,89,368/- and the amounts were payable in 35 monthly instalments of Rs. 71,507/-each as per repayment schedule to the lease agreement and the first instalment was for Rs. 6,86,623/-. It is the case of the complainant that accused had issued two cheques bearing No. 106174dated 19.11.1997 for Rs. 76,091/ and cheque No. 106190 dated 19.1.1998 for Rs. 79,220/-. Both the cheques were drawn on Centurion Bank Limited. Nariman Point, Mumbai. Both the cheques were dishonoured for want of sufficient fund. Thereafter, the complainant sent a notice dated 14.5.98 intimating the factum of dishonouring the cheques and further demanding the due payment. The said notice dated 14.5.98 was sent by registered post and it is said to have been served on 18.5.98. When within 15 days, no payment was received from the accused, the present complaint was filed and it was prayed that process be issued against the accused persons under section 138 of the Negotiable Instruments Act as well as under section 420 of I.P.C. The Additional Chief Judicial Magistrate issued the process against all the accused persons. The present petitioner who is accused No. 3 made an application before the concerned Metropolitan Magistrate for recall of the process. The said application has been rejected vide order dated 25.1.2000, giving rise to the present criminal writ petition.
5. Mr. Mundargi, learned counsel for the petitioner urged that petitioner was co-opted as additional director of the first accused company on 13th April. 1992. The present petitioner resigned as Additional Director of the said company on 2.12.92 and therefore, for the alleged offence committed by the first accused company in respect of dishonouring of the two cheques which took place in the year 1998, the petitioner cannot be prosecuted and no process could have been issued against the present petitioner. Mr. Mundargi further submitted that since the petitioner was appointed as Additional Director of the first accused company on 13.4.92, under section 260 of the Companies Act, even if it is held that he had not resigned on 2.12.92, he ceased to be director on the last date on which the first annual general meeting of the first accused company should have been held under section 166, first proviso of Companies Act. According to him, the first accused company was initially the private limited company incorporated on 17.9.91. The private limited company changed to the public limited company on 2.6.92 and therefore, the first annual general meeting was required to be held latest by 16th March. 1993 viz. within 18 months from the date of incorporation of the private limited company.
6. The learned counsel appearing for the respondent No. 1, on the other hand, strenuously urged that the document of resignation and the extract of form No. 32 dated 17.11.98 are manufactured documents which came into existence after the complaint was filed by the first respondent herein and therefore, the case of the accused petitioner that he resigned as additional director on 2.12.92 does not deserve to be accepted. As regards the contention raised by the learned counsel for the petitioner that the petitioner in any case, is deemed to have vacated the office of additional director, on the last dale when the first annual general meeting ought to have been held i.e. on 16th March, 1993, the learned counsel for the first respondent submitted that the said ground has not been raised by the petitioner in his application for recalling of process nor the said contention was advanced by the learned counsel for the petitioner before the Court below and therefore, the said contention cannot be permitted to be raised for the first time by the petitioner before this Court.
7. I have bestowed my thoughtful consideration to the rival contentions advanced by the learned counsel for the parties.
8. In the application made by the present petitioner seeking recall of the process, it is averred that the first accused company was incorporated under the Companies Act, 1956 on 17.9.91. The Memorandum of Articles of Association of the said company shows that at that time Mr. Sumir Nagar (accused No. 2) and Ms. Shankuntala Nagar (accused No.4) were the directors of the first accused company. It is also stated in the application that on 13.4.92, the present petitioner was co-opted as one of the additional directors of the accused company. The petitioner tendered his resignation as a director of the company on December 2, 1992 and the same was accepted by the company on that very day. It was, thus, stated that with effect from 2.12.92, the petitioner ceased to be additional director of the first accused company. The transaction of the alleged lease agreement between the complainant and the first accused company took place on 31.1.97 and the cheques relate to the period thereafter which were dishonoured and, therefore, the petitioner could not be prosecuted. The complainant filed reply to the application made by the present petitioner and asserted that the petitioner is also director of the first respondent company. The complainant has not specifically denied the factum of resignation by the petitioner as additional director on 2.12.92. What is stated in the reply is that the petitioner has not produced any documentary evidence of his resignation as director of the first accused company as required by the provisions of companies Act, 1956 and the petitioner be put to strict proof. The Trial Court has rejected the contention of the petitioner that he resigned as additional director on 2.12.92 on the ground that the first accused company filed in the office of the Registrar of Companies, the resignation of the petitioner only on 17.11.98 i.e. after the complaint was filed by the complainant and since delay in this regard remains unexplained by the applicant, it cannot be accepted that he resigned on 2.12.92. It is very difficult to appreciate the approach of the Trial Court. How can the petitioner be expected to explain as to why first accused company did not file the resignation of the petitioner in the office of the Registrar of Companies immediately when it was made by him. Once the petitioner resigned as additional director on 2.12.92, he ceased to have any control or access to the first accused company and could not have furnished explanation on behalf of the first accused company for not filing the resignation tendered by the petitioner on 2.12.92 before the office of Registrar of Companies immediately. However, the fact remains that in form No. 32 which is of course dated 17.11.98, it is clearly recorded that the petitioner has resigned as additional director on 2.12.92. There is no reason to disbelieve the said form No. 32 which records petitioner's resignation as additional director on 2.12.92. As a matter of fact, the complainant has not specifically denied in their reply the specific averment made by the petitioner in para 2 of the application that he tendered his resignation as director of the company on 2.12.92. The complainant in their reply only stated that no documentary evidence has been produced by the petitioner proving his resignation as additional director on 2.12.92. The form 32 clearly shows that the petitioner resigned as additional director on 2.12.92 and therefore, he ceased to be director when the lease agreement was entered into between the complainant and the first accused company and the two cheques issued by the first accused company were dishonoured.
9. Even if it be assumed that the petitioner did not resign as additional director of the first accused company on 2.12.92, in my view, since the petitioner was co-opted as additional director on 13.4.92, his tenure could not have exceeded beyond the last date on which the next annual general meeting should have been held which in the case of first accused company would be first annual general meeting in accordance with first proviso to section 166. In the application made by the petitioner seeking recall of process, it is categorically stated that the first annual general meeting of the first accused company was required to be held within 18 months from the date of its incorporation viz. within 18 months from 17.9.91. Thus, at the latest the first annual general meeting of the first accused company was required to be held on or before 16.3.93. Since the petitioner was not re-appointed as additional director of the first accused company at any time on or after 16.3.93, the petitioner ceased to be additional director of the first accused company in any case with effect from 16.3.93. The averments made in paras 20 and 21 of the application have not at all been controvered in the reply filed by the complainant. Section 260 of the Companies Act reads thus -
"260. Additional directors. - Nothing in section 255, 258 or 259 shall affect any power conferred on the Board of Directors by the articles to appoint additional directors:
Provided that such additional directors shall hold office only up to the date of the next annual general meeting of the company:
Provided further that the number of the directors and additional directors together shall not exceed the maximum strength fixed for the Board by the articles."
10. From the aforesaid provision, it is clear that it is open to the Board of Directors to appoint additional directors if the power has been conferred on board by the Articles of Association irrespective of the provisions contained in sections 255, 258 and 259 of the Companies Act. The additional director so co-opted by the Board of Directors shall hold office only upto the date of next annual general meeting of the company. In A. Ananthalakshmi Ammal and another v. The Indian Trades and Investments Ltd. and another, the Division Bench of Madras High Court in para 9 of the report in the light of the then provisions of the Companies Act, 1913 held thus-
"(9) On these facts it was argued by the learned advocate for the appellants that two of the directors, Padhmanabhan and B. V. Raman who were due to retire at the annual meeting next to that held on 31.1.1949, should be held to have vacated their office on the last date on which the annual meeting should have been held and that in consequence they ceased to be directors after 30.4.1950. This contention is amply supported by the authorities. In re Consolidated Nickel Mines Ltd., (1914) 1 Ch. 883, the question arose whether two directors. Steel and Phillips were entitled to remuneration as directors. Art. 101 of the Company provided that at the ordinary meeting all the directors should retire from office. Section 49 of the Companies Act provided that the directors were bound to summon a general meeting of the company once in every calendar year. After 1905 no meeting was called but the two directors continued to act. It was held that they vacated the office on the last day on which the annual meeting should have been held, that is on 31.12.1906 and that therefore they were not entitled to remuneration thereafter."
11. The Division Bench of the Madras High Court thus held that the Directors who were due to retire at the annual general meeting next to be held should be held having vacated their office on the last date on which the annual general meeting should have been held under law and in consequence such directors ceased to be directors after such date. Turning now to section 260, it would be seen that the first proviso provides that additional director shall hold office only upto the date of next annual general meeting. That means additional director of the company shall cease to be director of the company after the last date on which the annual meeting of the company should have been held under the Companies Act. In other words, the co-option of additional director in terms of first proviso of section 260 unless reappointed can only be upto the last date of the next annual general meeting that should have been held. The words "shall hold office only upto the date of next annual general meeting" occurring in first proviso to section 260 mean that such director shall hold office upto the last date of next annual general meeting which should have been held and not actual holding of next annual general meeting if it is beyond the statutory period for holding of such annual general meeting to be held. Under the analogous provisions in England the view which I have taken is firmly established. The first of such case is In re, Consolidated Nichel Mines Ltd. (Supra).
12. In Krishnaprasad Jwaladutt Pilani v. Colaba Land and Mills Co. Ltd., and Ors., the Division Bench of this Court relied on the judgment of the Madras High Court in Ananthalakshmi Ammal and in para 5 of the report while agreeing with the said judgment observed thus-
"A question arose in the case decided by the Madras High Court reported in Anatha Lakshmi Ammal v. Indian Trades and Investments Ltd.. as to whether directors who under the Articles of Association should have retired from the Board of Directors at any annual general meeting should be held to have vacated their office and ceased to be directors of the company on the last day on which an annual general meeting could have been held. The question was answered by the Court in the affirmative and it was held that the directors had vacated their office despite the fact that an annual general meeting of the company had in fact not been called. The judgment was delivered by Mr. Justice Venkatarama Ayyar (as he then was) and in the course of his judgment His Lordship examined the decisions of Courts in England. The first time when the point came to be decided in England was in 1914 and that was in the case of In re, Consolidated Nickel Mines Ltd., (1914) 1 Ch. 883. That decision has been accepted as laying down the correct legal position under the analogous provisions in England without being questioned at any lime since 1914. So firmly is the rule accepted as established that when the identical question arose in another case in 1944 counsel appearing for the parties accepted the decision in (1914) 1 Ch. 883. That decision was accepted in the latter case in the Trial Court, also before the Court of Appeal and also before the House of Lords in which the leading speech was of Lord Simonds. All those decisions and the observations there made have been considered by Venkatarama Ayyar J. in the Madras Case and it is not necessary for us to rehears the same. The conclusion reached by the Court was that a director who was bound to retire by rotation as well as a director who was an additional director being co-opted by the other directors should be treated as having vacated their office on the last day on which the annual general meeting of the company could have been held. Incidentally, we may observe that the editors of leading Text Books on the subject in England have referred to the English decisions as laying down the law on the subject. We are in respectful agreement with the decision of the Madras High Court."
13. In the present case, the first accused company was initially incorporated as private limited company on 17.9.91 and in terms of first proviso of section 166, the first annual general meeting was required to be held within a period of not more than 18 months from the date of its incorporation. In other words the first annual general meeting of the first accused company should have been held by 16.3.93 latest. Obviously that would have been next annual general meeting after co-option of the petitioner as additional director on 16.4.92. In this view of the matter the co-option of the petitioner as additional director came to an end on 16.3.93 when the first annual general meeting should have been held of the first accused company. The petitioner, in any case, in these circumstances ceased to be the additional director of the first accused company after 16.3.93 and thus could not be prosecuted in respect of dishonour of cheques issued by the first accused company which took place in the year 1997-1998.
14. For all these reasons, the criminal writ petition deserves to be allowed and is allowed. The order dated 25.1.2000 passed by the Additional Chief Metropolitan Magistrate, 40th Court. Girgaum is quashed and set aside. Resultantly, the petitioner's application for recall of process against him stands allowed. The complaint against the present petitioner stands dismissed. Rule is made absolute in the aforesaid terms. The complaint shall proceed against other accused persons.
15. Certified copy expedited.