Andhra HC (Pre-Telangana)
Smt. G. Vijayalakshmi And Ors. vs Securities And Exchange Board Of India ... on 16 February, 2000
Equivalent citations: 2000(1)ALD(CRI)580, [2000]100COMPCAS726(AP), (2000)4COMPLJ132(AP)
Author: Vaman Rao
Bench: Vaman Rao
JUDGMENT Vaman Rao, J.
1. This petition under Section 482 of the Criminal Procedure Code, 1973, seeks quashing of proceedings in C. C. No. 16 of 1998 on the file of the Special Judge for Economic Offences, Hyderabad, in which the petitioners are sought to be prosecuted for the offence of contravention of Sections 73(2B) and 113(2) of the Companies Act, 1956 (hereinafter called "the Act").
2. The ground on which these proceedings are sought to be quashed as contended by learned counsel for the petitioners, Mr. V. S. Raju, is that the petitioners are merely the directors of the company which has been shown as A-1 and that in view of the definition of the "officer who is in default" as given in Section 5 of the Act, where there is a managing director or a whole-time director or a manager or a secretary, the liability for any criminal offence attributed to the company cannot be assigned to ordinary directors.
3. This is countered by learned-counsel for the respondents. Sri. P. V. S. S. S. Rama Rao and it is urged that even where a company has a managing director or a whole-time director or a manager or a secretary, the question whether other directors are liable or not would depend on the facts and circumstances of the case and those facts are to be ascertained during the trial and as such proceedings cannot be quashed at this stage.
4. The company (A-1) floated a public issue of the shares in the year 1992. After the closure of the date of the public issue the company was required to refund the excess share application money by the 70th day of the closure of the issue as required under Section 73 of the Act. The complaint against the petitioners is based on an allegation that the company defaulted in refunding such excess money even after the expiry of the 70th day from the closure of the issue and thus contravened Section 73(2B) of the Companies Act. The other allegation is that the shares of the company have been listed with the stock exchange of Mumbai and Hyderabad and the company failed to deliver the share certificates to the allottees within the period prescribed under Section 113 of the Act and thus contravened Section 113(2) of the Act.
5. The averments in the complaint, a copy of which has been filed with the petition, would show that the company has been arrayed as A-1 and A-2 have been shown as the managing director of the company, A-3, A-4, A-5 and A-6 have been shown as the directors of the company. This petition is filed on behalf of A-3 to A-6.
6. Section 73(2B) of the Act contemplates that for every default of the provisions of Sub-section (2A) the company and every officer of the company "who is in default" shall be punishable with fine which may extend to Rs. 5,000 and where repayment is not made within six months from the expiry of the 8th day also imprisonment with a term which may extend to one year. Similarly, Section 113(2) provides that in the case of contravention of the provisions of Section 113(1) the company and every officer of the company "who is in default" shall be punishable with fine which may extend to Rs. 500 per every day during which the default continues.
7. Thus, the basis of fastening of liability on the officers of the company for contravention of Sections 73(2A) and 113(2) is that the officer who is sought to be made liable should satisfy the definition of "officer in default". The phrase "officer in default" has been defined in Section 5 which is extracted below :
"Meaning of 'officer who is in default'.--For the purpose of any provision in this Act which enacts that an officer of the company who is in default shall be liable to any punishment or penalty, whether by way of imprisonment, fine or otherwise, the expression 'officer who is in default' means all the following officers of the company, namely :
(a) the managing director or managing directors ;
(b) the whole time director or whole time directors ;
(c) the manager ;
(d) the secretary ;
(e) any person in accordance with whose directions or instructions the board of directors of the company is accustomed to act ;
(f) any person charged by the board with the responsibility of complying with that provision :
Provided that the person so charged has given his consent in this behalf to the board ;
(g) where any company does not have any of the officers specified in clauses (a) to (c) any director or directors who may be specified by the board in this behalf or where no director is so specified, all the directors:
Provided that where the board exercises any power under Clause (f) or Clause (g), it shall, within thirty days of the exercise of such powers, file with the Registrar a return in the prescribed form."
8. As seen above, Section 5(g) enacts that where any company does not have any officers specified in Clauses (a) to (c), any director who may be specified by the board in this behalf or where no director is so specified, all the directors shall be held liable. Thus, a reading of the relevant provisions including the definition of the "officer who is in default" as given in Section 5 would make it amply clear that the criminal liability of ordinary directors would arise only in respect of a company which has no managing director or a whole time director or a manager and where particular directors are not specified to be liable by the company. In this case a reading of the complaint would disclose that A-2 has been described as the managing' director of the company. Thus, it cannot be said that this A-1 company has no managing director. Thus, in this case inasmuch as A-1 company has an officer described as managing director within the meaning of Section 5 of the Act, the question of any other director being liable for the criminal acts of the company above mentioned would not arise. Admittedly, the petitioners herein are the mere directors of the company and as such criminal liability cannot be fastened to the petitioners in view of the provisions above referred to. In this view of the matter, it will be abuse of the process of law if these petitioners are compelled to undergo the ordeal of trial.
9. In the result, this petition is allowed and the criminal proceedings in C. C. No. 16 of 1998 on the file of the Special Judge for Economic Offences, Hyderabad, shall stand quashed as far as these petitioners A-3 to A-6 are concerned. The petition is finally disposed of in these terms.