Calcutta High Court
Sudhir Rai & Ors vs The Registrar Of Companies on 20 June, 2014
Author: Patherya
Bench: Patherya
IN THE HIGH COURT AT CALCUTTA
ORDINARY ORIGINAL CIVIL JURISDICTION
PRESENT :
THE HON'BLE JUSTICE PATHERYA
C.P. No. 92 of 2009
SUDHIR RAI & ORS.
VERSUS
THE REGISTRAR OF COMPANIES, WEST BENGAL & ANR.
For the Petitioner : Mr. Ratnanko Banerjee,
Ms. Manju Bhuteria,
Mr. P. Sinha.
For the Company : Ms. A.G. Gutgutia,
Ms. Lily Ghosh.
Heard on : 02.03.2009, 24.04.2009, 12.06.2012.
Judgement on : 20th June, 2014.
PATHERYA, J. : This application has been filed under Section 633(2) of
the 1956 Act.
The case of the petitioner is that on the basis of the
complaint filed by one of its ex-Directors a show cause notice was issued.
When it was brought to the notice of the ROC that the complaint had
been filed to pressurise conciliation in favour of the complainant as a
dispute was under consideration by a mediator or conciliator, the
proceeding initiated was dropped. On 11th October, 2007 information
and explanation was sought on the basis of inspection made under
Section 209A of the 1956 Act. A reply was given on 19th November, 2007.
The said reply was found to be unsatisfactory and resulted in issuance of
a show cause notice dated 12th May, 2007 and 27th May, 2009. An
extension of time was sought to give reply but when no extension was
granted C.P.217 of 2008 was filed wherein an order was passed on 16th
June, 2008 extending the time to file the reply to the show cause notice
issued on 12th May, 2008. Three sets of show cause notices have been
issued. The first set of show cause notice was issued on 12th May, 2008
under Sections 209(3)(b), 217(3), 297, 209(1) and 292(1)(e) of the 1956
Act. Time was sought for filing reply. Without granting time as sought a
second set of show cause notice was issued on 27th May, 2008 under
Sections 209(3)(b), 217(3), 297, 209(1) and 292(1)(e) of the 1956 Act
which could not have been issued. In fact, on the basis of an inspection
made queries were raised on 11th October, 2007 to which a reply was
given on 19th November, 2007. The said reply was also not considered
prior to issuance of the second set of show cause notice. Pursuant to the
reply filed the respondent authorities were to consider such reply and no
step was to be taken during the pendency of hearing so also for a fortnight after receipt of order by the applicant therein. A hearing was undertaken. Without passing any order on the show cause notices issued on 12th May, 2008 and 27th May, 2008 by the Central Government two further show cause notices were issued on 2nd February, 2009 under Sections 295 and 299 of the Companies Act, 1956. By letter dated 16th February, 2009 a reply has been given thereto and without considering the same under cover of letter dated 20th February, 2009 the petitioners have been informed that pursuant to the hearing held on 20th August, 2008 the authorities by letter dated 2nd December, 2008 issued instruction to launch prosecution for violation of Sections 209(3)(b), 217(3), 209(1) and 292(1)(e) of the 1956 Act. It was also decided not to proceed against the company in respect of show cause notice issued under Section 297 of the 1956 Act. In the show cause issued under Section 209(1) of the 1956 Act no allegation has been made against the company. Therefore, the said show cause notice is bad. In the show cause notice dated 2nd February, 2009 loan aggregating to approximately Rs.4 lakhs has been show to have been given in the financial year 2006- 2007. The show cause notice of 2nd February, 2009 is based on the show cause notice of 12th May, 2008 and without disposing of the show cause notice of 12th May, 2008 so also 27th May, 2008 the show cause notice of 2nd February, 2009 could not have been issued.
Similarly on 12th May, 2008 a show cause notice was issued under Section 209(3)(b) and 217(3) of the 1956 Act. The said issue was dealt by the company in Clause 10 of its reply dated 19th October, 2007. The said has also not been considered by the Central Government and in total non-application of mind has directed launch of prosecution under Sections 209(3)(b) and 217(3) of the 1956 Act by communication dated 20th February, 2009.
In the show cause notice issued under Section 292(1)(e) of the 1956 Act loan of Rs.4 lakhs and Rs.5 lakhs has been alleged in respect of which according to the ROC there is no resolution granting approval for giving of such loan. Without disposing of the show cause notice of 12th May, 2008 and 27th May, 2008 in respect of the aforementioned section a show cause notice was issued on 2nd February, 2009 under Section 295 of the 1956 Act. Section 295 of the Companies Act deals with loans to Directors and Section 295(4) specifically states that every person who is a party knowingly, contravenes sub-section 1 or 3 of Section 295 of the Companies Act is punishable with a fine or simple imprisonment. Section 292(1)(e) does not specify penalty but Section 629A of the 1956 Act provides for penaly in case no specific penalty is provided in the Act. The show cause notice issued is not clear, therefore, defective and the petitioners be excused under Section 633(2) of the 1956 Act. Reliance is placed on 164 Company Cases 375 and 143 Company Cases 531. Therefore, orders be passed as sought.
Counsel for the Central Government submits that under Section 209A of the Companies Act an inspection can be made of the books of accounts of the company either on the basis of a complaint or independently. The provisions of the Companies Act is applicable to the company as it is a listed company and therefore it had to comply with the provisions of the 1956 Act. The show cause notice under Section 209(3)(b) was issued on 12th May, 2008 and a similar show cause was issued on 27th May, 2008. Pursuant to order dated 16th June, 2008 a reply has been given to the show cause notice dated 27th May, 2008. The reply given by the petitioner was found not to be satisfactory and therefore, steps have been taken in accordance with law by directing launch of prosecution. The petitioner seeks consideration of the reply given by the company on 19th November, 2007. In view of the reply given to the show cause notice dated 27th May, 2008 there was no necessity for the Central Government to consider the reply of November, 2007. Trial has commenced pursuant to the order dated 20th February, 2009 and the reasonings of the said order can always be produced. The only challenge in this petition is to the show cause notices and the company without giving reply to the show cause notice dated 2nd February, 2009 issued under Section 295 and 299 of the Companies Act cannot take advantage of Section 633 of the 1956 Act. Being a family concern is of no relevance as it is a public limited company. Section 633(2) is not to apply and therefore, this being a fit case for trial if reasons are called for can be supplied. Therefore, no order be passed on this application.
Counsel for the petitioner, in reply, submits that the dishonest intent of the respondents has not been refuted. A specific plea has been taken with regard to non-disclosure of reasons. The powers to be exercised under Section 633(2) and 633(1) is similar. Therefore, orders be passed.
Having considered the submissions of the parties three sets of show-cause notices have been issued by the Central Government to the petitioners herein. The first set is dated 12th May, 2008. The second set is dated 27th May, 2008 and the third set is dated 2nd February, 2009.
The first and second set of show-cause notices were issued under Section 209(1), 209(3)(b), 217(3), 292(1)(e) and 297of the 1956 Act.
The third set of show-cause notice has been issued under Sections 295 and 299 of the 1956 Act.
A reply has been given to the show-cause notice dated 27th May, 2008 and the same has also been considered and decision taken to launch prosecution which instruction was communicated by letter dated 2nd December, 2008. This will appear from Order dated 20th February, 2009.
Show-cause notice issued under Section 209(3)(b) and Section 217(3) of the 1956 Act deals with leave encashment and Accounting standard 15.
Those issued under Section 297 of the 1956 Act deals with transaction for expenses and services to be shared by the Company with some of its group companies for which sanction is needed.
Show-cause notice issued under Section 209(1) of the 1956 Act deals with not maintaining proper records with regard to deposit made to Orson Electronic Ltd. while the show-cause notice issued under Section 292(1)(e) of the 1956 Act deals with loans given to group companies which requires board resolution.
The plea that no penal action is contemplated under Section 292(1)(e) of the 1956 Act will not aid the Central Government in view of Section 629A of the 1956 Act.
Section 295 of the Companies Act specifically foists a duty on the Directors not to grant loan without taking necessary steps, while Section 299 of the Companies Act makes it mandatory on the Directors to disclose his interest. There is no doubt that on basis of the first and second set of show-cause notice instruction to launch prosecution has been issued. Even on receipt of the communication dated 20th February 2009 the basis of the instructions has not been sought for by the applicants herein. In the affidavit filed by the Central Government it has been stated that permission has been sought to withdraw the prosecutions directed.
If this be the case and if the prosecutions are withdrawn the Central Government would have been entitled to proceed with the show- cause notice issued under Section 295 of the Companies Act, 1956 but for Section 468 of the Code of Criminal Procedure which deals with the question of limitation. The said issue has been raised in the reply given to the show-cause notice dated 2nd February, 2009 and needs to be considered. The loan was given last in 2006-07. The court ought to have taken cognizance of the offence within one year from the date of commission of the offence, i.e., by 2008. The show-cause notice dated 2nd February, 2009 is beyond the period of one year. The order of injunction by this Court was passed on 2nd March, 2009. No order of injunction was sought by the Central Government. For violation of Sections 295 and Section 299 of the 1956 Act the Central Government can impose either a fine or direct imprisonment of six months. Section 299 also postulates imposition of fine, therefore, the period of limitation would not exceed one year. As the show-cause has not been issued within one year of the offence, if any nor has any application been filed under Section 190 of the Code of Criminal Procedure within the time specified above entitles the petitioners to being excused under Section 633(2) of the 1956 Act for show-cause notices dated 2nd February, 2009 and 13th February, 2009.
By the letter dated 20th February, 2009 the petitioners have been informed that instructions have been given to launch prosecution pursuant to the show-cause notices issued under Section 209(1), 209(3)(b), 217(3), and 292(1)(e) of the 1956 Act. That the said letter has been received by the petitioners is an admitted fact but in spite of receipt no copy of letter dated 2nd December, 2008 has been sought by the petitioners, therefore, in respect of the said communication dated 20th February, 2009 the petitioner is not entitled to any order.
In view of the aforesaid till application is disposed of.
(PATHERYA J.)