Delhi District Court
Roc vs Mideast India Ltd. on 6 August, 2014
IN THE COURT OF SH. DEVENDRA KUMAR SHARMA
ADDL. CHIEF METROPOLITAN MAGISTRATES (Spl. Acts) CENTRAL
TIS HAZARI COURTS, DELH
ROC vs Mideast India Ltd.
CC No.287/3 (Old No.451/2000)
U/s 207 of the Companies Act, 1956
JUDGMENT
(a)Serial no. of the case : 02401R0116732000
(b)Date of commission of offence : During the year 199596
(c)Name of complainant : Registrar of Companies,
NCT of Delhi & Haryana
(d)Name, parentage, residence: M/s Mideast India Ltd.
having its registered office
at H1 Zamrudpur Community Centre,
Kailash Colony, New Delhi
1)JK Singh
2)Rita Singh,
3) D.K. Singh
4) Natasha Singh, all resident of
D3A, Ansal Villa, Satbari, New Delhi
5)S.P. Gagnani
B74, Somi Nagar, New Delhi
(e)Offence complained of/ proved : U/s 207 of Companies Act, 1956
(f)Plea of accused : Pleaded not guilty
(g)Final order : All accused acquitted
(h)Date of such order : 06.08.2014 Date of institution: 07.09.2000 Arguments heard/order reserved: 06.08.2014 Date of Judgment: 06.08.2014 Brief statement of the reasons for the decision: 1 The complainant Sh. T.P. Shami, the then Deputy Registrar of Companies Delhi & Haryana filed the present complaint against the aforesaid accused ROC vs Mideast India CC No.287/3 (Old No.451/2000) 1 of 12 persons for contravention of provision of section 207 of the Companies Act, 1956 (for short the 'Act') 2 It is alleged in the complaint that M/s Mid East India Limited is/was a company of which accused no.1 to 5 are/were the directors and responsible for compliance to the provisions of section 207 of the Act. An inspection u/s 209A of the Act of the books of accounts and other records of the company was conducted and as per inspection report the dividend for the year 199596 has not been paid to the shareholders as required under the Act. Hence, present complaint.
3 The accused were summoned for the said offence. After appearance, copy of complaint and of documents were supplied. A notice u/s 251 Cr.P.C was framed against the accused persons on 10.09.2001 for the offence punishable u/s 207 of the Act to which they pleaded not guilty and claimed trial. 4 In order to substantiate its allegations made in the complaint, the prosecution examined Sh. S.L. Gandhi, GTA from the office of ROC as PW1, Sh. T.P. Shami/complainant as PW2 and Sh. P.K. Bansal as PW3.
PW1 Sh. S.L. Gandhi deposed that the company was primarily incorporated with the name of M/s Mideast Shipping Co. India Ltd and later changed its name to Mideast (I) Ltd. The witness also proved on record copy of Incorporation Certificate Ex.PW1/1, copy of MOA and AOA Ex.PW1/2, Ex.PW1/3, copy of annual return made upto 22.02.1999 Ex.PW1/4, letter dated 22.06.2000 through which sanction was received alongwith sanction letter ROC vs Mideast India CC No.287/3 (Old No.451/2000) 2 of 12 Ex.PW1/5 and Ex.PW1/6 and show cause notice Ex.PW1/7.
PW2 Sh. T.P. Shami is the complainant who filed the present complaint Ex.PW2/1. This witness also deposed regarding the allegations in the complaint and deposed that accused are/were directors of the company and were the officers responsible for managing day to day affairs of the company. The witness also relied upon document i.e annual return made upto 23.02.1989 Ex.PW1/4. The witness further deposed that on receipt of sanction/letter Ex.PW1/5 and Ex.PW1/6, he issued a show cause notice Ex.PW1/7 to the accused persons.
PW3 is Mr. P.K. Bansal who conducted inspection of books of accounts of the company from 01.04.1999 to 10.05.1999, reiterated the facts of the complaint and stated that from the annual report, notice accompanying the same and directors' report presented in the 20th Annual Report for the year ended 31.03.1996, it was noticed that the Board of Directors recommended payment of dividend @ 12.50% on the enhanced capital of Rs.5020.54 lacs for the year ended 31.03.1996 subject to deduction of income tax at source. The witness further stated that the declared dividend was not paid to the shareholders as required u/s 207 of the Act and relied upon printed annual report Ex.PW3/1. All witnesses were cross examined on behalf of the accused. 5 The statements of all five accused persons were recorded u/s 313 Cr.P.C r/w section 281 Cr.P.C.
In their statements, accused JK Singh, Rita Singh and DK Singh denied the allegations and stated that they are/were not responsible for the day to day ROC vs Mideast India CC No.287/3 (Old No.451/2000) 3 of 12 affairs of the company. They also denied receipt of letter dated 10.05.1999 Ex.PW2/5 seeking clarification by inspecting officer stating that they were in judicial custody during the time in some other case. Accused Rita Singh also stated that the Company did not get the approval of the financial institutions as the company had not been able to service the debts and defaulting to the financial institution due to economic slow down.
In his statement, accused Natasha Singh also denied the allegations stating that she was merely a nonexecutive director and was not involved in day to day functioning and affairs of the company. The accused also stated that she had resigned from the directorship of the company long back and was not drawing any remuneration from the company nor she was having any pecuniary relationship with the company, its promoters, its directors, its management or any group companies.
Accused S.P. Gagnani, in his statement, also denied the allegations stating that he was an independent nonexecutive Director and not responsible for the day to day affairs of the company. Accused further stated that he was not drawing any remuneration from the company and his role was restricted only to the extent of being an advisory on certain issue. 6 In support of claim and contentions, accused examined Shri N.S. Parmeshwaran as DW1.
DW1 stated that he was working as Company Secretary in the company at the relevant period. In his evidence, DW1 endeavoured to say that dividend could not be paid to the shareholders as the Company did not get the approval ROC vs Mideast India CC No.287/3 (Old No.451/2000) 4 of 12 of the financial institutions and relied upon copy of minute books mark X. 7 I have given my thoughtful consideration to the submissions advanced on behalf of both the parties and gone through the relevant records. I have also gone through written submissions and the case laws filed on behalf of the accused as well as relevant provisions of law and case laws. 8 The relevant provisions of section 207 of the Companies Act are reproduced below for ready reference: "[207. Where a dividend has been declared by a company but has not been paid, within fortytwo days from the date of declaration, to any shareholder entitled to the payment of the dividend, every director of the company, its managing agent or secretaries and treasurers, and where the managing agent is a firm or body corporate, and where the secretaries and treasurers are a firm, every partner in the firm and where they are a body corporate, every director thereof, shall if he is knowingly a party to the default, be punishable with simple imprisonment for a term which may extend to seven days and shall also be liable to fine"
A) Learned defence counsel argued that prosecution has failed to prove its case against the accused beyond reasonable doubt. It is further argued that though the directors had recommended the payment of dividend in the AGM held on 20.09.1996 but the dividend was payable subject to approval and fulfillment of a precondition that prior permission from the financial institutions and banks was required to be obtained prior to disbursal of dividend. It is also argued that since the approval was not granted from the financial institutions and banks, therefore, the declared dividend could not be paid to the shareholders. It is also argued that present complaint is not maintainable being barred by ROC vs Mideast India CC No.287/3 (Old No.451/2000) 5 of 12 limitation. In support of claim and contentions, learned defence counsel has relied upon the following judgments:
1. CIT vs Express Newspapers 1998(3) SCC 106
2. J. Dalmia vs CIT AIR 1964 SC 1866
3. Jhimi Bajoria vs CIT AIR 1971 Cal 13
4. Patrakola Tea Co. Ltd. vs State 1996(1) Cal LT 12
5. Sol Pharmaceuticals vs. ROC 2002(2) ALT 94
6. Mohanlal vs ROC 2012(1) AD (Del) 731
7. Goodricke Group Ltd. & ors. ROC 2012(1) Cal. H.C.N. 575 inter alia other judgments filed in three volumes also on the point of limitation.
B) On the other hand, learned company prosecutor argued that the case of the prosecution has been proved beyond reasonable doubt in view of the testimony of the witnesses. She also argued that the present complaint is not barred by the limitation as the offence is continuing until it is proved by the accused that dividend declared was paid to the shareholders. Therefore, accused may be convicted for the alleged offence.
C) Since, the issue of limitation raised by the learned defence counsel is a legal issue, let me discuss it first, as the decision of this issue would affect the decision of the case. Thus, first and foremost it is required to be considered as to whether the offence u/s 207 of the Act is continuing offence or not. I have also perused the judgments relied upon by the learned defence counsel. D) In the present case, the public money is involved and the accused did not pay the dividend declared by the company to the shareholders as alleged in the complaint. As such, offence alleged in the complaint is still continuing. It was ROC vs Mideast India CC No.287/3 (Old No.451/2000) 6 of 12 held by the Hon'ble High Court in the judgment reported in (2010) 104 SCL, titled as "Samarpan Agro. and Livestock Ltd. Vs Securities and Exchange Board of India" as under: Para 11: In Bhagirath Kanoria v. State of Madhya Pradesh MANU/SC/0338/1984 : AIR 1984 SC 1688, the issue involved was as to whether nonpayment of employer's contribution under the Employees' Provident Fund and Family Pension Fund Act, 1952 (19 of 1952) was a continuing offence or not. It was held that failure on the part of employers to pay employer's contribution before the due date to the Employees' Provident Fund was a continuing in nature.
Company was unquestionably liable to pay their contribution to the Provident Fund before the due date and it was within their power to pay it, as soon as after the due date had expired as they willed. The late payment could not have absolved them of their original guilt but it would have snapped the recurrence. Each day that they failed to comply with the obligation to pay their contribution to the fund, they committed a fresh offence. Thus, law of limitation can not apply. In para 21 of the judgment it was observed as under: For these reasons, we are of the opinion that the offence of which the Appellants are charged, namely nonpayment of the employer's contribution to the Provident Fund before the due date, is a continuing offence and, therefore, the period of limitation prescribed by Section 468 of Code can not have any application. The offence which is alleged against the Appellants will be governed by Section 472 of the Code, according to which, a fresh period of limitation beings to run at every moment of the time during which the offence continues. Para 12: For arriving at the aforesaid view, Supreme Court considered various judgments including three decisions from the courts at England and it would be relevant to refer these judgments and the view taken therein: E) In Best vs. Butlar and Fitzgibbon (1932)2 K.B. 108, the English Trade Union Act, 1871 made it penal for an offence or a member of a Trade Union to wilfully withhold any money, books, etc of the Trade Union. It was held in that case that the offence of withholding the money was a continuing offence, the basis of the decision evidently being that every day that the moneys were wilfully withheld, the offence was committed. ROC vs Mideast India CC No.287/3 (Old No.451/2000) 7 of 12 F) In Verney v. Mark Fletcher & Sons Ltd. (1909) 1 K.B. 444, Section 10(1) of the Factory and Workshop Act, 1901 provided that every flywheel directly connected with steam, water or other mechanical power must be securely fenced. Section 135 provided the penalty for noncompliance with Section 10(1), while Section 146 provided that information of the offence shall be laid within three months after the date on which the offence comes to the knowledge of the Inspector. It was held that the breach of Section 10(1) was a continuing breach and therefore, the information was in time. Every day that the flywheel remained unfenced, the factory was run otherwise than in conformity with the Act of 1901 and, therefore, the offence defined in Section 10 was a continuing offence.
G) The third English case referred to is the London County Council v. Worley (1894) 2 Q.B. 826, in which Section 85 of the Metropolis Management Amendment Act, 1852 prohibited the erection of a building on the side of a new street in certain circumstances, without the consent of the London County Council. The Court construed Section 85 as creating two offences:
building to a prohibited height and, continuing such a structure already built after receiving a notice from the County Council. The Court held that the latter offence was a continuing offence.
H) In Emperor v. Karandas MANU/MH/0048/1942 : AIR 942 Bom. 326, Section 390(1) of the Bombay City Municipal Act, 1888 provided that no person shall newly establish in any premises any factory of a certain description without the previous permission of the Commissioner nor shall any person work or allow to be worked any such factory without such permission. It was held by the High Court that establishing a new factory was an offence committed once and for all but working it without permission was a continuing offence.
I) In The State of Bombay vs. Bhiwandiwala MANU/MH/0102/1955 :
MANU/MH 0102/ 1955 : (1956) II LLJ 153 it was held that the offence of using the premises as a factory without a licence is a continuing offence. J) In State of Bihar vs. J.P. Singh 1963 BLJR 782, the High court of Patna held that conducting a restaurant without having it registered and without maintaining proper registers were continuing offence.
In view of the law laid down by the Hon'ble High Court of Delhi discussed herein above, it is held that offence in the present case is continuing offence in its nature. It is respectfully observed that the case laws relied upon by the learned defence counsel is not applicable to the peculiar facts and circumstances of the present case.
ROC vs Mideast India CC No.287/3 (Old No.451/2000) 8 of 12 K) From the bare provision of section 207 of the Companies Act, it is clear that where a dividend has been declared by a company, every director/managing director of the company, its managing agent or secretaries and treasurers are under obligation to pay the dividend amount to the shareholder entitled to the payment of dividend within fortytwo days from the date of declaration. Failure to comply with these provisions is considered to be an offence and the company and every officer of the company who is in default is liable for punishment with simple imprisonment for a term which may extend to seven days and shall also be liable to fine.
L) In the present case, allegation is that the company and its directors have not paid/distributed dividend to the shareholder within 42 days of the stipulated time. Thus, the complainant was required to establish on record that accused failed to distribute the dividend to the shareholders despite declaration of dividend in its AGM and approval by the financial institutions/banks. Albeit, there is no dispute that declaration of dividend was made by the company in its AGM. Accused Natasha Singh also denied the allegations stating that he was merely a nonexecutive director and was not involved in day to day functioning and affairs of the company. Accused S.P. Gagnani also denied the allegations stating that he was an independent nonexecutive Director and not responsible for the day to day affairs of the company. In their statements, accused JK Singh, Rita Singh and DK Singh denied the allegations and stated that they are/were not responsible for the day to day affairs of the company. They have taken a specific defence that declared dividend could not be ROC vs Mideast India CC No.287/3 (Old No.451/2000) 9 of 12 distributed to the shareholders as the company did not get the approval of the financial institutions. This fact also appears to be not disputed by the complainant. In the show cause notice Ex.PW1/7 issued by PW2 to the accused, it is clearly mentioned that the dividend was approved subject to further approval of the financial institutions and banks. In case the approval of the financial institutions and banks is not received within 42 days the dividend be deemed to be cancelled. The requisite approval of the institutions was not received. In his cross examination, PW3 also stated that as per the Minutes Book, two shareholders namely Mr. Pardeep Sood and Mr. Mohinder Kumar had raised an objection to the declaration of dividends on the ground of liquidity crunch being faced by the company as well as the fact that the company had not obtained approval for declaration and payment of dividend from the financial institutions/banks who had advanced large amount of funds to the company. It is also clear from the cross examination of PW3 that he did not try to find out as to whether the company had taken approval from financial institutions before declaring the dividends despite the names of financial institutions and banks from where the company had taken loan, are mentioned in the balance sheet of the company.
M)Learned defence counsel further argued that the accused did not distribute the dividends due to nonobtaining of approval from the financial institutions/banks and therefore, accused can not be held guilty for the aforesaid offence. He has also placed reliance upon the judgment reported in "J. Dalmia vs. CIT, AIR 1964 SC 1866" in support of his claim and contentions. Relevant para of ROC vs Mideast India CC No.287/3 (Old No.451/2000) 10 of 12 the judgment is reproduced below:
8. In Halsbury's Laws of England, III edn., Vol. 6P 402, Articles 778, it has been stated:
"A directors' declaration of an interim dividend may be rescinded before payment has been made".
Therefore, a declaration by a company in general meeting gives rise to an enforceable obligation, but a resolution of the Board of Directors resolving to pay interim dividend or even resolving to declare interim dividend pursuant to the authority conferred upon them by the Articles of Association gives rise to no enforceable obligation against the company, because the resolution is always capable of being rescind. Therefore, departure in the text of Article 74 of the Articles of Association of Govan Bros. from the statutory version under Table A of the power in respect of interim dividend, dividend which may be entrusted to the Directors, makes no real difference in the true character of the right arising in favour of the members of the company on execution of the power. The directors by the Articles of Association are entrusted with the administration of the affairs of a company; it is open to them if so authorised to declare interim dividend. They may, but are not bound to, pay interim dividend even if the finances of the company justify such payment. Even if the Directors have resolved to pay interim dividend, they may before payment rescind the resolution". In view of the aforesaid circumstances and law laid down by the Hon'ble Apex Court in aforesaid case, accused can not be held guilty for the offence u/s 207 of the Act.
N) Furthermore, in the show cause notice, PW2 has opined commission of offence u/s 205A of the Act. In such circumstances, no case for the offence u/s 207 of the Act is made out against the accused. Even otherwise, form bare perusal of show cause notice Ex.PW1/7, it is clear that show cause notice was ROC vs Mideast India CC No.287/3 (Old No.451/2000) 11 of 12 not issued for the offence u/s 207 of the Act. However, present complaint is filed for the offence u/s 207 of the Act. The show cause notice did not disclose regarding the violation of section 207 of the Act. The show cause notice referred matters of opinion regarding commission of offence u/s 205A. In such circumstances, institution of present complaint is bad in the eyes of law in view of the show cause notice Ex.PW1/7. Reliance may be placed upon the judgment 'Goodricke Group Ltd (supra). Thus, the case in hand is not maintainable in the present form and same is liable to be dismissed. Accordingly, present complaint is dismissed. Accused are acquitted of charge leveled against them. Their bail bods stand cancelled. Sureties stand discharged. Original documents, if any, furnished with previous bail bonds be returned to the rightful claimant after endorsement cancelled thereupon. Accused are directed to furnish fresh bail bonds in the sum of Rs.20,000/ in terms of section 437A Cr.P.C. File be consigned to the record room. Judgment be sent to the server www.delhidistrictcourt.nic.in.
(DEVENDRA KUMAR SHARMA) ACMM(Special Acts) CENTRAL TIS HAZARI COURTS DELHI Announced in open court on 06.08.2014 (Total number of page 12) (One spare copy attached) ROC vs Mideast India CC No.287/3 (Old No.451/2000) 12 of 12