Karnataka High Court
T.P.G. Nambiar And Others vs The Ragistrar Of Companies, Karnataka, ... on 5 February, 1997
Equivalent citations: 1998(3)KARLJ612
Author: M.P. Chinnappa
Bench: M.P. Chinnappa
ORDER
1. The brief facts of the cases which lead to these petitions and which are common in all these petitions are as follows:
M/s. Fairgrowth Financial Services Limited was incorporated on 9-7-1990 as a Public Limited Company by shares under the Companies Act, 1956 (hereinafter referred as the Act'), in the State of Karnataka. Certificate for commencement of business was issued by the Registrar of Companies on 10-8-1990. The company has its registered office at No. 22/11, Vittal Mallya Road, Bangalore-Sri K. Dharmapal is the Managing Director and Sri R. Lakshminarayanan is the whole time Director (also designated as Executive Director and Company Secretary) of the Company. It is also alleged that Dr. V. Krishnamurthy, Sri Ved Kapoor, Sri Kanhaiyalal Rajgarhia, Sri T.P.G. Nambiar, Dr. Pratap C. Reddy, Sri Vijay Dhar, Dr. D.N. Patodia and Sri Vinod L. Doshi are said to be at all material times pertaining to the complaint, the members of the Board of Directors of the Company. The main object for which the company was established has been incorporated in the Memorandum of Association. The inspection of the books of accounts and of other books and papers of the company was ordered by the Departmnet of Company Affairs under Section 209-A of the Act, during the month of July, 1992. Accordingly, Sri Richard, Inspecting Officer, attached to the office of the Regional Director, Madras, commenced the inspection on 27-7-1992 and submitted an interim report dated 23-10-1992. After receipt of this report on 6-11-1992, forwarded by the Regional Director, Madras, advising to launch prosecutions for the various violations/contraventions of the Act, the Registrar of Companies filed various complaints before the Special Court for Economic Offences, Bangalore, C.C. No. 1181 of 1992 was filed for the alleged offences under Sections 17 and 291 punishable under Section 629 of the Act on the allegation that the company had been doing business of an investment company, such as acquiring shares, debentures and securities and dealing in the same. The Directors of the Company exceeded the power vested in them under Section 291 of the Act by embarking upon business which were not authorised by the Memorandum of Association of the Company. The Company filed a petition under Section 17 of the Act before the Company Law Board, Madras, to alter the objects clause of its Memorandum of Association only on 23-1-1991 to provide specific objects enabling the company to acquire and deal in shares, debentures and other securities. As on 31-3-1991 the Company was having investments in shares and debentures amounting to Rs. 2,670.73 lakhs which was far in excess of the limits laid down under Section 372 of the Act and it was acquired prior to the alteration of the object clause by its order dated 17-5-1991, thereby the accused persons 2 to 11 being the Directors of the Company at the relevant time, contravened the provisions of Section 17 of the Act. They are liable for punishment under Section 629A of the Act.
2. It is further alleged that the accused 1 to 13 were under a statutory obligation under Section 210(1) and (3) of the Act, to lay before the Company in its Annual General Meeting which ought to nave been held in pursuance of section loo or the said Act by 30-9-1992 at the latest (being extension given by the complainant/Registrar), its Balance Sheet and Profit and Loss Account for its financial year ending 31-3-1992 or 30-6-1992 but the accused persons have failed to take all reasonable steps to comply with the said provisions of Section 210 of the said Act and have thereby committed an offence punishable under Section 210(5) of the Act. This case was registered in C.C. No. 298 of 1993.
3. Similarly, the Registrar of Companies filed a complaint in C.C. No. 1180 of 1992 alleging that the company had given loans to other body corporates on the allegation that the inspection report inter alia shows that the provisions of Section 370(1) of the Act have been contravened by the Company by lending loans to other body corporates in excess of the limits laid down under Section 370(1) read with Rule II(b) of the Companies (Central Government's) General Rules and Forms, 1956. The details of the loans given to bodies corporate in excess of the maximum permissible limit have been furnished in the complaint. Therefore, it is alleged that the accused persons have committed offence punishable under Section 370(1) of the Act.
4. It is alleged in C.C. No. 179 of 1993 that the company circulated large amount of application forms for raising capital of the company by private placement without complying with the provisions of Sections 56 and 60 of the Act, and received favourable response from the public. The Company's Board of Directors after allotting to 2,738 shareholders went ahead and made partial allotment to some and refunded to some other shareholders. This was done without complying with the provisions of Sections 56 and 60 of the Act. The Company's Board of Directors thereby have committed offence punishable under Section 60(5) of the Act.
5. The complainant has alleged in C.C. No. 678 of 1993 that in terms of Section 217(2-A) of the Act read with the Companies (Particulars of Employees) Rules, 1975, the particulars of employees of the Company drawing remuneration above the prescribed limit should be furnished in the report of the Board of Directors attached to every Balance Sheet laid before the company in its Annual General Meeting. Department of Company Affairs has also clarified that such statements should not be furnished in detachable annexures, but incorporated in the Board's report itself. The Inspecting Officer has reported that the copy of the Balance Sheet as at 31-3-1991 furnished to him at the time of inspection did not contain the particulars of employees as required to be furnished under the aforesaid provision. On a verification of the printed copy of the Balance Sheet as at 31-3-1991 filed by the Company with the complainant, it is seen that the aforesaid particulars of employees have been furnished in a detachable annexure to the Balance Sheet. No page number has also been given to the said annexure. Thus the accused have not strictly complied with the requirements of Section 217(2-A) of the Act, thereby they committed an offence punishable under Section 217(5) of the Act.
6. On the basis of these complaints, the Special Court has taken cognizance of the offences and directed to issue process to the accused persons. As against that order, these petitions have been filed by the Directors of the Company. However, the Company, its Managing Director and Executive Director and Company Secretary of the Company have not filed any criminal petitions, but the other 8 Directors preferred Criminal Petition Nos. 551, 597, 608 and 626 of 1993 questioning the order passed by the Special Court in C.C. No. 1181 of 1993. Similarly, they have also questioned the order passed in C.C. No. 298 of 1993 by preferring Criminal Petition Nos. 595 and 663 of 1993. The order passed in C.C. No. 179 of 1993 has been questioned by the other Directors by preferring Criminal Petition Nos. 552, 596, 607 and 646 of 1993. The Director also questioned the order passed in C.C. No. 1180 of 1992 taking cognizance of the offences by preferring Criminal Petition Nos. 662, 598 and 1064 of 1993. In the same manner only Sri Vinod L. Doshi and Sri T.P.G. Nambiar who were accused Nos. 10 and 6 respectively questioned the order passed in C.C. No. 678 of 1993 by preferring Criminal Petition Nos, 1151 and 1464 of 1993 respectively. Other Directors have not questioned the order in C.C. No. 678 of 1993.
7. Since all these petitions pertain to the same Company and are in respect of various sections and material particulars and are similar in nature, they are disposed of by this common order. Retain a copy of this order in each file.
8. Heard Sri Santosh Hegde, Senior Counsel appearing for Sri Vinod L. Doshi who is the petitioner in Criminal Petition Nos. 595 to 598 and 1151 of 1993, Sri Naganand, learned Advocate appearing for Sri T.P.G. Nambiar in Criminal Petition Nos. 551, 552, 1064 and 1464 of 1993 and Sri S.G. Bhagvan, the learned Counsel appearing for the petitioners in Criminal Petition Nos. 607, 608, 626, 646, 662 and 663 of 1993 and Sri Ashok Haranahalli and Sri Mukunda Menon, learned Advocates appearing for the respondent.
9. Sri Santosh Hegde, the learned Advocate for Sri Vinod L. Doshi at the very outset submitted that this petitioner was inducted as a Director of the Company because of his reputation, experience and standing in the society on 1-2-1991. He had never attended any Directors' meeting at any time nor the General Meeting of the Company. He had never participated in any transaction of the Company. Further, on 24-6-1992 he had tendered his resignation to the Directorship which had taken effect from that day onwards. Though this fact was within the knowledge of the complainant, he suppressed the same and arrayed him as the accused. Therefore, the entire proceedings as far as this petitioner are concerned may be quashed.
10. However, the learned Counsel for the respondent submitted that this is not the stage at which all these aspects will have to be considered. Even if he had tendered his resignation, the question of his participation in the affairs of the Company and his responsibility as the Director is a matter to be decided by the Trial Court. Further, no material is placed by the petitioner before the Trial Court in support of these arguments and this Court cannot look into the documents sought to be produced by the petitioner as it requires evidence to support their contention.
11. It is an admitted fact that this petitioner was the Director during the relevant period. Nothing is on record of the complainant to show that he had tendered his resignation and that resignation had come into effect from the said date. The complainant does not know anything about the resignation being tendered by him. At this stage, as rightly pointed out by the learned Counsel for the respondent, this Court cannot go into the pros and cons of the case of the Company nor can this Court look into the documents sought to be produced by the petitioners. These documents ought to have been produced before the learned Magistrate to substantiate their case. On the other hand, the petitioners rushed to this Court under Section 482, Criminal Procedure Code. At this stage, it is also necessary to refer to the various decisions rendered by the Hon'ble Supreme Court in regard to the scope, object and purpose of Section 482, Criminal Procedure Code.
12. In State of Himachal Pradesh v Pirthi Chand and Another, their Lordships have considered the judgment of the Supreme Court in the case of State of Haryana v Bhajan Lal, wherein two Hon'ble Judges Bench of the Supreme Court laid down certain broad tests to exercise the inherent power or extraordinary power of the High Court, And it is also laid down that the High Court should sparingly and only in exceptional cases, in other words, in rarest of rare cases, and not merely because it would be appealable to the learned Judge, be inclined to exercise the power to quash the FIR/charge-sheet/eomplaint. It is also held that the FIR should not be quashed since it disclosed prima facie cognizable offences to proceed further in the investigation. In Rupan Deol Bajaj v Kanwar Pal Singh Gill, reiterated the above view and held that when the complaint or charge-sheet filed disclosed prima facie evidence the Court would not weigh at that stage and find out whether offence could be made out. It is also further observed that it is well settled law that the exercise of inherent power of the High Court is an exceptional one. Great care should be taken by the High Court before embarking to scrutinise the FIR/charge-sheet/complaint. In deciding whether the case is rarest of rare cases to scuttle the prosecution in its inception, it first has to get into the grip of the matter whether the allegations constitute the offence. It must be remembered that FIR is only an initiation to move the machinery and to investigate into cognisable offence. After the investigation is concluded and the charge-sheet is laid, the prosecution produces the statements of the witnesses recorded under Section 161 of the Code in support of the charge-sheet. At that stage it is not the function of the Court to weigh the pros and cons of the prosecution case or to consider necessity of strict compliance of the provisions which are considered mandatory and its effect of non-compliance. It would be done after the trial is concluded.
13. In regard to exercise of inherent power by the High Court under Section 482, Criminal Procedure Code it is held that the prime consideration should only be whether the exercise of the power would advance the cause of justice or it would be an abuse of the process of the Court. Further action should not be shortcirequited by resorting to exercise of inherent power to quash the charge-sheet. The social stability and order require to be regulated by proceeding against the offender as it is an offence against the society as a whole. This cardinal principle should always be kept in mind before embarking upon exercising inherent power.
14. It is also held in Mushtaq Ahmed v. Mohamed Habibur Rehman Faizi , wherein the Supreme Court has held:
". . . According to the complaint, the respondents had thereby committed breach of trust of Government money. In support of the above allegations made in the complaint copies of the salary statements of the relevant periods were produced. In spite of the fact that the complaint and the documents annexed thereto clearly made out a prima facie case of cheating, breach of trust and forgery, the High Court proceeded to consider the version of the respondents given out in their petition filed under Section 482, Criminal Procedure Code vis a vis that of the appellant and entered into the debatable area of deciding which of the version was true,---a course wholly impermissible. . .".
15. Their Lordships have in a decision in State of Uttar Pradesh v O.P. Sharma, have held reiterating the earlier judgments referred to above that quashing of criminal proceedings at initial stage -- High Court should be loath to interfere at the threshold to thwart the prosecution, exercising its inherent power under Section 482 or under Articles 226 and 227 of the Constitution -- FIR containing all the ingredients of the offence -- High Court committed grave error of law in quashing the FIR. From these judgments, it is abundantly clear that the High Court should exercise its inherent power under Section 482, Criminal Procedure Code., under exceptionally exceptional circumstances. At the cost of repetition, it may be mentioned here that when the Court exercises its inherent power under Section 482, the prime consideration should only be whether the exercise of the power would advance the cause of justice or it would be an abuse of the process of the Court, and not otherwise. With this principle in mind, it is now necessary to consider the common arguments advanced in respect of the other matters by the Advocates for the petitioners.
16. Before proceeding to consider the various offences alleged to have been committed, it is necessary to mention as a prelude that these complaints came to be filed on the basis of interim report submitted by the enquiry officer. The allegations of commission of offences are based on this report. The said report may disclose the various omissions and commissions and violations of the provisions of law. What can be gathered in these cases is that this report was submitted after enquiry and not merely on surmises or conjectures. Hence this cannot be lost sight of at this stage and therefore, it will have to be attached with some importance on the allegations made in the complaint in that regard to this enquiry report.
17. It is also necessary to mention that the Company, the Managing Director and the whole time Directors were also arrayed as accused persons before the Trial Court. But they have not questioned the order passed by the Court taking cognizance of the offences. On that ground, the learned Advocates for the petitioners strenuously argued that the prosecution can proceed only against them and the Directors are unnecessarily prosecuted. The arguments will have to be considered along with the allegations contained in each complaint which will be dealt with presently.
18. C.C. No. 1181 of 1992: The allegations in this complaint have been stated at page 6 of the order. It is in regard to the exceeding power vested in the Directors of the Company and the Directors under Section 281. The learned Counsel submitted that the Memorandum of Association contains the main object of setting the Company. The Memorandum of Association empowers the Company and the Company did the business within its limits. The accusation against these petitioners are that the petition filed by the Board under Section 17 to alter the object clause of Memorandum of Association on 23-1-1991 to provide specific objects enabling the Company to acquire and deal in shares, debentures and other securities which was allowed on 17-5-1981. The argument of the learned Counsel is that this is already there in the Memorandum of Association. Therefore, there is no violation of Section 17 of the Act. This argument at this stage cannot be accepted. If the object as contended by the petitioners was already there, there was no need for the Company to file a petition under Section 17 and also an order being passed. But as on 31-3-1991 the Company was having investments in shares and debentures amounting to Rs. 2,670.73 lakhs which was far in excess of the limit laid down under Section 372 of the Act.
19. The learned Counsel submitted that the amendment was allowed and brought into effect from 17-5-1991. The illegality alleged is prior to 17-5-1991. This action was by a resolution of the Directors. The material allegations prima facie appear that the complaint is not totally false. The question ultimately would be as to whether the violation is with the knowledge, direction and at the instance of the petitioners or not. Hence, trial will be necessary. It is further argued, even if there is any violation, the Directors are not responsible in view of Sections 5 and 220 of the Act. According to the allegation, the punishment prescribed is under Section 629A which provides penalty where no specific penalty is provided elsewhere in the Act. The learned Counsel for the petitioner submitted that according to this section every officer of the Company who is in default or such other person shall be punishable. In the said Company there are Managing Director and also whole time Director. Therefore, these Directors are not liable to be punished. In support of this argument, they placed reliance on a decision in Ravindra Narayan and Others v Registrar of Companies, Rajasthan, wherein the Rajasthan High Court has held:
"Complaints were filed against a company, its managing director and directors for an offence under Section 220(3) of the Companies Act, 1956. The directors filed a petition for quashing the complaint against them:
Held, allowing the petition, that under sub-section (3) of Section 220 of the Act, the company and every officer of the company who is in default is liable to punishment. The definition of "officer who is in default" in Section 5 of the Act makes it clear that directors of the company fall within the definition if the company does not have officers specified in clauses (a) to (c), namely, managing directors, whole time directors, managers. Admittedly, in the present case, the company had a managing director at the relevant time. Therefore, the petitioners who were directors, at the relevant time, did not fall within the expression "officer in default" and they could not be held liable criminally, for the default in complying with the requirement of sub-sections (1) and (2) of Section 220 of the Companies Act, 1956".
20. Similarly, they have also placed reliance on a decision in J.P. Graver, Director of K.D. Woollen Mills (Private) Limited v Assistant Director, Enforcement Directorate, Ministry of Finance, Government of India , wherein the Punjab and Haryana High Court has held in that case as follows:
"A complaint was filed against a company, and the petitioner, as director of the company, for contravention of certain provisions of the Foreign Exchange Regulation Act, 1973. Paragraph 9 of the complaint stated that "accused 1 is the company and accused 2 to 5 were its directors and who were managing the affairs of the company". The director filed a petition under Section 482 of the Criminal Procedure Code, 1973, to have the complaint quashed:
Held, quashing the complaint, that in the light of the contents of paragraph 9 of the complaint, neither the petitioner nor the other directors like him could be held liable even vicariously for the offences alleged against them".
They also placed reliance on a decision in Siddharth Kejriwal v Regional Director, ESI Corporation, Bangalore, wherein this Court has held:
". . . . All the Directors as such cannot automatically become 'principal employer' when the Factory belongs to and is run by a Company. The complaint or other material produced along with the complaint must disclose how the Directors of the Company would be liable in such a case".
In this case, from the averments it is clear that as on 31-3-1991 the Company was having investment in shares and debentures amounting to Rs. 2,670.73 lakhs which was far in excess of the limits laid down under Section 372 of the Act. This means to say that in the normal course only the Managing Director and the Whole Time Director could have done it without the active connivance and knowledge of these petitioners who are the Directors. Therefore, it requires that the matter has to be tried by the Court to find out as to whether these petitioners also are involved in the commission of the offence. The decisions cited above obviously are referring to one particular incident but it is pertaining to a period from 23-1-1991 to 17-5-1991. Under the circumstances, I am of the considered view that the impugned order cannot be quashed at the threshold.
21. C.C. No. 298 of 1993: The complaint averments are mentioned in para 2 of the order which disclose that the Annual General Meeting ought to have been held in pursuance of Section 166 of the Act. As they did not hold the Annual General Meeting, the Directors committed offence under Section 210(1) and (3) punishable under Section 210(5) of the Act. Admittedly, the Annual General Meeting was not held. The petitioners sought to make out a ground by saying that the meeting could not be held and the balance sheet and profit and loss accounts were not laid for the year on or before 31-3-1992 or extended period by 30-6-1992. Therefore, they complained that the complaint read as a whole does not constitute any offence. According to them, when the meeting was not held, the question of presenting the balance sheet does not arise. Further, Sections 220 and 210 are to be read together. At the time of filing the complaint, the Registrar did not receive reply to the show-cause notice and it was because a custodian was appointed and records were seized. Therefore, the General Meeting could not be held. They also contended that some of the Directors sent replies on 19-1-1993 to the show-cause notice dated 4-1-1993. They also further contended that the prosecution was launched under Section 220 and the Company was convicted and the Managing Director was relieved by the Court under Section 166 invoking Section 633 of the Act. Even if there is any liability, petitioners are not at default as Section 168 refers to "officers at default".
22. As against it, the respondent submitted that offences under Sections 166, 210 and 220 are different and distinct offences. There is no correlation also. Whether the Annual General Meeting was held or not, has no bearing to proceed under Section 210. They further emphasised that under Section 210 all the Directors are liable to be prosecuted. In support of his argument, he placed reliance on a decision in Assistant Registrar of Companies, West Bengal v Mati Begum Safaran Khatoon and Another , wherein the Calcutta High Court has held:
"The circumstance that no annual general meeting was held will not absolve the directors of a company from liability under Section 210(1) of the Companies Act, 1956, for failure to place before the annual general meeting of the Company the profit and loss account and balance-sheet of the company. The directors cannot defeat the provisions of the section simply by not calling the meeting wilfully".
So the question is whether they have wilfully failed to call the meeting or they were prevented by sufficient cause, etc., is once again a matter to be decided by the Trial Court. Therefore, the first argument of the learned Counsel for the petitioners that since the Annual General Meeting was not held, the question of not placing balance-sheet and profit and loss account of the Company, etc., is not available to them at this juncture and on this ground this Court cannot quash the entire proceedings pending against these petitioners.
23. C.C. No. 1180 of 1993: The allegations made in the complaint are set out in para 3 of the order. The offences alleged against these petitioners are under Section 370(1), Rule II-B of the Act. The complaint contains the details of the loan advanced by the Company. Whether it was permitted or not and whether the Company violated Section 370 and Rule II-B are matters to be established by the complainant. The fact that loans were granted by the Directors and some of the Directors have direct access. The words used under Section 317(5) "if any person being Director and all the persons who are knowingly parties are matters to be established by the complainant". The learned Counsel for the petitioners however submitted that these specific pleadings are absent in the complaint. Therefore, the Court below should have looked into all these ingredients at the inception itself and dismissed the complaint and in support of their argument, they also placed reliance on a decision in J.P. Grover and Siddharth Kejriwal, which are already referred to above. But from a perusal of para 5 of the complaint, it is specifically stated "the accused herein were knowingly parties to the above contravention by the company and are, therefore, liable for punishment under sub-section (1) of Section 371 of the Act". From the details furnished in para 4 of the complaint, it is prima facie clear that the Company had advanced loans right from 27-8-1990 to 5-1-1991 far exceeding the limits prescribed. Therefore, it cannot be at this stage said that the Managing Director and the Whole Time Director only were responsible for advancing the loan in violation of Section 370 of the Act without the knowledge and consent and concurrence of the Directors. This is not a single transaction. On the other hand, it is a continuous process. Therefore, the contention of the petitioners cannot be accepted and the same is liable to be rejected. Under the circumstances, these criminal petitions are also liable to be dismissed.
24. C.C. No. 179 of 1993: The sum and substance of the allegations are mentioned in para 4 of the order. According to the complainant, the Company's Board of Directors after allotting 2738 shares went ahead and made partial allotment to some and refunded some other share-holders. This was done without complying with the provisions of Sections 56 and 60 of the Act. Thus, they committed an offence punishable under Section 60(5) of the Act. The learned Counsel for the petitioners submitted that under Sections 56, 60 read with Section 67, the Company has to follow the requirement only if prospectus are printed and published and only if the Company wants to go public. According to them there is nothing to indicate that the Directors issued applications to the public to purchase shares. The Directors issued shares only to friends, relatives and business associates which is a private placement and not prohibited. No publicity is produced. Mens rea is an important ingredient to constitute the offence as stated in the section as the word 'knowingly' is used in this section. Therefore, no offence is committed.
25. Repelling this argument, the learned Counsel for the respondent submitted whatever the decisions of the Board of Directors are required, all the Directors are involved in the commission of the offence or offences being committed by the Directors, Managing Director and this again is a question of fact to be decided by the Trial Court. It was further emphasised that the paid up capital of the Company was Rs. 1 crore which has gone up to Rs. 860 crores by 31-3-1992. According to the complaint 63.5% shares were held by the members of the public and these members of the public spread all over India but the petitioners claim that it is a private placement. Hence they submitted that there is a serious question which has to be decided by the Court with the materials to be produced by the parties. He further argued that a duty is cast on all the Directors to perform their functions in the interest of the Company. By neglecting to check fraud being played is also an offence attributable to the Directors. A Managing Director may be looking after the day-to-day activities of the business, but the Directors are responsible for the entire policy and affairs of the Company. Such being the responsibility of the Directors, non-participation in the Board Meeting and not taking action wherever necessary is also an offence. In support of their argument of the petitioners they placed reliance on a decision in Kartar Singh v State of Punjab, wherein their Lordships have held:
"To encapsulate, for the discussion above, the expressions 'communication' and 'association' deployed in the definition should be qualified so as to save the definition, in the sense that "actual knowledge or reason to believe" on the part of a person to be roped in with the aid of that definition should be read into it instead of reading it down and clause (i) of the definition 2(l)(a) should be read as meaning "the communication or association with any person or class of persons with the actual knowledge or having reason to believe that such person or class of persons is engaged in assisting in any manner terrorists or disruptionists" so that the object and purpose of that clause may not otherwise be defeated and frustrated". This is a case in which the petitioners challenged the Constitutional validity of the "terrorists affected area" (Special Courts Act 61 of 1984) and other relevant Acts, while dealing with that Act, their Lordships made observations. They also further submitted that there should be actual participation of Directors and in support of that argument they placed reliance on a decision in Girdharilal Gupta and Another v. D.N. Mehta, Collector of Customs and Another, wherein Their Lordships have held that partner in charge of the business of a firm is guilty under Section 230(1) of the Act, unless he can prove that the contravention of the Act by the firm took place without his knowledge and he had exercised diligence to prevent the contravention. From this also it is clear that it is for the Directors to prove that the entire transaction had taken place without their knowledge and intervention. To further emphasise this, the learned Counsel for the petitioner Sri V.L. Doshi, submitted that he ceased to be the Director of the Company. Therefore, he cannot be proceeded against. As stated earlier, there is -absolutely nothing on record to show that he ceased to be the Director of the Company during the relevant time. Further, this fact will have to be established before the Court".
26. They also placed reliance on a decision in Municipal Corporation of Delhi v Ram Kishan Rohtagi and Others , wherein the Hon'ble Supreme Court has held if necessary ingredients are not made out, the High Court can interfere under Section 482, Criminal Procedure Code. In this case, as already stated, there are allegations made in the petitions. Whether those allegations are sufficient to constitute an offence is once again a matter to be decided by the Court. It is well settled law that the complaint is only for initiation of proceedings. It need not contain all the details but certain such allegations as would be necessary to constitute an offence. In this case, the allegations are very specific and based on the preliminary report submitted by the Enquiry Officer. Therefore, the complainant will have to establish these facts before the Court failing which the petitioners can take advantage of the same. But it can be said at this stage that the allegations are not totally lacking, to quash the proceedings. However, in this case the question would be as to whether the shares held by the members is either public or private (friends or relatives and business associates) as contended by the petitioners. This can be established only by trial before Court. Under the circumstances, this petition also cannot be allowed by quashing the proceedings.
27. C.C. No. 678 of 1993: The allegations made in the complaint are concisely stated in para 5 of the order. According to this complaint, the Inspecting Officer reported that copy of the balance sheet as on 31-3-1991 furnished to him at the time of inspection did not contain the particulars of employees as required to he furnished under Section 217(2-A) of the Act. Therefore, the complainant claims that the Board of Directors committed an offence punishable under Section 270(5) of the Act. The learned Advocates appearing for the petitioners submitted that it is only an executive order and not a statutory requirement. Non-compliance of the same does not constitute an offence. In support of their argument they placed reliance on a decision in State of Karnataka v. L. Muniswamy and Others , R.P. Kapur v State of Punjab and Bhajan Lal's case, supra. In L. Muniswamy's case, supra, it is held that the High Court was justified in holding that for meeting the ends of justice the proceedings against the respondents ought to be quashed. It would be a sheer waste of public time and money to permit the proceedings to continue against the respondents, when there is no material on the record on which any tribunal could reasonably convict them for any offence connected with the assault on the complainant.
In R.P. Kapur's case, supra, their Lordships have held that in dealing with the class of cases, it is important to bear in mind the distinction between a case where there is no legal evidence or where there is evidence which is manifestly and clearly inconsistent with the accusation made and cases where there is legal evidence which on its appreciation may or may not support the accusation in question. In exercising its jurisdiction under Section 561-A the High Court would not embark upon an enquiry as to whether the evidence in question is reliable or not. That is the function of the Trial Magistrate, and ordinarily it would not be open to any party to invoke the High Court's inherent jurisdiction and contend that on a reasonable appreciation of the evidence the accusation made against the accused would not be sustained.
In Bhajan Lal's case, supra, their Lordships of the Supreme Court have issued 7 guidelines to deal with the cases under Section 482, Criminal Procedure Code by the High Court. According to the learned Counsel for the petitioners, this particular case comes within the 3rd guideline issued by the Hon'ble Supreme Court which reads:
"Where the uncontroverted allegations made in the FIR or complaint and the evidence collected in support of the same do not disclose the commission of any offence and make out a case against the accused".
This argument of the learned Counsel as far as this case is concerned, appears to be justified. It is not disputed by the complainant that the balance sheet was produced according to the report, the balance sheet was produced before the Inspection Officer and the complaint also discloses that the balance sheet was produced before the Registrar at the relevant time. The only allegation as stated earlier, at the cost of repetition, is the printed copy of the balance sheet as on 31-3-1991 filed by the Company with the complainant, containing the particulars of employees were furnished in a detachable annexure to the balance sheet. Paging was not done to the said annexure, thereby the accused persons have not strictly complied with the requirements of Sections 217(2-A) of the Act. From a bare reading of Section 217 it is clear that the Board's report shall also include a statement showing the name of every employee of the company. The complaint does not say that there is any violation in regard to the statement furnished to the Inspection Report or to the Registrar of Companies. They also admit that the statements were furnished. Just because it was not properly numbered, or that it was in a blue sheet, etc., itself cannot be an offence to proceed against the Directors. It is an executive function and the Directors cannot be held responsible for this. Such complaint will have to be quashed as no purpose would be served and the allegations also do not constitute an offence as such. There is no rule or bye-law prescribing the mode in which these statements should be furnished. From a reading of Section 217(2-A) it is only clear that such statements should be furnished, which in actual fact, were furnished by the Company. Hence C.C. No. 678 of 1993 is liable to be quashed.
27. From the various grounds urged during the course of the arguments by the learned Counsel for the petitioners it is apparently clear that they have insisted upon those points which are only available to them as defence in the enquiry. They pointed out the facts which according to them, the learned Magistrate should have noticed at the initial stage of taking cognizance of the offence. It is not humanely possible for anyone to visualise what would be the probable defence of the accused. But what has to be done by the Magistrate is to see whether the complaint if taken as a whole constitutes an offence or not, and not to go into the aspect of probable defence or defects in the complaint. If an overall reading of the complaint makes out a prima facie case by satisfying the ingredients of the provisions of law, that itself is sufficient to take cognizance. At this stage, the Court cannot probabilise the defence. It is left to the accused to take advantage of any lacuna in the prosecution case at the stage of trial.
28. It is also well settled principle of law that this Court has to find out as to whether the Magistrate has committed any error in taking cognizance of the case, on the basis of the materials produced before him by the complainant and not on the documents to be produced in this Court for the first time to explain the case of the accused. This is uncalled for and if this is permitted, this Court would be indulging in a mini trial which is not the object, purpose or scope of Section 482. In other words, the High Court would be usurping the jurisdiction of the Magistrate. With this background, it is also necessary to refer to the decision of the Hon'ble Supreme Court in KM. Mathew v State of Kerala and Another, wherein their Lordships have held:
"It is open to the accused to plead before the Magistrate that the process against him ought not to have been issued. The Magistrate may drop the proceedings if he is satisfied on reconsideration of the complaint that there is no offence for which the accused could be tried. It is his judicial discretion. No specific provision is required for the Magistrate to drop the proceedings or rescind the process. The order issuing the process is an interim order and not a judgment. It can be varied or recalled. The fact that the process has already been issued is no bar to drop the proceedings if the complaint on the very face of it does not disclose any offence against the accused".
29. From the above decision and also the discussions, it is clear that the accused persons could approach the Trial Court for necessary relief. Despite this, the accused persons have rushed to this Court under Section 482, Criminal Procedure Code, thereby causing inordinate delay in the disposal of the main criminal cases pending in the Trial Court and virtually it would be a futile attempt in view of the well established principle of law by the Hon'ble Supreme Court as referred to in the decisions cited above.
30. In the result, therefore, I proceed to pass the following:
ORDER
(a) Cri. P. Nos. 1151 of 1993 and 1464 of 1993 are allowed and the entire proceedings in C.C. No. 678 of 1993 are quashed.
(b) Cri. P. Nos. 551 "of 1993, 552 of 1993, 595 to 598 of 1993, 607 of 1993, 608 of 1993, 626 of 1993, 646, 662 and 663 of 1993 and 1064 of 1993 are dismissed.