Karnataka High Court
Mr.C.Shivakumar Reddy vs Securities & on 19 May, 2022
Author: K.Natarajan
Bench: K.Natarajan
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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 19TH DAY OF MAY, 2022 R
BEFORE
THE HON'BLE MR. JUSTICE K.NATARAJAN
CRIMINAL PETITION NO.3454 OF 2017
CONNECTED WITH
CRIMINAL PETITION NO.5646 OF 2016
IN CRIMINAL PETITION NO.3454 OF 2017
BETWEEN
1. M/S. KAVVERI TELECOM PRODUCTS LTD.,
A COMPANY INCORPORATED UNDER
THE COMPANIES ACT, 1956 AND HAVING ITS
CORPORATE OFFICE AT:
PLOT NO.31 TO 36, 1ST FLOOR,
1ST MAIN, 2ND STAGE,
ARAKERE MICO LAYOUT,
BENGALURU-560 076.
2. MR. B. S. SHANKARNARAYAN
MANAGING DIRECTOR,
NO.86, NGEF COLONY
SANJAY NAGAR
BENGALURU - 560 094.
3. MRS. R. H. KASTURI
WHOLE TIME DIRECTOR,
NO.14, 29TH MAIN
BTM LAYOUT, 2ND STAGE
BENGALURU - 560 076.
4. MR. L. R. VENUGOPAL
DIRECTOR,
NO.705, GOKULAM
17TH CROSS, 25TH MAIN
J.P. NAGAR, 6TH PHASE
BENGALURU -560 078.
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5. MR. L. NICHOLAS
DIRECTOR,
B-7, BDA MIG FLAT
DOMLUR
BENGALURU - 560 076.
6. MR. C. V. JAGADISH
DIRECTOR, NO.32, PATTALLAMMA TEMPLE STREET,
BASAVANAGUDI,
BENGALURU-560 004.
... PETITIONERS
(BY SRI SATYANARAYANA S CHALKE, ADVOCATE)
AND
M/S. SECURITIES AND EXCHANGE BOARD OF INDIA
A STATUTORY BODY ESTABLISHED UNDER THE PROVISIONS OF
THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992,
HAVING ITS HEAD OFFICE AT:
SEBI BHAVAN, C-4A, G BLOCK, BANDRA-KURLA COMPLEX,
BANDRA EAST, MUMBAI-400 051,
AND ITS REGIONAL OFFICE AT:
2ND FLOOR, JEEVAN MANDAL BUILDING,
NO.4, RESIDENCY ROAD,
BENGALURU - 560 025. ... RESPONDENT
(BY SRI JITENDRA C.P., ADVOCATE FOR
SRI V VINAYGIRI, ADVOCATES)
THIS CRIMINAL PETITION IS FILED UNDER SECTION 482
OF THE CODE OF CRIMINAL PROCEDURE, PRAYING TO QUASH
THE ENTIRE PROCEEDINGS IN C.C.NO.116/2016 ON THE FILE
OF SPECIAL COURT, ECONOMIC OFFENCES, BENGALURU.
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IN CRIMINAL PETITION NO.5646 OF 2016
BETWEEN
MR.C.SHIVAKUMAR REDDY
MANAGING DIRECTOR
KAVVERI TELECOM PRODUCTS LTD
CORPORATE OFFICE AT PLOT NO.31 TO 36,
1ST FLOOR, 1ST MAIN, 2ND STAGE
ARAKEREMICO LAYOUT,
BENGALURU-560076. ... PETITIONER
(BY SRI SATYANARAYANA S. CHALKE, ADVOCATE)
AND
SECURITIES &
EXCHANGE BOARD OF INDIA
HEAD OFFICE AT SEBI BHAVAN, C4A,
G BLOCK, BANDRAKURLA COMPLEX,
BANDRA EAST, MUMBAI
REGIONAL OFFICE AT
2ND FLOOR JEEVAN MANDAL BUILDING
NO.4, RESIDENCY ROAD,
BENGALURU 560 025. ... RESPONDENT
(BY SRI JITENDRA C.P., ADVOCATE FOR
SRI V. VINAYGIRI, ADVOCATES)
THIS CRIMINAL PETITION IS FILED UNDER SECTION 482
OF THE CODE OF CRIMINAL PROCEDURE, PRAYING TO QUASH
THE PROCEEDINGS AGAINST THE PETITIONER i.e., ACCUSED
NO.2 IN THE PROCEEDING AND ITS DIRECTORS HEREIN i.e.,
ACCUSED NO.2 IN C.C.NO.116/2016, BEFORE THE SPECIAL
COURT FOR ECONOMIC OFFENCES, BENGALURU.
THESE CRIMINAL PETITIONS HAVING BEEN HEARD AND
RESERVED FOR ORDERS ON 20.04.2022, THIS DAY THROUGH
VIDEO CONFERENCING, THE COURT PRONOUNCED THE
FOLLOWING:
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ORDER
Crl.P.No.5646/2016 is filed by accused No.2 and Crl.P.No.3454/2017 is filed by accused Nos.1 and 3 to 7 under Section 482 of Cr.P.C. for quashing the criminal proceedings in C.C.No.116/2016 pending on the file of Special Judge, Economic Offences Court, Bengaluru.
2. Heard the arguments of learned counsel for the petitioners and learned Special counsel for the respondent.
3. The case of the petitioners is that the respondent-M/s. Securities and Exchange Board of India, Mumbai (hereinafter referred to as 'SEBI') has filed a complaint against the accused persons under Section 200 of Cr.P.C. for the offence punishable under Sections 205(8) and 207 read with Sections 55A, 205(1A) and 621 of the Companies Act, 1956 alleging that accused No.1-Kavveri Telecom Products Limited, Bengaluru being registered under the Companies Act, the SEBI was established under the Securities and Exchange Board of India Act, 1992 to protect the interests of investors in securities and to 5 promote the development of and to regulate the securities market as well as matters connected therewith or incidental thereto Section 11 of the Securities and Exchange Board of India Act. Accused No.1-Company engaged in business of manufacture of wireless telecommunication products. It has declared dividend to its shareholders at the Annual General Meeting (AGM) held on 29.09.2012 and total dividend declared at the AGM of accused No.1-Company which is amounted to Rs.3,01,86,390/-. As per Section 205(1A) read with Section 205(1C) of the Companies Act, accused No.1 was statutorily required to deposit the amount of dividend declared into a separate Bank account within 5 days of such declaration and the accused were statutorily bound to transfer the said amount to the shareholders within thirty days. But accused No.1 being a company represented by accused No.2 who is a Managing Director of the said company and accused Nos.3 to 7 are the Directors of the Company who are responsible for the day to day affairs of the Company have not deposited the said amount to the 6 investors or shareholders within prescribed time. Therefore, a Show Cause notice was also issued after receiving the complaints from the shareholders. Accused No.1 given reply on 23.02.2013 and on the notice of the respondent dated 13.02.2013, accused No.1 sought two weeks' time to provide the information as accused Nos.2 to 5 were in abroad. Accordingly, the petitioner sent a letter to the complainant on 13.03.2013 on untenable ground seeking further time. The complainant further alleges that the accused with a malafide intention of defrauding its investors, despite several complaints by investors and reminders from the complainant has failed to comply with its obligations and duties as required under the Companies Act. The accused also required to pay the dividend with 18% interest per annum. The complainant received a letter dated 28.06.2013 from accused No.1 where they have categorically admitted for violating the provisions of Companies Act. Thereby, the accused persons are committed the above said offences. Hence, the prosecution 7 came to be launched against the petitioners which is under challenge.
4. Learned counsel appearing for the petitioners has contended mainly that the alleged offences are said to have been committed in the year 2013 and the complaint came to be filed in the year 2016, after the lapse of three years. Therefore, no cognizance can be taken and there was a bar for taking cognizance as per Section 468 of Cr.P.C. The learned counsel further contended that the complaint came to be filed in the year 2016, at that time, the new Companies Act, 2013 came into force and the old Companies Act, 1956 was not in existence, therefore, the criminal prosecution under the old Act cannot be sustained. He further contended that as on the date of filing of the complaint, no dividend is required to be payable by the accused. Therefore, there is no offence committed by the petitioner-company. Hence, the criminal prosecution is liable to be quashed. Therefore, prayed for quashing the criminal proceedings. He would further 8 contended that the penal provision brought on the statute only to see the dividend shall be payable to the shareholders and once the dividend were already paid, the question of punishing the Company does not arise. In this regard, the learned counsel has relied upon the judgment of the Madras High Court in the case of N.Kumar vs. M.O.Roy, Assistant Director, Serious Fraud Investigation Office, Ministry of Company Affairs, Government of India in Crl.O.P.No.27813/2006 Cdated 20.04.2007.
5. Per contra, learned counsel appearing for the respondent objected the petition and contended that the trial Court while taking the cognizance has rightly held that the offence is continuing offence and the notice was issued to the petitioner on 13.02.2013 for non-payment of the dividend and the reply was given by the petitioner on 23.02.2013 seeking extension of time. Subsequently, some more time was sought on 13.03.2013 and thereafter, they made part payments and finally, the letter dated 9 28.06.2013 was received by the complainant from the petitioner-company stating that they have made all the payments of dividend pertaining to 2011-2012 to its shareholders. Therefore, the payment was made only after the show cause notice issued by the complainant, the offence is continuing offence and the prosecution was launched in March 2016 itself. Therefore, there is no delay in filing the complaint and there is no bar for taking cognizance and the complaint is within the time. Learned counsel for the respondent also contended that as per the provisions of Section 205 of the Companies Act, any part payment are default until and unless the amount were paid, the offence is continuing offence and calculating the penalty over the payment other than 18% interest. Therefore, the contention of the petitioner cannot be sustainable. Hence, prayed for dismissing the petition. Learned counsel also contended that the petitioner- company are very much aware that in spite of declaring the dividend they have not paid the same. The last payment was made in the year 2013 as per their letter 10 dated 28.06.2013. There was delay of three years in making payment by the petitioner which amounts to violation of the provision of law. Therefore, the penal provision is attracted as the company has paid an amount on belated stage. Accordingly, the prosecution cannot be exonerated. Hence, prayed for dismissing the petitions.
6. Learned counsel also contended that the offence was committed under the Old Company's Act, 1956 and subsequently, the Companies Act was amended and now the Company's Act came into force in the year 2013. Therefore, if the offence is committed under the old Act, the prosecution cannot be launched under the new Act and as on the date, there is no such law was in force in view of the Article 20 of the Constitution of India. Learned counsel further contended that Section 465 of the Companies Act was amended by repealing certain enactments and savings and proviso thereto came into force only in the year 2020 where Section 465(2)(g) provides the incorporation of companies registered under 11 the repealed enactments shall continue be valid and the provisions of this Act shall apply to such companies as if they were registered under this Act, therefore, the learned counsel has contended that the Companies Act has not brought at one stretch but it was brought in force part by part. Therefore, the prosecution was launched under the old Act and even if the dividend was paid at belated stage, hence, the criminal prosecution cannot be exonerated. Hence, prayed for dismissing the petitions.
7. Having heard the arguments and on perusal of the records, it is an admitted fact that the accused No.1 is the Company and other accused persons are Managing Director and Directors of the Company. It is also an admitted fact that they have declared the dividend to their shareholders for Rs.3,01,86,390/- and they have not paid to the shareholders. A notice was also got issued by the respondent on 13.2.2013 and the Head HR and Admin. of the Company sought extension of time vide his letter dated 23.02.2013 and subsequently, one more letter dated 12 13.03.2013 was issued. As per Section 205A of the Companies Act, 1956 (Old Act), the dividend has been declared by a company but has not been paid within thirty days from the date of declaration, to any shareholder entitled to the payment of the dividend, the company shall, within seven days from the date of expiry of the said period of thirty days, transfer of total amount of dividend which remains unpaid within the said period of thirty days, to a special account to be opened by the company in that behalf in any scheduled bank, to be called "Unpaid Dividend Account of the Company Limited/Company (Private) Limited. As per Section 205(1A), the Board of directors may declare interim dividend and the amount of dividend including interim dividend shall be deposited in a separate bank account within five days from the date of declaration of such dividend. On bare reading of 205(1A) and 205A of the Companies Act, once the dividend declared shall be deposited within five days in separate bank account and thereafter, within thirty days, it shall be paid to the shareholders by transferring to their accounts 13 and if the amount was not claimed by the shareholders, a separate account shall be opened and kept in the said account and as per Section 205A(8) of the Companies Act, if the company fails to comply with any of the requirements of this section, the company and every officer of the company who is in default, shall be punishable with fine which may extend to five thousand rupees for every day during which the failure continues. As per Section 207 of the Companies Act, 1956, the Penalty for failure to distribute dividends within thirty days, once the dividend has been declared by a company but has not been paid, or the warrant in respect thereof has not been posted, within thirty days from the date of declaration, to any shareholder entitled to the payment of the dividend, every director of the company shall, if he is knowingly a party to the default, be punishable with simple imprisonment for a term which may extend to three years and shall also be liable to a fine of one thousand rupees for every day during which such default continues and the company shall be liable to pay simple interest at the rate 14 of 18% per annum during the period for which such default continues. Admittedly, the dividend was declared by the company on 29.09.2012 and they have not transferred the dividend declared within five days of its declaration to separate account as per Section 205(1A) and they have also not disbursed the dividend within thirty days from the date on which the due payable as per Section 205(1A), if calculated and if the dividend declared on 29.09.2012 within 5 days i.e., on 04.10.2012, they have to deposit in separate account and within 30 days i.e., on 03.11.2012 and they have to disburse the amount to the shareholders. Admittedly, the petitioner-company is defaulter in depositing and disbursing the amount, thereby, committed offence under Section 205(1A) and 205A of Companies Act which is punishable under Section 207 of the Companies Act. It is also not in dispute that the SEBI issued notice on 13.02.2013 and on 23.02.2013. The Head HR and Admin. of the Company sent a letter to the SEBI stating that he may require some more time to consult with the Directors as they have traveled to abroad. Subsequently, on 15 13.03.2013, again Head HR and Admin. of the Company wrote a letter to SEBI stating that they could not make the arrangement for payment of declared dividend and funds and cash flows have been affected badly due to defaulters and delays from their side and also they sought for opportunity to rectify and make the payment of dividends along with simple interest of 12% per annum as per Section 205A(4) of the Companies Act. Subsequently, on 28.06.2013, one Shiva Kumar Reddy, the Managing Director-accused No.2 send a letter for having paid the dividends with 18% interest p.a. for delayed payments. These documents clearly indicates that the accused- company has committed offence under Section 207 of the Companies Act apart from not depositing the amount within five days as per Section 205(1A) of Companies Act.
8. Now coming to the contention raised by the learned counsel for petitioners that the limitation point that the last amount was paid on 28.06.2013 as per their own letter, they have admitted that they have paid the entire 16 amount along with interest. Therefore for the purpose of calculation of limitation offence under Section 205(1A) and 205A are the continuing offences until payment was made as on 28.06.2013. Such being the case, the complaint came to be filed in the year March 2016 within three years of the offence committed which is also continuing offence and it is continuing offence, the recurring limitation extends until the payment was made. Therefore, absolutely, there is no delay in filing the complaint and it was barred by the limitation under Section 468 of Cr.P.C.
9. As regards to the another contention raised by the learned counsel for the petitioners that the offence falls under the new Act, but not old Act. Therefore, filing the complaint under the old Act is not sustainable. In this regard, it is an admitted fact that the offence was committed under the old Companies Act, 1956 as the dividend declared in September 2012 and it was due for disbursement by 03.11.2012 and the new Companies Act came into force only in the year 2013. Though the 17 complaint came to be filed in the year 2016, but the savings and repealed Act as per Section 465 of the Companies Act which was introduced or inserted only in the year 2020. Therefore, the complaint under the old Act has rightly filed as on the date of filing the complaint, Section 465 was not brought in the statute book. Therefore, the said contention by the petitioner counsel also is not sustainable.
10. As regards to the third contention raised by the learned counsel for the petitioners is that once the amount has been paid, the penal provision should be exonerated. He has also relied upon the judgment of the Madras High Court in the case of N.Kumar stated supra. On perusal of the judgment of the Madras High Court, where it is pertaining to the Directors who was already left the Company and he was not a Director as on the date of complaint. Therefore, that judgment will not be applicable to the case on hand. Here in this case, there is a clear violation of the provision of law for non-depositing the 18 amount within five days and also not disbursing within thirty days and it was paid nearly for three years. Even some of the payments were made after filing of the complaint. Such being the case, the penal provision cannot be exonerated and otherwise, there is no meaning in mentioning the penal provision under the statute book. Therefore, considering all these facts, I am of the view that the petitioner has not made out the ground for quashing the criminal proceedings and on the other hand, they have to face the trial before the Court.
11. Accordingly, both the Criminal Petitions are hereby dismissed.
Sd/-
JUDGE GBB/-