Delhi High Court
S.P. Punj And Others vs Registrar Of Companies on 11 September, 1991
Equivalent citations: [1991]71COMPCAS509(DELHI)
JUDGMENT Sapra, J.
1. The petitioners have filed this petition, under section 633(2) oof the Companies Act, 1956 (hereinafter called "the Act"), for being relieved from prosecution for their alleged liability for non-filing of returns under rule 10 of the Companies (Acceptance of Deposits) Rules, 1975, hereinafter called "the Rules".
2. Briefly the facts, as stated in the petition, are that M/s Punjsons Private Limited, hereinafter referred to as "the company", is a family cooncern, which was incorporated in the year 1954. Petitioners Nos. 1,2 and 3 became directors in the year 1954. Petitioners Nos. 4 and 5 became directors of the company in the years 1980 and 1982, respectively. Petitioners Nos. 1 to 4, along with the company and Shri Satya Narain Prakash Punj, are being prosecuted in the court of the Chief Metropolitan Magistrate, Delhi, on a complaint filed by the Registrar of Companies, Delhi, under rule 11 of the Rules, read with section 58A of the Act, for non-filing of returns under rule 10 of the Rules for the years 31st March, 1976, to 31st March, 1982. There are complaints now pending against them.
3. Shri Satya Narain Prakash Punj has been acting as director in charge-managing director of the company, right since its incorporation. The petitioners, being ordinary directors, have never been in control of the affairs and day to day management of the company and were never apprised of the excess borrowings nor was any resolution passed to which they are parties that permitted the alleged borrowings, beyond limits, by the company. Shri Satya Narain Prakash Punj who is in possession of the books of account, minutes books, correspondence files and the statutory books has been managing the affairs of the company and did not take the petitioners into his confidence about the alleged excess borrowings by the company.
4. It is further alleged that petitioner No. 1 is aged about 70 years. Smt. Maya Rani Punj, petitioner No..2 herein, is a hoousewife, and so is petitioner No.3. Petitioner No.4 is a resident oof Bombay, and is suffering from severe diabetes mellitus and ischaemic heart disease.
5. From enquiries made and from a persual of the records in the office of the Registrar of Companies, it has come to the knowledge of the petitioners that all the deposits were loans advanced by the directors, shareholders and relatives of directors whose advances had been guaranteed by the directors. According to the petitioners, the person who is in default has been specifically defined and the entire board of directors cannot be foisted with liability till they fall in the definition now given under section 5 of the amended Act. For these reasons and also for the other facts and overrments made in the petition,the petitioners submit that they are not liable, in any manner, to be held responsible and liable for the prosecution launched against them by the respondent on the complaint filed under section 11 of the Rules, read with section 58A of the act.
6. In reply, the Registrar of Companies, the respondent herein, has stated that this court has jurisdiction to grant relief only in respect of apprehended prosecution under section 633(2) of the Act, and, therefore, in respect of the pending prossecutions, the petition is not maintainable. Further, according to the reespondent, the petitioners have failed to implead the necessary party, i.e., Shri Satya Prakash Punj,as, according to the petitioners, he has been in control of the affairs and the day to day management of the company.
7. The first question which arises for decision is, whether, under section 633(2) of the Act, this court has jurisdiction to relieve the petitioners from the liability of not filing returns under rule 11 of the Rules, in view of the fact that the criminal complaints are already pending before the Chief Metropolitan Magistrate, Delhi.
8. In the first place, Mr.B.N.Nayyar, learned counsel for the petitioners, contended that non-filing of returns under rule 10 of the Rules qua the defaulting year constitutes a single default and is not a continuing one. As such, the petitioners cannot be prosecuted for default, allegedly committed, pertaining to a particular year, repeatedly in the subsequent years. In any case, petitioner No.5, namely, Shri. B.R.Punj, who became a director during 1982, cannot be held liable for apprehended prosecution for the alleged defaults which were committed by the company prior to his induction as director. Reliance is placed upon the judgment in Assistant Registrar of Companies v. R.Narayanaswamy [1985] 57 Comp Case 787 (Mad).
9. Mr. Nayyar has further urged that the complaints filed by the respondent under Rule 11 of the Rules in the Court of the Chief Metropolitan Magistrate, Delhi, are time barred as the same were filed after a period of 3 years, from the alleged deefaults, which were committed in the year 1982. The period of limitation is 6 months and the respondent has not filed any application under section 473 of the Criminal Procedure Code, for condensation of delay. In other words, no cognizance of thee offence could be taken by the court as the prosecutions were hopelessly time- barred. Cognizance of the offence in such cases is deemed to have been taken when the delay is condoned under section 473 of the Criminal Procedure Code.
10. Mr. Nayyar submits that, in view of the judgment of the Calcutta High Court in In re Hindustan Wire and Metal Products [1983] 54 Comp Case 104, the petitioners are entitled to be relieved of the liability, not only regarding the apprehended prosecution, but also for prosecutions which are pending before the Chief Metropolitan Magistrate, Delhi.
11. On the other hand, Mr. N.S.Gupta, Assistant Registrar of Companies, has submitted that the offence under rules 10 and 11 of the Rules is of a continuing nature and as such, all the directors of the company are liable. He has further contended that this court has no jurisdiction too grant relief under section 633(2) of the act, because the complaints already filed by the respondent are pending in the Court of Additional Chief Metropolitan Magistrate, Delhi.
12. Sub-sections (1) and (2) of section 633 of the Act are reproduced as under:
"(1) If in any proceeding for negligence, default, breach of duty, misfeasance or breach of trust against an officer of a company, it appears to the court hearing the case that he is or may be liable in respect of the negligence, default, breach of duty, misfeasance or breach of trust, but that he has acted honestly and reasonably, and that having regard to all the circumstances of the case, including those connected with his appointment, he ought fairly to be excused, the court may relieve him, either wholly or partly, from his liability on such terms, as it may think fit:
Provided that in a criminal proceeding under this sub-section the court shall have no power to grant relief from any civil liability which may attach to an officer in respect of such negligence, default, breach of duty, misfeasance or breach of trust.
(2) Where any such officer has reason too apprehend that any proceeding will or might be brought against him in respect of any negligence, default, breach of duty, misfeasance or breach of trust, he may apply to the High Court for relief and the High Court on such application shall have the same power to relieve him as it would have had if it had been a court before which a proceeding against that officer for negligence, default, breach of duty, misfeasance or breach of trust had been brought under sub-section (1)."
13. A bare reading of the opening words of sub-section (2) clearly indicates that the officer concerned must have an apprehension that the proceeding will or might be brought against him in respect of anynegligence, default, breach of duty, misfeasance or breach of trust. Thus, the anticipation or apprehension is about the possibility of a proceeding being brought. When the proceedings are actually brought, then, ordinarily, there is no apprehension any more, as contemplated in sub-section (2).
14. In Sri Krishna Parshad v. Registrar of Companies [1978] 48 Comp Case 397 (Delhi), Mr. Justice D.K.Kapur (as he then was) was considering the question with regard to the jurisdiction of the court under section 633(2) of the Act. In that case, the facts were that petitioners, who were directors of M/s Western U.P.Electric Power and Supply Co. Ltd., committed defaults in respect of holding the annual general meeting for the period ending March 31, 1976. It was held (at p. 400):
"I may also indicate that the other court covered by section 633(1) need not necessarily be a criminal court because there may very weel be a civil proceeding, criminal proceeding or even a revenue proceeding in respect of which section 633(1) may apply. In all such cases, if a proceeding is anticipated, the officer concerned can move the High Court at an early stage and get relief in a suitable case. This has the great advantage of avoiding that other proceeding if the High Court grants relief. If that other proceeding has commenced, then the officer concerned has no other course open but to apply to the relevant court under section 633(1) to say that whatever negligence, default, breach of trust, misfeasance, breach of duty or any other default complained of there may be, he in fact, acted reasonably and honestly keeping in view the circumstances of the case. The court can then grant relief. Thus, the section as it were, operates in two stages. The High Court can grant anticipatory relief and if a case is actually initiated, only the court before which the complaint or trial is going on can grant relief. The preliminary objection has, therefore, to be accepted."
15. I am in respectful agreement with the view expressed above.
16. It may, however, be pointed out that this view is only with regard to the jurisdiction of the court under section 633(2) of the Act.
17. But, in case where cognizance of the offence has already been taken by the court snd the prosecutions are pending, under other provision of law, an aggrieved party can move the High Court for quashing such pending complaints or prosecutions. In Sri Krishna Parshad [1978] 48 Comp Case 397 (Delhi) the admitted fact was that the complaint had already been filed before a Magistrate in respect of default and, from the judgment it appears that congnizance had been by the court and the question of limitation was not involved.
18. Now, it is to be seen whether, in the present case, cognizance of the offence was taken by the learned Chief Metropolitan Magistrate on the complaints filed by the respondent under rule 11 of the Rules.
19. Before I proceed to decide this point, it is necessary to deal with the other contention, viz whether the contravention/offence under rule 11 of the Rules is a continuing offence or not.
20. For my benefit, rules 10 and 11 of the Companies (Acceptance of Deposits) Rules, 1975 are reproduced as under-
"10 Return if deposits to be filed with the Registrar - Every company to which these rules apply shall, on or before the 30th day of June of every year, file with the Registrar, a return in the form annexed to these rules and furnishing the information contained therein as on the 31st day of March of that year duly certified by the auditor of the company.
(2) A copy of the return shall also be simultaneously furnished to the Reserve Bank of India.
11. Penalty.- If a company or any other person contravenes any provision of these rules for which no punishment is provided in the Act, the company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to five hundred rupees and where the contravention is a continuing one, with a further fine which may extend to fifty rupees for every day after the first, during which the contravention continues."
21. In support of its contention that the offence under rule 11 of the Rules is a continuing one, the respondent has place reliance on the nature of fine which is to be extent of Rs. 500 and where, the contravention is continuing one with a further fine which may extend to Rs. 50 for every day after the first.
22. In CWT v. Suresh Seth [1981] 129 ITR 328, their Lordships of the Supreme Court were considering the question whether the default committed under section 18(1)(a) of the Wealth-tax Act, 1957, was a single default or a continuing one. The facts in that case were that the assessed filed his wealth-tax returns, for the assessment years 1964-65 and 1965-66, on March 18, 1971, while he was required, by section 14(1) of the Wealth-tax Act, to file the same, for the year 1964-65, on or before June 30, 1965. The following two questions were referred, under section 27(1) of the Wealth-tax Act, to the Punjab and Haryana High Court which answered the same in favor of the assessed :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the offence relating to the commission to file the wealth-tax returns was a continuing offence ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the penalties of Rs. 5,382 18(1)(a) of the Wealth-tax Act, 1957 for the assessment years 1965-65 and 1965-66 respectively?"
23. The Supreme Court held at pages 338, 339) :
"Section 18 of the Act, with which we are concerned in this case however, does not require the assessed to file a return during every month after the last day to file it over. Non-performance of any of the acts mentioned in section 18(1)(a) of the Act gives rise to a single default and to a single penalty, the measures of which, however, is geared up to the time lag between the last date on which the return has to be filed and the date on which it is filed. The default, if nay committed, is committed on the last date allowed to file the return. THe default cannot be one committed every month thereafter. The words `for every month during which the default continued' indicate only the multiplier to be adopted in determining the quantum of penalty and do not have the effect of making the default in question a continuing one. Nor do that make the amended provisions modifying the penalty applicable to earlier defaults in the absence of necessary provisions in the amending Acts. The principle underlying section 6 of the General Clauses Act is clearly applicable to these cases. It may be stated here that the majority of the High Court in India have also taken the same view."
24. In assistant Registrar of Companies v. R. Narayanaswamy [1985] 57 Comp Case 787 (Mad), the facts were that the Assistant Registrar of Companies of Tamil Nadu filed a criminal complaint against Southern Textiles Ltd., and its 13 directors under section 58A(3)(c) of the Companies Act, 1956, for the offence that the company had accepted deposits in excess of the limits prescribed by the Reserve Bank of India Act, 1934, and the rules, framed there under, and it failed to repay the excess, on or before April 1, 1975, as required by law. Following the judgment in CWT v. Suresh Seth the Madras High Court held (at pages 788 and 789 of of 57 Comp Cas) :
"It is not disputed before me by learned counsel for the petitioner that the respondents became directors of the first accused company only from July, 1975, and they were not directors on April 1, 1975, when the excess deposits had to be returned as per section 58A(3)(c) of the Act. It, is however, contented by him that the failure to repay the deposits on or before April 1, 1975, is a continuing offence and persons who became directors even subsequent to April 1, 1975, are liable for the default, so long as the excess deposits are not repaid. But, there is nothing in section 58A(3)(c) or any other provision of the Act to hold that the non-repayment of the excess deposits on or before April 1, 1975, is continuing offence. In CWT v. Suresh Seth , the question came up before the Supreme Court whether the failure to file a wealth-tax return by the assessed after the last date was over, was a continuing offence. It was held by the Supreme Court that such a failure gave rise to a single default and to a single penalty the measure of which, however, is geared up to the time large between the last date on which the return has to be filed and the date on which it is actually filed. The default, if any committed every month thereafter. The words in section 18(1)(a) of the Act, `for every month during which the default continued' indicate only the multiplier to be adpoted in determining the quantum of penalty and do not have the effect of making the default in question a continuing one. The principle enunciated thereon applies on all fours to the case on hand. The failure to repay the excess deposits on or before April 1, 1975, is a single default, which gets completed on the expiry of the aforesaid period and cannot be said to be a continued one."
25. The principles of law enumerated above apply on all fours to the default under rule 11 of the rules. The words in rule 11 that the fine may extend to Rs. 50 for every day after the first, indicate only the multiper to be adpoted in determining the quantity of ppenalty, and did not have the effect of making the default a continuing one.
26. There is nothing in rule 11 or section 58A of the Act to show that the offence was intended to be a continuing one.
27. Now, I will deal with the other contention of Mr. Nayyar that, in view of the admitted fact that the complaints were filed after the period of limitation, and no application for condensation of delay has been filed, so, no cognizance of the offence, is deemed to have been taken.
28. Chapter xxxvI and section 467 to 473 of the Code of Criminal Procedure deal with the limitation for taking cognization of certain offences and conditions of delay, etc.
29. Section 467, 468, 469 and 473 of the Code of Criminal Procedure read as under :
"467. For the purposes of this Chapter, unless the context otherwise requires, `period of limitation' means the period specified in section 468 for taking cognizance of an offence.
468. (1) Except as otherwise provided elsewhere in this Code, no court shall take cognizance of an offence of the category specified in sub-section (2), after the expiry of the period of limitation.
(2) The period of limitation shall be-
(a) six months, of the offence is punishable with fine only;
(b) one year, if the offence os punishable with imprisonment for term not exceeding one year;
(c) three years, if the offence is punishable with imprisonment for a term exceeding one year but not exceeding three years.
(3) For the purposes of this section, the period of limitation, in relation to offences which may be tried together, shall be determined with reference to the offence which is punishable with the more severe punishment or, as the case may be, the most severe punishment.
469 (1) THe period of limitation, in relation to an offender, shall commence-
(a) on the date of the offence; or
(b) where the commission of the offence was not known to the person aggrieved bu the offence or to any police oofficer, the first day on which such offence comes to the knowledge of such person or to any police officer, whichever is earlier;
or
(c) where it is not known by whom the offence was committed, the first day on which the identity of the offender is known to the person aggrieved by the offence or to the police officer making investigation into the offence, whichever is earlier.
(2) In computing the said period, the day from which such period is yo be computed shall be executed.
473. Nothwithstanding anything contained in the foregoing provisions of this Chapter, any court may take cognizance of an offence after the expiry of the period of limitation, if it is satisfied on the facts and in the circumstances of the case that the delay has been properly explained or that it is necessary si to do in the interests of justice."
29. In Hindustan Wire and Metal Products, In re[1983] 54 Comp Case 104 (Cal), the facts were that a petition under section 633 fo the ACt for relieving the petitioner as a consequence of default and violation of section 295 of the Act in granting a loan to another company was filed on June 28, 1980. The Registrar of Companies files a complaint before the Chief Metropolitian Magistrate, Calcutta, on June 12, 1980. Ad interim stay was granted by the court, on July 2, 1980 whereby, the Registrar of Companies was personally restrained from commencing any prosecution against petitioners for the default and the delay was condoned by the Chief Metropolitian Magistrate, on November 4, 1980, ex parte. The fact remains that the complaint was filed on June 12, 1980, i.e., 16 days prior to the filing of the petition under section 633 of the Act was maintainable, after the complaint had been filed and cognizance of the same was taken by the Magistrate, and (2) whether filing the complaint and making an application for condoning the delay could be said to be the initation of a criminal proceeding of initiation of proceedings before the delay was condoned and the offence had been filed. The Calcutta High Court held (at page 112, 113):
"I am of the view that there is no substance or merit in the contention raised on behalf of the behalf of the respondent as the said criminal proceeding is clearly in violation of the order of injunction passed by this court and it is strange enough that before the criminal court the respondent had not brought to the notice of the court the order of this court dated 2nd July, 1980, by which the respondent was restrained from proceeding or taking any step against the petitioners pursuant to the letter dated 12th May, 1980, by way of initiating any criminal proceeding. It must be held, according to the provisions of the Criminal Procedure Code, which I have set out before, that there was no pending criminal proceeding or initiation of any criminal proceeding against the petitioner before the present application was made. It is only after the present application was made and an ad interim order was issued, as hereinafter stated, that the said order condoning the delay was passed ex parte without any notice to the accused and cognizance of the offence was taken ar the instance of the respondent who was restrained by an injuction of this court from taking any step in the matter."
30. I am in respectful agreement whit the view expressed by the Calcutta High Court in the said judgment.
31. The offence under rule 11 of the Rules is punishable with fine as such; the period of limitation is six months subject to other exceptions as provided in Chapter xxxvI. It is not disputed that the respondent has not filed any application under section 473 of the Criminal Procedure Code for condensation of delay inf filing the complaint for which the period of limitation is six months.
32. Section 468 of the Criminal Procedure Code lays down thay, except as otherwise provided elsewhere in the Code, no court shall take cognization of an offence oof the category specified in sub- section 2 after the expiry of the period of limitation.
33. It means that, in facts and circumstances of the present case, unless the bar of limitation was lifted by condensation of delay, by an order of Magistrate made under section 473 of the Criminal Procedure Code, it cannot be said that the cognizance of an offence has been taken on the mere filing of the complaint against the accused.
34. The contention oof Mr. Nayyar is that none of the petitioners os an "officer in default" within the meaning of section 5 of the Act, inter alia, on the grounds that the petitioners never participated or were parties to any resolution of the company, thereby allowing the company to make borrowings or to accept deposits within the scope of rule 2 of the Rules; that the petitioners were never in control or the management of the affairs of the company, not at any time, were they in possession and control of books of account and other statutory books. Mr. Nayyar contends that Shri S. P. Punj, petitioner No. 1, is about 70 years of age, Smt. Maya Rani Punj, petitioner No. 2, and Smt. Shakuntala Rani Punj, petitioner No. 3, are housewives. Petitioner No. 4 is a resident of Bombay and has been suffering from severe diabetes mellitus and ischaemci heart disease. AS such, he is unable to concentrate due to abnormal vision and cannot also walk properly. Petitioner No. 5, namely Shri B. R. Punj, became director of the company during the year 1982. In fact, Shri Satya Narain Prakash Punj has been the managing director of the company and has been in possession of the books of account, minutes books, correspondence files and the other statutory books of the company. He has been managing the affairs of the company without, in any matter, taking the petitioners into confidence, about the alleged borrowings or deposits by the company.
35. Mr. Nayyar, has also urged that, in fact, neither the petitionerr nor the company is liable to file any return under rule 10 of the Rules as the "company" being a private limited company and being neither a banking company, nor a financial company, was exempted from filing a nil return, vide Department of Company Affairs Circular letter No. 4/1/76-Cl-XIV, dated February 5, 1976, as the amounts involved belonged either to the directors or relatives of directors or shareholders of the company, or were guaranteed by the directors and did not come under the definition of deposits as given under rule 2(ix) of the rules. He has filed a photo copy of the relevant circular.
36. According to Mr. Nayyar, a bare reading of the provisions of section 5 of the Act, prior to its substitution by the Companies (Amendement) Act, 1968, shows that if any prosecution is launched by the Registrar of Companies, he has to investigate as to who is the officer in default and not to launch prosecution against all the directors, or not concerned with the day to day working of the company.
37. The next contention of Mr. Nayyar is that various circulars have been issued by the Department of Company Affairs, Government of India, from time to time, for the guidance of the Registrars of Companies, and for following up of the policy regarding institution of prosecution for defaults of non filing of returns under rule 10 of the rules. He has placed reliance upon the judgment in H. Nanjundiah v. Govindnan, Registrar of Companies, Maharashtra [19860 59 Comp Case 356 (Bom).
38. In H. Nanjudiah's case [1986] 59 Comp Case 356 (Bom), by a resolution of the board of directors, the company was allowed to make borrowings in excess of the limits. The Registrar of Companies issued notice, to show cause as to why action be not taken against the directors for accepting deposits exceeding the limits prescribed by rule 3(2)(i) and (ii) of thee Companies (Acceptance oof Deposits) Rules, 1975. While interpreting the meaning "officer" who is in default, under section 5 of the Act, the High Court of Bombay held (at page 358):
"In view of this, I had asked Mrs. Bbulchandani, learned counsel for the respondent to point out any resolution of the company to which the petitioner was a party allowed the company to make borrowings in excess of the limits or to point out nay act of the petitioner wherein the petitioner had knowingly subscribed to the borrowings beyond the limits, or of the petitioner having willfully authorised or permitted someone to borrow monies in excess of the limits. Mr. Bulchandani was unable to point out a single act to satisfy this position or even remotely as to how the petitioner could be said to be `an officer in default'."
39. The petitioners have filed a copy of the application, annexure 8 to the petition, which was submitted by Shri Satya Narain Prakash Punj, under section 205 of the Code of Criminal Procedures, before the learned Chief Metropolitan Magistrate, Delhi. Shri Satya Narain Prakash Punj, has admitted he was the managing director of the company.
40. Mr. Nayyar has invited the attention of this court to the copy of the award, annexed with the rejoinder to show that the coompany, namely M/s Puunj Sons Pvt. Ltd., has gone to the group headed by Shri Satya Narain Prakash Punj, as a result of family partition. The award has since been made a rule of the court, vide order dated March 17, 1988, passed by the High Court of Delhi. Thus, the petitioners are no longer in the company.
41. From the various circulars issued by the Department of Company Affairs, it becomes doubtful whether the alleged deposits were beyond the permissible limits, as provided under rule 3(2) of the Rules. It is not disputed that petitioner 1 is 70 years of age, while petitioners Nos. 2 and 3 are hosuewives; petitioner No. 4 is a resident of Bombay and is suffering from the aforesaid diseases and is unable to walk. Petitioner No. 5 was made director in the year 1982.
42. The respondent has not been able to show that any od the petitioners was a party to any resolutions passed by the company for borrowings or taking deposits.
43. In my view, it is established that the petitioners are not "officers in default", within the meaning of section 5 of the Act.
44. Under the facts and circumstances, the petitioners are relieved from the alleged liabilities for non-filing of returns by M/s Punj Sons Pvt. Ltd., under rule 10 of the Companies (Acceptance of Deposits) Rules, 1975, read with section 58A of the Companies Act, 1956, and also from the consequence of the alleged defaults for which the complaints have been filed under rule 11 of the Rules Company Petition No. 133 of 1989 stands disposed off. No order as to costs.