JUDGMENT
Pratap Singh, J.
1. The accused in E.O.C.C. No. 20 of 1991 on the file of the Additional Chief Judicial Magistrate, Madurai, have filed this petition under section 482 of the Code of Criminal Procedure, praying to call for the records in the above case and quash the same.
2. The short facts are : The respondent has filed a complaint against the petitioners under section 310 read with section 629A of the Companies Act, 1956 (hereinafter referred to as “the Act”). The allegations in the complaint are briefly as follows : M/s. Fenner (India) Ltd. (first accused) is a company incorporated under the Indian Companies Act. The second accused is the managing director of the said company. Accused Nos. 3 to 9 are non-wholetime directors of the company. The officer authorised by the Central Government inspected the affairs of the company from September 5, 1990, to September 18, 1990. During the course of inspection, it was found that clause 92 of the articles of association of the company empowered it to pay remuneration to non-wholetime directors. The company had passed a special resolution in he meeting of the shareholders held on December 30, 1986, authorising payment of commission to non-wholetime directors at the rate of one per cent. of the net profits, subject to the maximum of Rs. 1,50,000 in any year and holding that such authorisation was not given effect during the years ending with August 31, 1987, to August 31, 1989. During the year ending with March 31, 1990, the company had earned sufficient net profits and made a provision for payment of commission to the tune of Rs. 1,50,000 to non-wholetime directors, which was later paid on August 23, 1990. The payment of the said commission over and above the sitting fees to non-wholetime directors is an increase in the remuneration within the meaning of section 310 of the Act. The approval of the Central Government ought to have been obtained under section 310 of the Act. No such approval has been obtained. Thus, the accused had contravened the provisions of section 310 of the Act, which is punishable under section 629A of the Act. Hence, the complaint.
3. Mr. S. Ramasubramanian, learned senior counsel appearing for the petitioners, would submit that section 310 does not cast any obligation on the petitioners to inform the Central Government about the passing of such a resolution and merely declares that such an increase shall not have any effect, unless such increase is in accordance with the conditions specified in Schedule XIII, in cases where Schedule XIII is applicable, and in any other case, unless it is approved by the Central Government would not constitute any offence liable to be punished under section 629A of the Act.
4. Per contra, Mr. Ilias Ali, learned standing counsel for the Central Government, would submit that there is a restriction on paying any enhanced remuneration without such a resolution being approved by the Central Government and in this case, there had been a payment of Rs. 1,50,000 violating the restriction and so section 629A is applicable and the compliant can be sustained.
5. I have carefully considered the submissions made by the rival counsel. To consider the said submissions, the relevant portions of the complaint need be stated. In paragraph 6, it is stated that during the course of inspection, it was found that the company had passed the necessary special resolution at the meeting of the shareholders held on December 30, 1986, authorising payment of commission to non-wholetime directors at the rate of one per cent. of the net profits, subject to the maximum of Rs. 1,50,000 in any year and that the said authorisation is valid for five years. It is further stated that during the year ending with March 31, 1990, the company had earned sufficient net profits and made a provision for payment of commission of Rs. 1,50,000 to non-wholetime directors, which was later paid on August 23, 1990. It is also stated that the payment of commission over and above sitting fees to non-wholetime directors is an increase in the remuneration within the meaning of section 310 of the Act. Then the material portion in paragraph 6 of the complaint reads as follows :
“Accordingly, approval of the Central Government ought to have been obtained under section 310 of the Act. However, it was found during the course of inspection such approval has not been obtained and accordingly the accused herein have contravened the provisions of section 310 of the Act which is punishable under section 629A of the Act.”
6. The positive case set out in the complaint is that the approval of the Central Government ought to have been obtained under section 310 of the Act and in this case since such approval had not been obtained, there was a contravention of section 310 of the Act, and thus an offence was committed.
7. To consider whether the stand taken in the complaint is correct or not section 310 of the Act needs extraction and it reads as follows :
“Provision for increase in remuneration to require Government sanction. – In the case of a public company, or a private company which is a subsidiary of a public company, any provision relating to the remuneration of any director including a managing or wholetime director, or any amendment thereof, which purports to increase, or has the effect of increasing, whether directly or indirectly, the amount thereof, whether that provision be contained in the company’s memorandum or articles, or in any agreement entered into by it, or in any resolution passed by the company in general meeting or by its board of directors, shall not have any effect –
(a) in cases where Schedule XIII is applicable, unless such increase is in accordance with the conditions specified in that Schedule; and
(b) in any other case, unless it is approved by the Central Government;
and the amendment shall become void, if, and in so far as, it is disapproved by that Government :
Provided that the approval of the Central Government shall not be required where any such provision or any amendment thereof purports to increase, or has the effect of increasing, the amount of such remuneration only by way of a fee for each meeting of the board or a committee thereof attended by any such director and the amount of such fee after such increase does not exceed such sum as may be prescribed :
Provided further that in the case of any private company which converts itself into a public company or becomes a public company under the provisions of section 43A, any provision relating to the remuneration of any director including a managing or wholetime director as contained in its memorandum or articles or in any agreement entered into by it or in any resolution passed by it in general meeting or by its board of directors includes a provision for the payment of fee for each meeting of the board or a committee thereof attended by any such director which is in excess of the sum specified under the first proviso, such provision shall be deemed to be an increase in the remuneration of such director and shall not, after it ceases to be a private company, or, as the case may be, becomes a public company, have any effect unless approved by the Central Government.”
8. The language of the section does not cast any obligation that such an amendment increasing the remuneration should be communicated to the Central Government. It declares that such an amendment shall not have any effect, unless it is approved by the Central Government in cases falling outside Schedule XIII; and in case where Schedule XIII is applicable, unless such an increase is in accordance with the conditions specified in that Schedule. The lain language of the section does not postulate or cast an obligation on the petitioners that such special resolution should be communicated to the Central Government for approval. The section is merely declaratory that such a resolution would not have any effect, unless it is approved by the Central Government.
9. Mr. Ramasubramanian, learned senior counsel for the petitioners, would rely upon the case in Raghunath Swarup Mathur v. Raghuraj Bahadur Mathur , in which a Division Bench of the Allahabad High Court had occasion to consider section 263 of the Act. The material portion of section 263 of the Act is in the following terms :
“263. (1) At a general meeting of a public company or of a private company which is a subsidiary of a public company, a motion shall not be made for the appointment of two or more persons is directors of the company by a single resolution unless a resolution that it shall be so made has first been agreed to by the meeting without any vote being given against it.
(2) A resolution in contravention of sub-section (1) shall be void whether or not objection was taken at the time to its being so moved.”
10. The appellants before the Allahabad High Court were convicted of an offence under section 263 read with section 629A of the Act. While construing section 263, the learned judges had held as follows (at page 305) :
“It is true that a single resolution moved to elect two or more directors of the company clearly amounts to contravention of the provisions of section 263(1) of the Act and such a contravention would have been punishable under section 629A of the Act, but for the existence of sub-section (2) of section 263. This sub-section lays down the consequence of moving such a faulty resolution, viz., it renders void every resolution moved in contravention of sub-section (1) of section 263, with the result that the resolution itself becomes non est and non-existent, in the eye of law. In other words, it would be deemed that such a resolution had never been moved. If such a resolution, (being void ab initio) does not at all exist in law, there is no question of its contravening any provision of the Act, entailing punishment.”
11. Learned counsel had rightly pointed that the provisions made in section 310 of the Act are similar to section 263 and hence the ratio of this decision is applicable to the case on hand. He further relined upon the decision in Registrar of Companies v. Bharat Produce Co. Ltd. [1980] 50 Comp Cas 250 (Cal), in which the Calcutta High Court had occasion to consider the scope of section 269(2) of the Act. Section 269(2) of the Act reads as follows :
“Where a public company or a private company which is a subsidiary of a public company, is an existing company, the reappointment of a person as a managing or whole time director for the first time after the commencement of the Companies (Amendment) Act, 1960, shall to have any effect unless approved by the Central Government.”
12. The language of this section is analogous to section 310 of the Act. The learned single judge of that court had considered the submissions made by Mr. Ghosh, learned counsel appearing for the petitioner with regard to section 269(2) of the Act, accepted the same and pointed out in his order as follows (at page 253) :
“Mr. Ghosh, the learned advocate appearing for the petitioner, contends that section 269(2) expressly provides that the reappointment of a person shall not take effect unless approved by the Central Government and that necessarily means that there is an implied prohibition against the company from allowing such a person to act as a director and the latter’s acting as such before the receipt of the approval. Inasmuch as opposite party No. 2 continued to function as wholetime director on such reappointment, by the company, they violated the implied prohibition and thereby contravened section 269(2) for which they are liable for prosecution under section 629A of the Act, argued Mr. Ghosh. Mr. Dhar, the learned advocate appearing for the opposite parties, on the other hand, contends that section 269(2) is declaratory in nature and does not contain any prohibition against acting under such reappointment. Mr. Dhar further argues that there can be a contravention only when there is a direction or prohibition and since there is no such direction or prohibition in section 269(2), there cannot be any contravention of the said provision so as to make any person liable under section 629A of the Act. In support of his contention, Mr. Dhar relies upon a Division Bench judgment of the Allahabad High Court, in the case of Raghunath Swarup Mathur v. Har Swarup Mathur [1968] Crl. LJ 670; [1967] 37 Comp Cas 802 (All) and a judgment of the Queens’ Bench in the case of Sales-Matic Ltd. v. Hinchcliffe [1959] 1 WLR 1005.
There cannot be any manner of doubt that before a person can be said to have contravened any provision of the Act there must be a specific prohibition or direction thereunder. In the Act with which we are concerned there are some specific provisions incorporating such directions and prohibitions. For example, in section 197A of the Act, it has been specifically provided that no company shall, after the commencement of the Companies (Amendment) Act, 1960, appoint or employ at the same time or after the expiry of six months from such commencement continue the appointment or employment at the same time of more than one of the categories of managerial personnel, namely, managing director and manager. Similarly, in section 204 of the Act, it has been expressly stated that no company shall, after the commencement of the Act, appoint or employ any firm or body corporate to any office or place of profit under the company for a term exceeding five years at a time. There are many other similar provisions in the Act which issue express directions or prohibitions and, needless to say, contravention of such directions or provisions are punishable under the Act. Unlike these provisions section 269(2) does not issue any direction or prohibition; it only declares that reappointment of a person as a managing director or wholetime director, for the first time after the commencement of the Companies (Amendment) Act, 1960, shall not have any effect unless approved by the Central Government.”
13. The learned judge has clearly pointed out that these provisions of the Companies Act are merely declaratory and do not create an offence. The said ruling, according to counsel for the petitioner, is applicable to the facts of the present case.
14. Mr. Ilias Ali, advocate, would submit that the offence complained of would come under the second limb of section 629A. For considering this submission, section 629A needs extraction and it reads thus :
“629A. Penalty where no specific penalty is provided elsewhere in the Act. – If a company or any other person contravenes any provision of this Act for which no punishment is provided elsewhere in this Act or any condition, limitation or restriction subject to which any approval, sanction, consent, confirmation, recognition, direction or exemption in relation to any matter has been accorded, given or granted, 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.”
15. In the instant case, it is not alleged in the complaint that such a restriction was imposed or accorded by the Government and the same was violated so as to bring it within the purview of this clause. Therefore I am unable to accept the submission made by Mr. Ilias Ali.
16. I am clear that section 310 is merely declaratory and does not cast any obligation on the petitioners to do a particular act so as to complain of its contravention. Taking that view of the matter, I hold that the complaint is clearly misconceived and is liable to be quashed.
17. In the result, the petition is allowed and all further proceedings in E.O.C.C. No. 20 of 1991 on the file of the Additional Chief Judicial Magistrate, Madurai, shall stand quashed.