ORDER
K.R. Prasad Rao, J.
1. This petition is filed by the accused in C.C. No. 202 of 1998 on the file of the Special Court (Economic Offences), Bangalore seeking for quashing the above proceedings against them for the offence punishable under Section 629-A of the Companies Act, 1956 (for short ‘the Act’).
2. The respondent filed the above complaint registered as C.C. No. 202 of 1998 against the petitioners before the Special Court for Economic Offences, Bangalore alleging that the petitioners have not complied with the mandatory requirements of Section 294(2) of the Act while appointing M/s. Medley Marketing Private Limited, Bombay on 28-8-1989 and M/s. P.V. Kuruvilla, Calcutta on 31-8-1989 as their sole selling agents for marketing of the instruments manufactured by their company. Under the agreements entered into with the said sole selling agents, the company had conferred exclusive rights for the sale of their instruments for the territory of Northern India consisting the States of Uttar Pradesh, Punjab, Haryana, Rajasthan, Himachal Pradesh, Jammu and Kashmir and Union Territories of Delhi and Chandigarh to MA. Medley Marketing (Private) Limited and for the North East region including Bihar and Orissa to M/s. P.V. Kuruvilla, According to the respondent, it is not stipulated in the said agreement entered into by the petitioners with their above sole selling agents that their appointments
shall cease to be valid if it is not approved by the company in the first general meeting held after the date on which the appointments are made. It is also alleged in the complaint that both the agreements were renewed on 9-9-1992 for a further period of three years from 28-8-1992 to 27-8-1995 in the case of M/s. Medley Marketing (Private) Limited and from 31-8-1992 to 30-8-1995 in the case of M/s. P.V. Kuruvilla and the agreements were again renewed on 5-9-1995 for a further period of 3 years, the terms and conditions of the agreements remaining the same. The respondent therefore, alleged that by not following the mandatory directions contained in Section 294(2) of the Act, the petitioners committed an offence punishable under Section 629-A of the Act. The learned Magistrate registered the above complaint ordering for issue of process to the petitioners. It is at this stage, the petitioners approached this Court seeking for quashing the above proceedings against them.
3. I have heard the arguments advanced by the learned Counsel for the petitioners and the learned Counsel for the respondent.
4. Learned Counsel for the petitioners raised the following contentions in the present petition.–
1. Non-compliance with the provisions of Section 294(2) of the Act, does not constitute an offence punishable under Section 629-A of the Act. The consequence of non-inclusion of the condition that the appointment of the sole selling agents shall cease to be valid with effect from the date of the first general meeting if their appointments are not approved by the company would be only to render those appointments invalid from the date of the first general meeting.
2. Even assuming that such non-inclusion is an offence, the offence is deemed to have been committed on the date of the agreements and the offence is not a continuing offence and therefore, the complaint is barred by limitation.
In support of the above contentions, the learned Counsel for the petitioners has relied upon a decision of the Bombay High Cburt in the case of Arantee Manufacturing Corporation v. Bright Bolts Private Limited, wherein it was held that.–
“Sub-section (2) of Section 294 of the Companies Act, 1956, contains a condition precedent that attaches to the very act of making the appointment of a sole selling agent by the Board of Directors. Therefore, if any appointment of a sole selling agent is made by a Board of Directors without such a condition, namely, that the appointment shall cease to be valid if it is not approved by the company in the next general meeting of the company as is mentioned in Sub-section (2), the same would be contrary to the said provisions and would be void ab initio”.
Placing reliance on the above decision, he contended that the appointment of the above sole selling agents in the instant case was void ab
initio since the appointments were not approved by the Board of Directors in the first general meeting held. Since there is no penalty stipulated under Section 294(2), for non-compliance with the said mandatory requirements, he contended that it does not constitute an offence punishable under omnibus provisions of Section 629-A of the Act. But, the learned Counsel for the respondent pointed out that in the above referred decision at page 766, the Court observed that.–
“On a fair reading of the aforesaid provisions, it will at once become clear that the provisions of Sub-sections (1) and (2) shall have to be regarded as not directory but mandatory having regard to the negative language employed therein”.
It is further observed in the same para that.–
“However, in my view, if regard be had to the manner in which the section is enacted, the language used therein and the place at which the section appears in the entire scheme of the Act, it will be clear that the condition mentioned in Sub-section (2) will have to be regarded as a condition which attaches to the very act of making the appointment of a sole selling agent by the Board of Directors and, therefore, a condition precedent. The object of the section, as I have already indicated above, is to place restrictions or curbs on the powers of the Board of Directors. The language employed in Sub-sections (1) and (2) is clearly negative which suggest that the provisions are to be regarded as mandatory. Sub-section (1) provides that “No company shall….. appoint a sole selling agent for any area for a term exceeding five years at a time”. The proviso makes it clear that the aforesaid absolute prohibition will not apply to the reappointment or re-extension of the term of office of any sole selling agent, but that such reappointment or extension of term should not exceed the period of five years on any one occasion. In my view, Sub-section (1) puts an embargo upon the company by prohibiting the company from making any appointment of a sole selling agent for any term exceeding five years at a time. Similar is the position with regard to Sub-section (2). Sub-section (2) provides that the Board of Directors of a company “shall not appoint a sole selling agent for any area except subject to the condition that the appointment shall cease to be valid if it is not approved by the company in the first general meeting held after the date on which the appointment is made”. Sub-section (2) also puts an embargo upon the Board of Directors of a company by prohibiting the Board from making any appointment of a sole selling agent except subject to the condition mentioned therein. In other words, the Board of Directors of a company are only free to make appointment of a sole selling agent subject to the aforesaid condition. The language used, viz., “shall not appoint….. except subject to the condition” shows that the condition mentioned attaches to the very act of making the appointment by the Board of Directors. It will thus be clear that, if any appointment is made by the Board of Directors without such a
condition, the appointment will be contrary to the provisions of Sub-section (2) and, therefore, illegal and bad in law”.
So, placing reliance on the above observations of the Court in the aforesaid decision, the learned Counsel for the respondent vehemently contended that the penal provisions of Section 629-A of the Act are attracted to the instant case, since the above restrictions and mandatory directions provided under Section 294(2) have not been complied with while appointing the sole selling agents by the petitioners under the above agreements entered into by them. It is further contended by him that the provisions of Section 629-A of the Act will be attracted where no specific penalty is provided elsewhere in the Act.
5. Having regard to the language employed in Section 294(2) of the Act, I have no hesitation to hold that the directions and the restrictions imposed by the legislature are mandatory in nature as interpreted in the above decision. Section 629-A of the Act makes it clear that.–
“If a company or any other person contravenes any provision of the 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”.
Since no specific penalty is provided for the above provision under the provisions of Section 294 of the Act, in my view, the penalty provision under Section 629-A is clearly attracted to the present case.
6. At this stage, the learned Counsel for the petitioner has brought to my notice a recent decision of this Court in Anantha R. Hegde and Ors. v. Capt. (Ex) T.S. Gopalakriskna, wherein it was held that.–
“Failure to convene requisitioned extraordinary general Meeting as required under the provisions of Section 169 of the Companies Act, 1956 does not constitute an offence punishable under Section 629-A of the Act”.
Placing reliance on the above decision, he contended that on the same analogy of the above decision, in the instant case also, non-compliance with the above mandatory directions and restrictions given in Section 294(2) of the Act, does not constitute an offence punishable under Section 629-A of the Act. On a careful perusal of the above decision, it is found that the Court observed as under.–
“That in the event of failure by the Board of Directors to convene the meeting, an alternative and efficacious remedy was provided under Section 169(6) of the Act”.
It is under those circumstances, this Court has taken the view that the wording of Section 169 indicates that the legislature never intended that the failure by the Board of Directors to convene the meeting could be construed as an offence because an alternative and efficacious remedy is provided under the Act. But, in the instant case, since there is no other alternative remedy provided in the Act in the event of non-compliance with the mandatory directions and restrictions imposed in Section 294(2) of the Act, I find that the above decision is not applicable to the facts of this case.
7. It is next contended by the learned Counsel for the petitioners that the complaint filed by the respondent is barred by limitation, since the above offence is not a continuing offence and since the complaint has not been filed within six months from the dates on which the offence has been committed, which the dates on which the above agreements appointing the sole selling agents are signed i.e., on 28-8-1989 and 31-8-1989 and the date on which the show-cause notice has been issued to the company of the petitioners, which is 13-3-1993. In support of this contention, he relied upon the earlier decision of this Court in M/s. Chandra Spinning and Weaving Mills Private Limited v. Registrar of Companies, wherein it was held that.–
“The contravention of the provisions contained in Section 220(1)(a) of the Companies Act, is not a continuing contravention.
The determination whether a given crime is a continuing offence is a matter of statutory interpretation. But the judicial consensus is that the doctrine of continuing offences should be applied only in limited circumstances, since the doctrine effectively extends the statute of limitations beyond its stated term. A particular contravention or offence should not be deemed to be a continuous one unless the explicit language of the substantive criminal statute compels such a conclusion….. the Court should not be eager to hold that an act or omission is a continuing wrong or default unless there are words in the statute concerned which make out that such was the intention of the legislature.
Section 220(1) of the Act by itself does not impose any liability the contravention of which is susceptible of continuance. The default would be complete with a failure to furnish the copies of Balance-sheet and Profit and Loss Account in the manner and within the time stated therein. Such an offence is committed once and for all as and when a person/s commit/s the default. A careful reading of Section 220(1) of the Act would show that neither it envisages nor contemplates that the obligation to submit the
copies continues from day to day until the copies are actually submitted”.
Placing reliance on the above decision, be contended that in the instant case also, the offence is committed once and for all on the dates on which the agreements were entered into with the sole selling agents and were signed without stipulating the condition that their appointments shall cease to exist, if they are not approved by the Board of Directors in the first general meeting called for. But, in the instant case, the agreements were renewed subsequently for further period of three years after the expiry of the period of 3 years fixed in the original agreements. The dates of renewal of the agreements are clearly mentioned in the complaint in para 4 as from 29-8-1992 to 27-8-1995 in the case of M/s. Medley Marketing Private Limited and from 31-8-1992 to 30-8-1995 in the case of M/s. P.V. Kuruvilla and the agreements were again renewed on 5-9-1995 for a further period of three years, on the same terms and conditions of the earlier agreements. Thus, it is clear that the non-compliance of the mandatory directions contained in Section 294(2) is found to be not only in respect of the 1st agreement, but is also found to be in respect of the 2nd and 3rd agreements. On the basis of these facts, I have no hesitation to hold that the offences committed are of the nature of continuing offences. Further, the question whether the complaint is barred by limitation, is a matter which is to be considered by the Trial Court, in the first instance, since the Trial Court is entitled to exercise its discretion in condoning the delay, if any, in filing the complaint under the provisions of Section 473 of the Cr. P.C., 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 so to do in the interests of justice. In view of the said discretion conferred on the Trial Court, in my view, it is premature to go into the question of limitation by this Court at this stage and I find it is necessary to keep the said question open, to be decided by the Trial Court in the first instance. The learned Counsel for the petitioners relied upon a decision of the Supreme Court in the case of State of Himachal Pradesh v. Tara Dutt and Anr., wherein it is observed at para 7 as follows.–
“Section 473 confers power on the Court taking cognizance 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 and that it is necessary so to do in the interest of justice. Obviously, therefore in respect of the offences for which a period of limitation has been provided in Section 468, the power has been conferred on the Court taking cognizance to extend the said period of limitation where a proper and satisfactory explanation of the delay is available and where the Court taking cognizance finds that it would be in the interest of justice. This discretion conferred on the Court has to be exercised judicially and on well-recognized principles. This being a discretion conferred on
the Court taking cognizance, wherever the Court exercises this discretion, the same must be by a speaking order, indicating the satisfaction of the Court that the delay was satisfactorily explained and condonation of the same was in the interest of justice. In the absence of a positive order to that effect, it may not be permissible for a superior Court to come to the conclusion that the Court must be deemed to have taken cognizance by condoning the delay whenever the cognizance was barred and yet the Court took cognizance and proceeded with the trial of the offence”.
Placing reliance on the above decision, it is submitted by him that in the instant case, the Trial Court has not passed any speaking order for having condoned the delay before taking cognizance of the offence. Since the Trial Court has not applied its mind to the question of limitation and has not passed any order on the said question, I find it necessary to give a direction to the Trial Court to consider the question of limitation at the initial stage itself and thereafter, to take cognizance of the offence if it is of the opinion that the delay, if any, in filing the complaint can be condoned.
8. Learned Counsel for the petitioners next submitted that the above offence being a petty offence, the Trial Court ought to have given summons in the Form 30 and since the said procedure has not been followed, the above proceedings are liable to be quashed. But, merely because the summons are not issued in Form 30, I do not think that it constitutes a ground to quash the above proceedings. Since the offence is compoundable, the petitioners are entitled to approach the respondent seeking for compounding the offence alleged.
For all the above reasons, this petition is dismissed giving liberty to the petitioners to raise the question of limitation before the Trial Court and the Trial Court is directed to decide the question of limitation after giving opportunity to both parties to submit their say in the matter, before taking cognizance of the offences alleged and before proceeding further in the matter.