Raj Kumar, Ravi Prakash And … vs The Registrar Of Companies … on 10 November, 2004

Madras High Court
Raj Kumar, Ravi Prakash And … vs The Registrar Of Companies … on 10 November, 2004
Author: S A Kumar
Bench: S A Kumar


S. Ashok Kumar, J.

1. The above revisions have been filed against the order of the learned Additional Chief Metropolitan Magistrate, E.O.-I, Egmore, Chennai in Crl.M.P. No. 392 of 1999 in E.O.C.C. No. 9 of 1997 and Crl.M.P. No. 393 of 1999 in E.O.C.C. No. 301 of 1998.

2. The brief facts of the case in Crl.R.C. No. 272 of 2003 are as follows:

The respondent filed a complaint against the petitioners, Accused-1 to 3 and others, who were the Board of Directors of NEPC Micon Ltd. The gist of the complaint is as follows:- One S.K.Gupta, residing at Kanpur, is holding 200 shares in the said company. He sent a letter dated 10.5.1996, complaining that he has received the final dividend warrant dated 18.3.1996 for Rs. 264.25, being the amount of 15% final dividend declared by the company at the Annual General Meeting held on 19.9.1995. The warrant purported to have been drawn on 18.3.1996 was actually posted on 15.4.1996, thereby delaying the payment of dividend by more than five months.

3. The dividend warrants have to be despatched to the shareholders within 42 days from the date of declaration, but the accused have despatched the dividend warrant only on 15.4.1996, which is a violation of Section 207 of the Companies Act. The respondent came to know about the said default on 30.8.1996, which resulted in a show-cause notice to all the accused on 17.6.1996. The accused have replied, admitting the delay and stated that the delay occurred due to tight financial market and the company could not collect its receivables. The complaint is filed within the period of limitation. The accused have committed the offence under Section 207 of the Companies Act and are liable for punishment.

4. In Crl.R.C. No. 273 of 2004, the brief facts of the case relating to the complaint in E.O.C.C. No. 301 of 1998 are as follows:-

The petitioners are the Directors of NEPC India Ltd., which is a company incorporated under the Companies Act, having its Registered Office at No. 36, Wallajah Road, Chennai-2. Many complaints were received at the office of the Regional Director, Department of Company Affairs, Southern Region, Chennai, stating that the dividend declared at the Annual General Meeting held on 14.8.1998 have not been received, even though the company ought to have paid the dividend amount on or before 26.9.1996. The office also received complaints that the dividend for the year 1995-96 was also not sent. The company is liable to pay the dividend to the shareholders whose names appear in the Register of Members on the date of declaration of dividend. Dividend warrants have to be despatched to the shareholders within 42 day from the date of declaration as per Section 207 of the Companies Act. The petitioners and two others, being the Directors of the company at the time of declaration of dividend, are the persons responsible for the commission of the said offence and therefore, they are liable for punishment under Section 207 of the Companies Act.

5. The Point for consideration is Whether the petitioners, who are the Directors of the Company could be excused and relieved invoking Section 633 of the Companies Act?

6. The date and events with regard to EOCC. No. 301 of 1998 are extracted below for easy reference:-

  "Instructions were issued by the
Regional Director to issue show
cause notice on                                       :: 07.03.1997
Show Cause Notice issued on                           :: 09.09.1997
Company and the officers have
replied to the show cause notice                      :: 30.09.1997
Report was given to Regional
Director along with replies on                        :: 20.10.1997
Instructions were issued by the
Regional Director to launch
prosecution on                                        :: 02.01.1998
Prosecution filed on                                  :: 23.08.1998

7. As far as E.O.C.C. No. 301 of 1998 (Crl.R.C.No:273/2004) is concerned, the Regional Director has received complaint even prior to 7.3.1997 and has issued directions to issue show cause notice on 7.3.1997. But, six months later, only on 9.9.1997, show cause notice was issued, for which the company has sent reply 30.9.1997. Thereafter on 2.1.1998 the Regional Director has issued instructions to launch prosecution and the prosecution was filed only on 23.8.1998. Admittedly the date of offence is 7.3.1997. Therefore, the prosecution has to be launched on or before 7.3.1998. But the prosecution has been launched only on 23.8.1998. Therefore, E.O.C.C. No. 301 of 1998 is barred by limitation and hence the same is liable to be quashed.

8. As far as E.O.C.C. No. 9 of 1997 (Crl.R.C. No. 272/2003) is concerned, the complaint from S.K.Guptha was received on 10.5.1996. Instructions were given to issue show cause notice on 30.8.1996. Show cause notice was issued on 17.9.1996. After issue of show cause notice the officers of the company applied for compounding application which was reported to the Regionally Director on 8.11.1996. Instructions were issued by the Regional Director to launch prosecution on 21.11.1996. Prosecution was launched on 21.1.1997. As far as this case is concerned, the prosecution has been filed within one year as required under Section 469 of the Cr.P.C., which mandates that the limitation starts from the date of knowledge of the offence. In this case the date of knowledge of the offence is on 10.5.1996 and the prosecution was filed on 21.1.1997. Hence, this case is not hit by Section 469 of the Code of Criminal Procedure. But, as far as this case is concerned, even before the issue of show cause notice the dividend due for the complainant S.K.Guptha has been admittedly paid. As far a the revision petitioners are concerned, they explained the delay in respect of disbursing the dividend warrant on the ground that they have to collect the amount from other source.

9. In Vol.58 Company Cases, page 870 (Sitaram Biyani and Anr. v. Registrar of Companies) the Calcutta High Court while dealing with Section 633(1) and (2) of the Companies Act and about the scope and duty of the criminal court, held as follows:-

“On a complaint made by the Registrar under S. 211(7) of the Companies Act, 1956, against the petitioners, who were two directors of a public company to the effect that from the balance sheet filed by the company as on March,31, 1976, it transpired that the accounts of the company had been maintained on cash basis, without adjustment of the outstanding receipts and payment, the Magistrate took cognizance and issued summons. The petitioners, after entering appearance, filed a petitioner under S. 633 praying for relief from their liability it any, alleging that ever since its incorporation in 1953, the company had been keeping its books of account on cash system and that they had all along acted honestly and reasonably. Thereafter, the Magistrate rejected the petition holding that the auditor’s report was a qualified one and that it could not be said that there was no prima facie case against them. The petitioners applied to the High Court in revision.

Held, setting aside the order of the Magistrate, that since the Magistrate had, after taking cognizance, ordered issue of process, there was a reasonable apprehension of proceedings against the petitioners as contemplated in S. 633 because of the issue of process and the pleas taken by the petitioners in their application. When an application under S. 633 was preferred, it was the duty of the Magistrate to conclude whether the petitioners might be liable in respect of the defaults pleaded; if he was so satisfied, the Magistrate had to proceed further and ascertain whether the petitioners had acted honestly and reasonably and whether the facts and circumstances indicated that the petitioners might be fairly excused. Even if the Magistrate had arrived at an affirmative finding, it was for him to relieve the petitioners wholly or partly from their liability and on such terms as he thought fit. But the Magistrate had not considered these matters in this case.”

10. In Vol.56 Company Cases 265 (G.M.Mohan and Ors. v. Registrar of Companies, Karnataka), the Karnataka High Court held as follows:-

“The violation of S. 58A of the Companies Act, 1956 is a penal offence made as such in public interest and the companies cannot commit the offence with impunity, but, where the conduct of the company and/or its officers is that that any offence which had been committed under the section has ceased to be an offence by the time of the show cause notice or the date of a petition by the company and/or its officers when there cannot possibly be any complaint against the company by its depositors under the Companies (Acceptance of Deposits) Rules, 1975, the court can direct under S. 633(2) the Registrar of Companies to forbear from prosecuting the company and/or its officers for the offence which, however, would be, in the circumstances, made out in the case and should not be construed as condoning of the lapses on the part of the company and/or its officers.”

11. In Vol.54, Company Cases, page 197, (Richard Laurence Parish and Ors. v. Registrar of Companies, Maharashtra and others, a Division Bench of the Bombay High Court, held thus:-

“Section 633 confers upon the court the somewhat exceptional power to excuse a petitioner from prosecution for an the liability of an act which has, under the Companies Act, penal consequences. The power must be circumspectly exercised. Section 633 does not contemplate adversary proceedings in the ordinary sense: a petition under S. 633 cannot be compromised nor can the court relieve the petitioner by an order made in invitum, for the court has to be reasonably satisfied that the petitioner had acted honestly and reasonably. The Registrar may, of course, state that no prosecution would be launched against the petitioner, in which case the petition would not survive. The relief under S. 633 is, as the use of the word “may” implies, discretionary, the discretion to be judicially exercised. In the context of S. 633, the expression “appears to the court” must mean that the court is reasonably satisfied that the requirements of the section are met. First of all, the position must be such that the person to be excused is shown to have acted honestly. Secondly, he must be shown to have acted reasonably. And, thirdly, it must be shown that having regard to all the circumstances of the case, he ought fairly to be excused. A man would be shown to have acted reasonably if he was acting in the way in which a man of affairs dealing with his own affairs with reasonable care and circumspection could reasonably be expected to act in such a case.”

12. The primary object of Section 633 is to protect against undue hardship in deserving cases and give relief from liability to the Directors who though technically guilty of negligence for breach of duty, are able to convince the court that they have acted honestly and reasonably in the given circumstances of their case. The court is empowered to grant relief under this section and protect the Director. The learned Additional Chief Metropolitan Magistrate in the impugned order has held whether the petitioners could be relief or not is a matter to be gone into at the time of trial of the case. Admittedly in this case, the dividends were paid though belatedly, but before the issue of show cause notice and the petitioners have explained the reasons for such delay to the complainant. The petitioners have explained their financial constraint and the amount could not be realised by the Company in due time which was the cause for the delay. Further a scheme was approved by the Company Law Board which has also resulted in the delay of disbursing the dividend warrants. The fact that a scheme was submitted by the petitioner company was approved by the Company Law Board has to be taken note of and under these circumstances the delay cannot be held to be willful or wanton. Therefore when the petitioners who are the Directors of the company have acted honestly and reasonably, in view of the peculiar facts and circumstances of the case, the petitioners may be fairly excused. Hence, the Revision Petition is allowed.

13. Both the Criminal Revision Cases are allowed. Consequently, connected Crl.M.Ps are closed. Fee of Standing Counsel for respondents Rs. 4,000/= (Rupees Four Thousand only) in each revision.

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