1982 (10) TMI 161 - HC - Companies Law

Summary

Issues: Violation of section 58A of the Companies Act, 1956 regarding acceptance of deposits beyond prescribed limits, defense of non-compliance due to financial difficulties, interpretation of law based on previous judgments, and the court's decision on prosecution.

In this case, the petitioners, three directors of a company incorporated under the Companies Act, 1956, filed a petition under section 633(2) of the Act, challenging show-cause notices issued by the Registrar of Companies in Karnataka. The notices alleged violations of section 58A(3)(c) read with rules 3(2)(i) and 4 of the Companies (Acceptance of Deposits) Rules, 1975. The Registrar accused the company and its directors of accepting deposits exceeding prescribed limits and failing to repay them as required by law before April 1, 1975. The petitioners cited mismanagement by one director as the reason for non-compliance, stating that funds were lacking to repay the deposits. However, one of the directors sold his personal coffee estate to repay the deposits before the show-cause notice was issued, arguing that the violation was unintentional due to unavoidable financial difficulties caused by mismanagement.

The petitioners' counsel contended that there was no violation at the time of the show-cause notice, relying on a decision by the Calcutta High Court in a similar case. The Calcutta High Court had ruled that the offense ceased to exist when the company converted the deposits into secured credit for depositors. The judge in this case noted that the petitioners had repaid the deposits before the show-cause notice and emphasized that the violation of section 58A is a penal offense in the public interest. Despite acknowledging the repayment, the judge highlighted that companies cannot commit such offenses with impunity. Consequently, the court, under section 633(2) of the Act, directed the Registrar of Companies to refrain from prosecuting the petitioners for the offense mentioned in the show-cause notice. The court allowed the petition, considering the circumstances presented in the case.