1986 (11) TMI 298 - HC - Companies Law

Issues Involved:
1. Legality of the search warrants issued.
2. Jurisdiction of the Sessions Court to order the return of documents.
3. Existence and dissolution of the firms.
4. Applicability of Chapter III-B vs. Chapter III-C of the RBI Act.
5. Prosecution of defunct firms and individuals responsible.

Issue-wise Detailed Analysis:

1. Legality of the Search Warrants Issued:
The Reserve Bank of India (RBI) filed petitions for the issuance of search warrants under section 45S(1) of the Reserve Bank of India Act, 1934. The Chief Metropolitan Magistrate issued search warrants on February 28, 1986, leading to the seizure of documents from the firms. The RBI's action was based on the belief that the firms were accepting deposits in contravention of section 45S of the Act. The Sessions Court found no manifest illegality in the issuance of the warrants, as the Magistrate had sufficient information justifying the RBI's belief that documents related to contraventions were secreted.

2. Jurisdiction of the Sessions Court to Order the Return of Documents:
The Sessions Court allowed the revision petitions filed by the company, directing the return of documents seized. The RBI contended that the Sessions Court, acting as a revisional authority, should not have interfered since there was no manifest illegality in the warrant and the order of the warrant was not challenged. The High Court noted that the Sessions Court should not have ordered the return of documents when the legality of the search warrants was not in question.

3. Existence and Dissolution of the Firms:
The Sessions Court concluded that the firms were dissolved on January 31, 1986, and their assets and liabilities were taken over by the company. The RBI argued that the firms had not factually ceased to exist and that the contraventions committed prior to dissolution could not be effaced. The High Court upheld that the dissolution of the firms did not absolve the individuals responsible from prosecution.

4. Applicability of Chapter III-B vs. Chapter III-C of the RBI Act:
The Sessions Court observed that the RBI should have acted under Chapter III-B instead of Chapter III-C. The High Court clarified that the RBI's choice of chapter did not affect the legality of the search and seizure. The RBI's action under Chapter III-C was valid, and the documents were necessary for prosecution under section 45S of the Act.

5. Prosecution of Defunct Firms and Individuals Responsible:
The central issue was whether prosecution could be launched against defunct firms. The High Court referred to section 58C of the Act, which holds every person responsible at the time of contravention liable. The court emphasized that prosecution could continue against individuals responsible for the conduct of the business of the defunct firms. The dissolution of the firms did not exempt the individuals from liability. The court cited Supreme Court decisions in CIT v. S. V. Angidi Chettiar and C. A. Abraham v. ITO, which supported the continuation of prosecution against responsible individuals even after the dissolution of a firm.

Conclusion:
The High Court allowed the revision petitions, setting aside the Sessions Court's order and restoring the Chief Metropolitan Magistrate's order permitting the RBI to scrutinize the documents. The court reaffirmed that prosecution against individuals responsible for defunct firms was legally permissible, and the RBI's actions were justified. The fortnight's time specified for the RBI to scrutinize the documents was to run from the date of the High Court's judgment.

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