1986 (10) TMI 290 - HC - Companies Law

Officer who is in default - Meaning of, Divident Unpaid Dividend to be Transferred to Special Dividend Account

Issues Involved:
1. Non-payment of dividend within the stipulated period.
2. Failure to deposit unpaid dividend into a special account.
3. Interpretation of Sections 205A and 207 of the Companies Act.
4. Liability of directors as "officers in default."
5. Mens rea (guilty mind) requirement for penal consequences.
6. Propriety of continuing prosecution after rectification of default.

Issue-wise Detailed Analysis:

1. Non-payment of Dividend within the Stipulated Period:
The company declared interim and final dividends but failed to remit the dividend amounts to non-resident directors within 42 days as required by Section 205A(1) of the Companies Act. This delay was due to the need for Reserve Bank of India (RBI) permission under the Foreign Exchange Regulation Act, which was obtained only later. The court noted that the non-payment was protected under the proviso to Section 207, which exempts non-payment due to the operation of law.

2. Failure to Deposit Unpaid Dividend into a Special Account:
Despite the protection under Section 207 for non-payment, the company did not deposit the unpaid dividend into a special account within seven days after the 42-day period, as mandated by Section 205A(1). The court held that the obligation to deposit unpaid dividends is independent of the reason for non-payment and must be fulfilled once the 42-day period lapses.

3. Interpretation of Sections 205A and 207 of the Companies Act:
The court analyzed Sections 205A and 207, concluding that while Section 207 provides a defense for non-payment due to legal hurdles, it does not exempt the company from the obligation under Section 205A to deposit unpaid dividends into a special account. The legislative intent behind these sections is to ensure that unpaid dividends are properly managed and eventually transferred to the Central Government's general revenue account if unclaimed.

4. Liability of Directors as "Officers in Default":
The court examined the definition of "officer who is in default" under Section 5 of the Companies Act, which includes any officer who is knowingly guilty of the default or who knowingly and willfully authorizes it. The mere fact of being a director does not automatically make one liable; there must be evidence of knowledge and intent.

5. Mens Rea Requirement for Penal Consequences:
The court emphasized that penal consequences under Section 205A(8) require proof of mens rea, i.e., the directors must have knowingly or willfully defaulted. In this case, there was no evidence to suggest that the directors had the requisite knowledge or intent. Petitioners Nos. 3, 4, and 5, being non-residents and recipients of the dividends, could not be presumed to have knowingly defaulted.

6. Propriety of Continuing Prosecution after Rectification of Default:
The court considered the propriety of continuing the prosecution given that the dividends were eventually paid after obtaining RBI permission. It noted that continuing the proceedings would be a waste of public money, time, and energy. The court found it unjustified to compel non-resident directors to face trial in India when the default had been rectified.

Conclusion:
The court quashed the proceedings and dismissed the complaint, discharging the petitioners-accused. The judgment underscores the importance of fulfilling statutory obligations while also recognizing the need for mens rea in penal provisions and the propriety of prosecuting cases where defaults have been rectified.

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