1994 (3) TMI 284 - HC - Companies Law

Allotment of shares and debentures to be dealt in on stock exchange - Respondent applied for 10 debentures of a company but debentures were not allotted to him - On non-allotment of debentures company was required to refund amount within 8 days of expiry of a period of 10 weeks from date of closure of issue - Amount was illegally retained by company for a period of five and half months after lapse of statutory period of 10 weeks plus 8 days and no interest was paid for this period in spite of various letters written to company - A complaint was filed by respondent against petitioner under section 73 - Whether in view of provisions of section 621 Court could take cognizance of any offence under section 73 only if complaint was filed in writing by Registrar or by a shareholder of company or by a person authorised by Central Government in that behalf and since respondent was neither a shareholder nor he was authorised by Central Government to file complaint, it was liable to be quashed - Held, yes - Whether a person who is simply a director can be prosecuted under section 73 - Held, no

Issues:
Violation of section 73 of the Companies Act, 1956 - Quashing of complaint, summoning order, and proceedings.

Detailed Analysis:

1. Allegations and Background: The petitioner, a director of a company, filed a petition under section 482 of the Code of Criminal Procedure to quash a complaint alleging violation of section 73 of the Companies Act, 1956. The complaint was filed by a respondent regarding the non-allotment and delayed refund of debenture amount by the company.

2. Summoning Order: The Chief Judicial Magistrate summoned the petitioner to stand trial for an offence under section 73 of the Companies Act after hearing the counsel for the complainant and reviewing the record.

3. Abuse of Process of Law: The petitioner argued that the complaint was an abuse of process with malicious intent and that the respondent lacked locus standi to file the complaint. It was contended that criminal liability under section 73 is on the company and its officers in default, and no negligence or mens rea was disclosed by the petitioner.

4. Legal Counsel Arguments: The legal counsels for both parties presented their arguments before the court, emphasizing the interpretation of relevant legal provisions and the applicability of the complaint in question.

5. Interpretation of Section 621: The petitioner argued that according to Section 621 of the Companies Act, cognizance of an offence under section 73 can only be taken if the complaint is filed by the Registrar, a shareholder, or a person authorized by the Central Government. The respondent, not being a shareholder or authorized by the government, lacked the standing to file the complaint.

6. Protection to Companies: The court acknowledged the protection provided to companies against frivolous prosecutions and highlighted that only the Registrar or a shareholder can file a complaint for an offence under the Act, emphasizing the importance of locus standi in such cases.

7. Validity of Complaint: The respondent contended that the complaint was for an offence against the Act, not under it. However, the court clarified that the distinction was not relevant, and the respondent failed to establish the locus standi to file the complaint under section 621.

8. Definition of 'Officer in Default': The court referred to the definition of 'officer in default' under section 5 of the Act, stating that the petitioner did not fall under any category mentioned. Only managing directors or whole-time directors can be considered officers in default under section 73.

9. Judgment: The court allowed the petition, quashing the complaint, summoning order, and all subsequent proceedings, as the petitioner did not fall under the category of 'officer in default' and the respondent lacked the standing to file the complaint.

10. Final Decision: The petition was allowed, and the complaint, summoning order, and related proceedings were quashed by the court, ruling in favor of the petitioner.

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