1993 (1) TMI 244 - HC - Companies Law

Summary

Issues Involved:
1. Legality of the conviction and sentence under Section 209A(5) and (8) of the Companies Act, 1956.
2. Compliance with mandatory provisions of Section 209A.
3. Adequacy of the cause shown for non-production of account books.
4. Impact of the company's liquidation on the ability to produce account books.

Detailed Analysis:

1. Legality of the Conviction and Sentence under Section 209A(5) and (8) of the Companies Act, 1956:
The revision petitioner, the managing director of a private company, was convicted and sentenced to rigorous imprisonment till the rising of the court and fined Rs. 5,000, in default to suffer rigorous imprisonment for three more months. This conviction was confirmed by the Principal Sessions Judge, Madras, for failing to produce the account books for the years 1979-80 and 1980-81 during an inspection by the Registrar of Companies. The revision petitioner challenged the legality and correctness of this conviction and sentence.

2. Compliance with Mandatory Provisions of Section 209A:
The court examined Section 209A of the Companies Act, 1956, which mandates that the books of account and other papers of the company should be open to inspection by the Registrar or an authorized government officer without prior notice. Sub-section (2) of Section 209A specifically requires the inspecting officer to specify the time and place for the production of these documents. The court found that P.W.-2 issued a notice (Exhibit P-5) to the revision petitioner on February 17, 1986, which was served on February 20, 1986 (Exhibit P-6). The notice requested the revision petitioner to show cause within ten days for non-compliance, failing which prosecution would be launched.

3. Adequacy of the Cause Shown for Non-production of Account Books:
The revision petitioner responded to Exhibit P-5 with three letters (Exhibits D-3, D-4, and D-5), explaining that the director in charge of the documents had passed away and requested additional time to procure the documents. Despite this, P.W.-1 and P.W.-2 did not respond to these explanations or reject them. The court noted that the authorities did not act upon the cause shown by the revision petitioner, which was a violation of the principles of natural justice and the mandatory provisions of Section 209A(2).

4. Impact of the Company's Liquidation on the Ability to Produce Account Books:
The court also considered the fact that on February 20, 1986, the company was ordered to be wound up, and the official liquidator took charge of all the properties and records of the company. This meant that the revision petitioner was not in a position to produce the account books. The court found it unreasonable for P.W.-1 and P.W.-2 to expect compliance with Section 209A under these circumstances.

Conclusion:
The court concluded that both the trial court and the lower appellate court overlooked significant legal aspects, including the mandatory provisions of Section 209A and the principles of natural justice. The court held that the launching of the prosecution against the revision petitioner was improper and could not be sustained. Consequently, the conviction and sentence were set aside, and the revision petitioner was acquitted. The fine amount paid, if any, was ordered to be refunded immediately.