2007 (9) TMI 410 - HC - Companies Law

Whether on the allegations made in the complaint an actionable cause has been disclosed ? - Held that - Warrants which may be not encashed and amount continuing to be retained by the company was a serious lacuna which stands addressed by the amendment incorporated on 15-6-1988. The words or the warrant in respect thereof has not been posted have been replaced by the words or claimed .The effect of the amendment is that wherever dividend remains unpaid or unclaimed within 42 days from the date of declaration of the dividend then alone the said amount has to be transferred to the unpaid dividend account. The amendment is not retrospective. From a perusal of the complaint it is apparent that the complaint relates to the balance-sheet of the company as of 31-3-1981.The petition is accordingly allowed.

Summary

Issues:
Interpretation of section 205A of the Companies Act, 1956 regarding transfer of unpaid dividends to special accounts.

Analysis:
The judgment in question revolves around the interpretation of section 205A of the Companies Act, 1956, specifically focusing on the transfer of unpaid dividends to special accounts. The complaint filed under section 205A(8) of the Companies Act alleged that the company had not transferred the amount of dividend to a special dividend account as required by law. The core issue was whether an actionable cause had been disclosed based on the allegations made in the complaint.

The complaint highlighted that the company had declared dividends but failed to transfer the amount to a special account for dividends/warrants that had been posted within the stipulated time but remained unencashed. The prosecution's case centered on the company's failure to transfer the dividend amount to the special account, as mandated by the law at that time.

The legal provision under section 205A(1) of the Companies Act, 1956, required the transfer of unpaid dividends to a special account if dividends remained unpaid or unclaimed within a specified period. The judgment noted a crucial amendment to the law in 1988, which replaced the requirement of posting warrants with the requirement of claims for unpaid dividends within 42 days of declaration.

The judgment referred to a Supreme Court decision in Hanuman Prasad Gupta v. Hiralal, which clarified that dividend payment occurs when cash is paid, a cheque is sent, or a warrant is posted to the shareholder. The court emphasized that the amendment in 1988 addressed the lacuna where warrants were not encashed, and the amount was retained by the company.

Ultimately, the court found that the complaint related to a balance-sheet from 1981, and the legal amendment in 1988 was not retrospective. Consequently, the petition was allowed, and the complaint along with the trial order was quashed, with no costs imposed. The judgment provided a comprehensive analysis of the legal provisions and their application to the specific case at hand, ensuring clarity on the requirements for transferring unpaid dividends to special accounts as per the Companies Act, 1956.