2008 (1) TMI 629 - HC - Companies Law

Managing agents, remuneration of - Determination of net profit, Penalty - Where no specific penalty is provided elsewhere in Act

Summary

Issues:
Challenge to summoning order under section 482 of CrPC, interpretation of sections 349 and 350 of Companies Act, 1956, maintainability of revision petition, limitation period for taking cognizance of offence, explanation for delay in filing complaint, nature of contravention alleged under section 349(4), legality of complaint against the company.

Analysis:
The petitioners challenged a summoning order dated 11-4-2002 under section 482 of the CrPC, following an inspection revealing non-compliance with sections 349 and 350 of the Companies Act, 1956. The complaint filed by the Registrar of Companies alleged contravention of section 349(4) of the Act. The petitioners contended that the offence was punishable with a fine of Rs. 5,000 and the limitation period for cognizance was six months, emphasizing the need for proper explanation for any delay. They argued that depreciation should not be deducted for managerial remuneration, relying on the interpretation of the Act rather than the need for trial evidence.

The petitioners' revision petition was dismissed by the Additional Sessions Judge citing a Supreme Court judgment. The petitioners then argued that the only remedy against the summoning order was through section 482 of the CrPC. They highlighted that section 629A of the Act specified the maximum punishment for contraventions. The court noted the absence of the Registrar of Companies during proceedings and allowed written submissions from both parties.

The court analyzed the legality of the complaint, noting that the limitation period for taking cognizance started from the date of knowledge of the offence. It found that the complaint was filed beyond the limitation period, and no reasonable explanation was provided for the delay. The court also examined the nature of the contravention under section 349(4), emphasizing the distinction between depreciation and excess expenditure. Referring to precedent, the court held that unprovided depreciation of previous years did not constitute excess expenditure under section 349(4), rendering the basis for prosecution invalid.

Consequently, the court allowed the petition, quashing the complaint and all related proceedings against the company. The judgment emphasized the legal interpretation of sections 349 and 350 of the Companies Act, the limitation period for cognizance of offences, and the requirement for a valid explanation for any delays in legal proceedings.