2012 (6) TMI 311 - HC - Companies Law

Violation - period of limitation - More than six months after the notice, the first show-cause notice was issued by the office of the Registrar of Companies Held that - period of limitation for an offence starts on the date of the offence or where the date is unknown from the date the person aggrieved by the offence acquires knowledge of such offence (section 469(1)(b)). Computation of period of limitation - held that - The exact date on which the investigation and inspection by the inspecting officer was carried out under section 209A of the Companies Act, 1956, is not available from the record. The inspection report is also not available in the record. - the date the inspection is ordered can be taken as the date when the Central Government has knowledge of the alleged offence The explanation furnished explaining distribution of dividend is more than acceptable and does not suggest any violation. The principle taken into account for calculating or disregarding depreciation of the above machinery is an acceptable practice or an arguably tenable practice. There is also assertion of existence of the remuneration committee to justify remuneration paid to the directors. In this kind of a proceeding it should always be the endeavour of the court to come to a finding on For the above reason that is the ground of limitation and non-existence of an offence I relieve the petitioners by discharging them. This application is accordingly, allowed.

Summary

Issues Involved:
1. Application under section 633(2) of the Companies Act, 1956.
2. Injunction against criminal proceedings based on show-cause notices.
3. Alleged violations of the Companies Act, 1956.
4. Period of limitation for taking cognizance of offences.
5. Merits of the alleged violations.

Issue-wise Detailed Analysis:

1. Application under section 633(2) of the Companies Act, 1956:
This application was made by five individuals and a company seeking relief from offences charged by five show-cause notices dated December 28, 2010. The petitioners included non-executive directors, a promoter, a chairman, a whole-time director, and a company secretary of AI Champdany Industries Ltd.

2. Injunction against criminal proceedings based on show-cause notices:
The court had granted an injunction restraining the respondents from instituting or causing to be instituted any criminal proceedings or any other proceedings against the petitioners based on the alleged violations in the show-cause notices dated December 28, 2010. Additionally, an injunction was granted against any proceedings related to a notice dated June 2, 2010.

3. Alleged violations of the Companies Act, 1956:
- First Show-Cause Notice: Alleged violation of section 205(1)(a) for declaring dividends without deducting depreciation on assets. The company argued these assets were non-depreciable as they were not in active use and had a higher valuation than book value.
- Second Show-Cause Notice: Alleged violation of section 299(1) for failure to disclose directors' interests in transactions with five companies. The company contended that directors' shareholdings were below 2%.
- Third Show-Cause Notice: Alleged violation of section 301 for not maintaining a register of directors' interests. The company argued that no director held more than 2% shares.
- Fourth Show-Cause Notice: Alleged violation of section 205(1A) for not transferring dividend amounts to a separate bank account. The company claimed substantial compliance as dividends were paid promptly.
- Fifth Show-Cause Notice: Alleged accounting dispute regarding remuneration to whole-time directors despite company losses. The company asserted the existence of a remuneration committee.

4. Period of limitation for taking cognizance of offences:
Sections 467 to 469 of the Code of Criminal Procedure, 1973, were discussed, establishing that the period of limitation for an offence starts on the date of the offence or when the aggrieved person acquires knowledge of it. The period of limitation for offences punishable with fine is six months. The court noted that the Registrar of Companies had knowledge of the alleged offences by June 2, 2010, making the cognizance of the offences barred by the time the application was filed on January 10, 2011.

5. Merits of the alleged violations:
The court found that the explanations provided by the company were reasonable and bona fide. The company's practices regarding depreciation, disclosure of directors' interests, dividend payments, and remuneration were deemed acceptable. The court concluded that there was no substantial evidence of any offence committed by the petitioners.

Conclusion:
The court, exercising its power under section 633(2), found no cause for proceeding with the prosecution based on the show-cause notices. The court discharged the petitioners, considering both the ground of limitation and the non-existence of any offence. The application was allowed, and the petitioners were relieved of the charges with no order as to costs.