2019 (1) TMI 1759 - HC - Companies Law

Disbursement of loans to accused without prior sanction of the Registrar of Companies - contravention of section 295 (4) of the Companies Act - time limitation - HELD THAT - In the case of Srikumar Menon and Ors. vs. Registrar of Companies 2012 (6) TMI 5 - HIGH COURT OF CALCUTTA , a show-cause notice was sent under section 295(1C) of the Act. An application was filed under section 633(2) of the Companies Act, where without permission of the Central Government, intercorporate deposits were created. For such violation, conviction prescribed was maximum imprisonment of 6 months for the offender. The complaint was filed, however, objection was raised on the ground that it was barred by limitation under section 468 of the Code of Criminal Procedure. In Homi Phiroz Ranina Ors. vs. State of Maharashtra Ors. 2003 (2) TMI 31 - BOMBAY HIGH COURT , the complaint was filed for delay in remitting the tax deducted. The applicant has taken stand that he was nonexecutive Director of the company and they are also practising advocates and, therefore, they are prohibited under the law to act as full time directors - The status of the applicant/accused in the case of Homi Phiroz Ranina ors. vs. The State of Maharashtra ors., is similar to the status of the petitioner in the case in hand. The applicant is also a practising advocate and solicitor. So, he could only act as non-executive Director unless specific material is brought on record, the liability of a principal or active Director cannot be fixed on him - Admittedly, he is not a signatory to the cheque, which is the subject matter of the complaint. The other point in respect of the status of the petitioner as an active partner and was having knowledge of not taking prior approval for disbursement, is not made out in the averments. A specific role is attributed to accused Nos.1 and 2. Accused No.2 is a Managing Director and therefore, he has signed the cheque. The petitioner had not signed the books of accounts but he has signed the balance sheet - on the basis of only signature, it cannot be said that there is enough material to show the knowledge of the petitioner of disbursement of the loan without prior approval. A significant circumstance also to be addressed to is that the accused Nos.1 and 2 are the Directors of those companies in whose favour the loans were disbursed. Thus, the accused Nos.1 and 2 had direct interest in the disbursement of loan. There is nothing to show that the petitioner has any interest or any connection with the other two companies - no case is made out to issue process under section 295 (4) of the Companies Act, 1956 is made out to swaddle the vicarious liability on the petitioner. The process issued by the learned Magistrate under section 295 (4) of the Companies Act, 1956 on 24.5.2002 and the summons dated 3.11.2015 are quashed and set aside.

Summary

Issues:
Challenge to order of issuance of process and summons in Criminal Case No.3847/SS/15 under section 295(4) of the Companies Act, 1956.

Analysis:
1. The petitioner contested the order of issuance of process dated 24.5.2002 and the issuance of summons dated 3.11.2015 in Criminal Case No.3847/SS/15. The complaint was filed by the Registrar of Companies under section 295(4) of the Companies Act, 1956, alleging a violation as loans were disbursed without prior sanction. The accused No.6, a Director, challenged the process, arguing that he was an alternate Director and not directly involved in the disbursement of loans. The complaint mainly implicated accused Nos.2 to 4, not accused No.6.

2. The defense highlighted that accused Nos.1 and 2, who were actively involved in the disbursement of loans, held significant roles in the companies receiving the loans. The petitioner, accused No.6, being an advocate and alternate Director, was not directly connected to the transactions in question. The defense emphasized that the petitioner's signature on the balance sheet was routine and did not imply knowledge or approval of the loan disbursement without sanction. The defense also argued that the complaint failed to establish the petitioner's active involvement or interest in the disbursement.

3. The defense further contended that the complaint was time-barred under section 468 of the Criminal Procedure Code, as the inspection took place in 1999, and the complaint was filed in 2002, exceeding the one-year limitation period for offenses punishable by one year. The defense cited legal precedents like Srikumar Menon and Atul B. Munim cases to support their arguments on the petitioner's role and the limitation period for prosecution.

4. The respondent opposed the application, emphasizing the petitioner's directorial position in the company and the loans disbursed without proper sanction. The respondent argued that the complaint was timely filed after obtaining necessary sanctions and notices. Legal precedents like R.M. Subramaniam and Bhupinder Kaur Singh cases were cited to support the respondent's position on prosecution timelines and limitations.

5. After considering the arguments and legal precedents, the Court held that no sufficient case was made out to establish the petitioner's vicarious liability under section 295(4) of the Companies Act, 1956. The Court quashed the process issued by the Magistrate and set aside the summons, ruling in favor of the petitioner based on the lack of evidence implicating the petitioner in the loan disbursement without sanction.

By thoroughly analyzing the issues raised in the petition challenging the process and summons under the Companies Act, the Court's judgment provided a detailed examination of the petitioner's role, the timing of the complaint, and legal precedents influencing the decision to quash the process and summons.