1966 (7) TMI 57 - HC - Companies Law

Officer who is in default Meaning of, Company Incorporation of, Accounts Annual accounts and balance sheet

Summary

Issues Involved:
1. Joinder of Charges and Joint Trial
2. Liability of Directors for Company Defaults

Detailed Analysis:

1. Joinder of Charges and Joint Trial
The petitioners objected to the amalgamation of the seven cases for a joint trial, contending that sections 234 and 239 of the Criminal Procedure Code (CrPC) bar both the joinder of charges and the joinder of different sets of persons for a single trial. The court examined whether the offences under sections 162(1), 168, 220(3), and 210(5) of the Companies Act could be tried together under section 235 of the CrPC, which allows for the joinder of charges if the offences are committed in the course of the same transaction. The term "same transaction" suggests a continuity of action and purpose, implying that if a continuous thread runs through the acts complained of, the charges can be joined together. The court found that the defaults and omissions in the present cases constituted a series of acts so connected as to form the same transaction. Therefore, the joint trial was justified under sections 235 and 239 of the CrPC, and the learned Magistrate did not err in law by jointly trying the petitioners.

2. Liability of Directors for Company Defaults
The petitioners argued that there was no basis for the conviction of the directors in the absence of a finding that they knowingly or wilfully authorized or permitted the defaults. The court examined whether the directors were "officers in default" under sections 162(1), 168, and 220(3) of the Companies Act. According to section 5 of the Companies Act, an "officer in default" is any officer of the company who is knowingly guilty of the default or who knowingly and wilfully authorizes or permits such default. The court referenced various cases to elucidate the directors' responsibilities and the conditions under which they could be held liable.

In Rajkumar Kusari v. Emperor, it was held that it must be shown that the accused knowingly participated in the default. In Surendra Nath Sarkar v. Emperor, it was emphasized that the managing director must be found responsible for the default. The court also referenced Bhagirath Chandra Das v. Emperor, which stated that directors are responsible for ensuring compliance with statutory duties and can be held liable if they knowingly permit defaults. The court concluded that the petitioners, as promoters and first directors, were responsible for taking necessary actions to comply with the Companies Act. Their failure to do so made them "officers in default."

The court dismissed the petitioners' argument that the company's non-functioning excused their defaults, stating that the company should have initiated winding-up proceedings if it was not operational. The court emphasized that the statutory requirements must be fulfilled to protect shareholders' interests, and the directors' inaction constituted knowing and wilful defaults.

Conclusion
The court upheld the joint trial of the seven cases, finding it legally permissible under sections 235 and 239 of the CrPC. The court also affirmed the conviction of the directors, concluding that they were "officers in default" who knowingly and wilfully permitted the company's statutory defaults. The rules were discharged, and the convictions were upheld.