1970 (2) TMI 70 - SC - Companies Law

Whether once a mode of payment of dividend is agreed to, namely, by posting a cheque or a warrant, the place where such posting is to be done is the place of performance and also the place of payment, as such performance in the manner agreed to is equivalent to payment and results in the discharge of the obligation? Held that - The offence under section 207 is the failure to pay dividend or to post a cheque or a warrant for the dividend amount. Since the obligation to post the warrant arose at the registered office of the company, failure to discharge that obligation also arose at the registered office of the company. Therefore, the alleged offence must be held to have taken place at the place where the company s registered office is situate and not where the dividend warrant, when posted, would be received. In that view, the High Court was in error in holding that the Magistrate at Meerut had jurisdiction to try the said complaints. The appeals must accordingly be allowed and the High Court s orders set aside. Appeal allowed.

Summary

Issues Involved:
1. Jurisdiction of the Magistrate to try the complaints.
2. Interpretation of Section 207 of the Companies Act, 1956.
3. Obligations of the company regarding payment of dividends.
4. Determination of the place of performance and payment of dividends.
5. Applicability of common law rules to the statutory provisions.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Magistrate to Try the Complaints:
The primary issue in these appeals was whether the Magistrate at Meerut had jurisdiction to try the complaints filed under Section 207 of the Companies Act, 1956. The appellant argued that the jurisdiction lay with the Magistrate at Delhi, where the company's registered office was located. The Magistrate at Meerut, the Sessions Judge, and the High Court of Allahabad had all held that Meerut had jurisdiction because the dividend was to be paid at the respondent's registered address in Meerut. The Supreme Court, however, disagreed, stating that the venue of the offence would be where the company's registered office is located, i.e., Delhi.

2. Interpretation of Section 207 of the Companies Act, 1956:
Section 207 deals with the penalty for failure to distribute dividends declared by the company. The Supreme Court highlighted that the offence under this section is committed when the dividend is not paid or a cheque or warrant is not posted within 42 days from the date of declaration. The Court emphasized that the obligation to pay is satisfied once the dividend is paid or a cheque or warrant is posted to the registered address of the shareholder.

3. Obligations of the Company Regarding Payment of Dividends:
The Court noted that under Section 205(5)(b) of the Companies Act, the company is authorized to pay dividends by cheque or warrant sent through the post to the registered address of the shareholder. The articles of association of the company (Article 132) also supported this mode of payment. The Court concluded that once the dividend warrant is posted at the registered address, the company is deemed to have discharged its obligation.

4. Determination of the Place of Performance and Payment of Dividends:
The Court held that the place of performance and payment of dividends is where the posting of the cheque or warrant occurs, which is at the company's registered office. The Court reasoned that the obligation to post the dividend warrant and the failure to satisfy that obligation would occur at the place where the obligation is to be performed, i.e., the registered office of the company.

5. Applicability of Common Law Rules to the Statutory Provisions:
The Court examined whether the common law rule that "the debtor must seek out the creditor" applied in this context. The Court concluded that Section 207 does not make non-receipt of the dividend warrant by the shareholder an offence; the offence consists in the failure to post the dividend warrant within the prescribed period. The Court also referred to the principles laid down in various cases, including Thairlwall v. Great Northern Railway Co. and Indore Malwa United Mills Ltd. v. Commissioner of Income-tax, to support its conclusion that the place of posting is the place of payment.

Conclusion:
The Supreme Court concluded that the offence under Section 207 of the Companies Act, 1956, occurs at the place where the company's registered office is located, as that is where the obligation to post the dividend warrant arises. Consequently, the Court held that the Magistrate at Meerut did not have jurisdiction to try the complaints, and the competent court would be the one within whose jurisdiction the company's registered office is situated, i.e., Delhi. The appeals were allowed, and the High Court's orders were set aside.