9911796707
TMI Blog1936 (6) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... of a concern known as the Dhakeswari Cotton Mills Ltd. They were appointed to this responsible position out of a large Board of Directors amounting sometimes to as many as 17. The Company appears to have been a flourishing one paying dividends and was, as far as one can see, run and intended to be run upon up-to-date modern lines both in its equipment and in its management. It may be seen from the contents of a small booklet that was handed to me which contained both a review of the year's working ending December 1933, the balance sheet, profit and loss accout, and the revenue account, that the Directors were full of confidence as to their commercial position and also with regard to certain subsidiary aims which took the form, as authorised by the memorandum and articles of association, of training young Bengalee businessmen in up-to-date business methods. There was another Company formed sometime after the Dhakeswari Cotton Mills Ltd. which was known as the Eastern Bengal Jute and Cotton Mills Ltd. This Company was at the material time in a formative stage only. It was engaged in the same branch more or less, of industry as the Dhakeswari Cotton Mills and it had the advantage of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g expression "Contractors and others' was concerned," and others did not indicate clearly that a loan had been made to officers of the Company. In fact it was argued that such payments did not constitute loan items at all. When the objections were raised at the Directors' meeting there was a good deal of fuss and it is said that at the meeting which subsequently took place when the balance sheet was confirmed, the meeting was packed and the objectors were howled down. Then came this prosecution on the part of a nominal shareholder who, it is suggested, was set up to complain by the recalcitrant Director who had started the first objection and had not signed the balance sheet. The respondents were prosecuted under section 282 of the Companies Act of 1913. That section is in the following terms: "Whoever in any return, report, certificate, balance sheet or other document, required by or for the purposes of any of the provisions of this Act, wilfully makes a statement false in any material particular, knowing it to be false, shall be punishable with imprisonment of either description for a term which may extend to three years, and shall also be liable to fine." Closely connected w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er deposit items', but he acquitted them of the charge based upon the alleged misstatement wrapped up in the item "Contractors and others." The way in which the defence met this argument on the part of the Crown was this: they said that the Company was in reality carrying on a subsidiary banking business and that they were entitled to do this under the two Articles L and M in the memorandum and that this loan of Rs. 40,000 made to the Eastern Bengal Mills was nothing more or less than a banker's overdraft granted to a banking customer and therefore it was quite in order to enter as the banking deposit account the actual net figure of the account, when showing it in the balance sheet. There was a further argument to illustrate this contention based on the well known difference in banking law between banker's loan and banker's overdraft; and it was nothing more or less than an overdraft, because the Eastern Bengal Mills was on old client of the banking side of the Company's activities. I shall deal with that point at once. It seems to me however that in reality this Company was not carrying on a banking business at all. Its object in receiving deposits in cash from its customers wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y' used in the Companies Acts, both in this country and in the United Kingdom, means nothing more nor less than the spontaneous action of a person who is a free agent. The word 'wilfully' has been dealt with in certain well-known decisions to which I need not refer exactly but such seems to be the considered opinion with regard to its exact significance. It is, of course, a term that must be interpreted according to the facts of each case. It has been described as not being a term of art, but a legal expression to be ficted to the circumstances being considered by the Court. Now the really important question in this case falls at last to be considered, and it is this; Was the entry of the figure to which I have referred over and over again appended to the expression "deposits by others" in the circumstances of the case, a statement false in any material particular? In my opinion, it was. The requirements of a balance sheet have often in law been discussed both in the Courts of this country and in England and it has been said that a balance sheet need not be, in fact it must not be, a mere inventory. It is supposed to be, to use an expression employed in one judgment, a pictorial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itation in saying that ordinary investors reading the item 'by other deposits' would imagine that it represented a total figure of accumulated deposits and not an incorporated net figure making an outgoing loan. It is quite obvious that a Joan and a deposit are items differing completely in principle from the balance sheet point of view. Strictly speaking, they ought to appear on different sides, for one is an asset and the other is a liability. Consolidating the two and presenting them as one item to the readers, to my mind, is a striking case of non-disclosure, amounting to a suppression of the truth. I further regret very much to say that there was every inducement for the people who drew up this balance sheet to make it up, in this irregular fashion. It was certainly an improper thing for the directors of the Dhakeswari Cotton Mills to advance money to the East Bengal Jute and Cotton Mills which was an embryonic concern and which might possibly turn out afterwards to be a competitor. These directors know, or at any rate ought to have known, before the final minutes, which included the balance sheet, were confirmed that grave objections were being raised among their own colleagu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of their commission and travelling allowances and then showed it under the heading 'advances to contractors and others.' This was clearly an unscrupulous thing to do. But in support to their plea of good fath, they examined two expert witnesses, viz. , a chartered accountant, named Read, and the auditor of their own company, and both these witnesses gave evidence to the effect that, in their opinion, the balance sheet was properly drawn up. Of course, no opinion expressed by an auditor or accountant can turn a false balance sheet into a true one and the only importance of this lies in the effect that it may have had upon the intention of the respondents. So far as Mr. Read is concerned, it has none at all because he was only shown the accounts a few days before he gave evidence and was merely called to depose that there was nothing wrong in the balance sheet. He was severely shaken in cross-examination and I do not believe him when he says that in his opinion the balance sheet was carefully drawn up. I am further of opinion that the learned Magistrate formed a proper estimate of the auditor. He was related to one of the respondents and was clearly under an obligation to them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r or five days for this work. Accordingly, as soon as the meeting began, he asked that it might be postponed for three days so that he might have time to examine the balance sheet properly. This was disallowed, and he was left in ignorance of the true position. Such conduct is clearly not the conduct of honest men who think that they have drawn up their balance sheet properly and have nothing to conceal Then again, if we found on examination that the irregularities were of no importance to anybody and were of no benefit to the respondents, we might be able to hold that the action of the respondents was not wilful; but exactly the opposite is the case. There were two irregularities both of which were of benefit to the respondents and both of which were necessary to the respondents in order to enable them to cover up their tracks. From this it is transparent that they wilfully drew up a false balance sheet for their own benefit. I think the respondents were ill-advised, when they became the managing directors of a rival Company. At any rate, they received a warning from the objection of a co-director, P.W. 8, when he objected to their taking up the management of the new mill as wel ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
