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TMI Blog1986 (10) TMI 290X X X X Extracts X X X X X X X X Extracts X X X X ..... Act as also all these features are not properly considered by the learned Magistrate. All these characteristic features are enveloped in this proceeding, which make the continuation of the proceeding a sheer waste of public money, time and energy and even on the ground of propriety, it is desirable to close the chapter at this stage itself. The first petitioner is a public limited company (company) registered under the Companies Act with their registered office located on Lal Bahadur Shastri Marg in Mulund area of the metropolis. Petitioners Nos. 2 to 6 are directors of the company. Petitioners Nos. 3 and 4 are ordinarily residing in the United States of America, while petitioner No. 5 ordinarily resides in the United Kingdom and thus they are nonresidents. They represent the parent company, M/s. Chicago Pneumatic Holdings Limited, United Kingdom, on the board of directors of the company. As per the balance-sheet of the company as on December 31, 1982, it is disclosed that the company had paid interim dividend of 10% on equity shares in February, 1984, and declared the final dividend of 5% on June 27, 1984. Petitioners Nos. 3 to 5 were entitled to the said amounts of dividend. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ividend account, since, according to him, the initial disqualification would continue till the end creating an umbrella of protection for the petitioner. In other words, when there was no default at the initial stage, there cannot be default at the consequential Stage also. The alternate plank is that even assuming there was a default, it could not be said as wilful as required by law, especially when three of the directors are ordinarily residing abroad while the other two are not associated with the daily routine work. As a third count, it was submitted that even assuming otherwise, still on facts, if properly construed, there is no propriety of continuing the prosecution especially when the amounts have been deposited in full even prior to the lodging of the complaint. All these contentions are countered by Shri P. M. Vyas, learned public prosecutor for the State. According to him, even though there might be protection under the proviso of section 207 of the Act for not depositing the amount on account of statutory disqualification since the Reserve Bank's permission had not been obtained, still, the protection stops at that and the further consequence of non-depositing the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be reproduced as ; "Provided that no offence shall be deemed to have been committed within the meaning of the foregoing provision in the following cases, namely: ( a )where the dividend could not be paid by reason of the operation of any law." The scheme, legislative intent and the object behind this enactment would be quite relevant in this field. The requirement of section 205A can be dissected into seven clauses. First, there should be a declaration by the company of the dividend. Then there is a prescribed mode of payment of the dividend, first by actual payment and second by posting a warrant in respect thereof. The second ingredient suggests that the said amount is required to be paid or warrant to be despatched for which a fixed period of forty-two days from the date of declaration is stipulated. The third part indicates that this would apply vis-a-vis shareholders who are entitled to receive the said dividend. The fourth part indicates the consequence of not fulfilling this obligation within forty-two days whereupon a further obligation comes into play that within seven days after completion of the said period of forty-two days, the company is enjoined to transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... make the payment due to some legal hurdle cannot be transplanted into the provisions of section 205A to serve as a parallel defence for the consequence of non-payment. In other words, it may be a good defence for non-payment to a shareholder entitled to payment but it is hardly a defence to the consequence which may ensue under section 205A under which the company is under an obligation to deposit all such amounts of unpaid dividend in a special account of the said company. The protection, therefore, for non-payment very much stops at that point of time inasmuch as if the payment cannot be made due to operation of law, then no offence is made out under section 207, since the payment could not be made. However, in spite of this protection which is for the limited purpose of non-payment to the shareholder, the further consequence is not suspended, much less wiped out. In other words, even if the company is exempted from paying such amounts on account of operation of law, still, the said amount which remains unpaid will fall in the same category along with other amounts which remained unpaid to the shareholder entitled to the payment. The right of the shareholder to be entitled to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary as per the scheme of the provisions contained in all the sub-sections of section 205A as the amount after a particular period has to be transferred to the general revenue account of the Central Government while the person to whom the amount is due can lodge his claim and get the amount. All these provisions form a complete unit with a specific purpose in the interest of all the parties concerned, highlighting the object and utility of transferring such amounts of unpaid dividends. Therefore, in effect, it is not the reason for non-payment but it is the consequence of non-payment that brings into play the second part of section 205A casting an obligation on the part of the company to deposit the unpaid amount in a special account within the period of seven days after the said stipulated period of forty two days is over. This position is manifestly clear and admits of no doubt. Examined on the facts of the instant case and on an analysis of these provisions, the position is clear that the dividend was declared in February, 1984, but it was actually paid on June 1, 1984, while final dividend was declared on June 21, 1984, but it was actually paid on January 22, 1985. Thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8) prescribes that if a company fails to comply with the provisions of section 205A(1), then it gives an indication as to which of the officers of the company would be held liable for punishment and for that purpose a specific terminology has been used as "the company and every officer of the company, who is in default" who are made liable for punishment. It, therefore, follows that with some purport, the Legislature has employed this term "every officer of the company who is in default", and the prosecution must establish that petitioners Nos. 2 to 6 squarely fall in this category. This, however, is an incomplete reading of the situation as it would be necessary to find out as to what was really intended by the Legislature in enacting this provision using this particular terminology embracing not "every officer of the company" being made liable for punishment but restricting only to such officer of the company who is in default being made liable for punishment. Section 5 of the Act furnishes the meaning of the term "Officer who is in default" and it reads as : "For the purpose of any provision in this Act which enacts that an officer of the company who is in default shall be l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y guilty of non-compliance, failure or refusal or contravention mentioned in that provision or who knowingly and wilfully authorises or permits such default, non-compliance, failure, refusal or contravention, would be liable for punishment with fine which may extend to 500 rupees for every day during which the failure commenced." It would, therefore, be manifest from this composite definition emerging out of those provisions that it is not every officer of the company who will be liable but that officer must be an officer in default and for that purpose he must have been guilty of that default knowingly or he must have authorised the said default knowingly or wilfully. It is true that in the first part, wilful default is not contemplated but nonetheless the person must be knowingly guilty of the said default, contravention or non-compliance and in respect of authorising the act then it must be not only knowingly but also wilfully. Applying this composite definition to the case, Shri Vashi, learned counsel, contends that respondents Nos. 2 to 6, by merely being the directors of the company, cannot be presumed to have been knowingly guilty or have knowingly and wilfully authorise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they being abroad, their counterpart in the company having not deposited the said amount to the special account cannot be tagged to that as a wilful default or a default committed knowingly. As stated, there is absolutely no evidence worth the name which is sought to be produced by the prosecution nor is there anything in the complaint even to inferentially suggest application of these provisions of the Act vis-a-vis petitioners No. 2 to 6. In the absence of any such material and in the event of the glaring features which are indicated earlier, the vital ingredients of the offence are blissfully missing. Consequently, notwithstanding that there has been a default by the company in not depositing the said amount in a special account, petitioners Nos. 2 to 6 cannot be made liable for the same. The case of the company of course may stand on a different footing. Shri Vashi, learned counsel, also contended that the company and the concerned officers bona fide believed that as per their interpretation of section 205A(1) read with section 207 along with proviso ( a ), once they were protected by that proviso from not incurring any penal liability for non-payment of the amount as they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed much less allowed to be continued which exercise would be sheer waste of public money and time and energy and may even be an abuse of the process of law. It is better if the court's precious time is saved to attend to better proceedings than the one at hand. Prolonging the agonies of the petitioners under these circumstances would be thoroughly unjustified. Even the complainant should have considered the propriety of lodging the complaint even after the payment was remitted in full. Any way, it is a past event while at present and for the future, the same can be rectified by not continuing the proceeding. Unfortunately, the learned Magistrate did not consider any of these facts and almost mechanically issued process. It is true that the inherent jurisdiction should not be lightly exercised to quash the proceeding. However, when even ex facie it appears to be manifestly clear and even desirable on the ground of propriety not to continue the proceeding, then this court on the ratio of R. P. Kapur v. State of Punjab, AIR 1960 SC 866, State of Karnataka v. L. Muniswamsy, AIR 1977 SC 1489, and Triloks Singh v. Satya Deo Tripathi, AIR 1979 SC 850, would be entitled to st ..... X X X X Extracts X X X X X X X X Extracts X X X X
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