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TMI Blog1995 (4) TMI 221X X X X Extracts X X X X X X X X Extracts X X X X ..... of 1994 for offences under section 7A read with sections 41 and 61, 21(1)( iv )( a ) and 31 read with section 54 of the Factories Act, 1948 and S.T.C. No. 31 of 1994 for offences under section 47 read with sections 72 and 41 of the Factories Act on the file of the Judicial Magistrate of First Class, Huzurnagar. On his plea of guilty, he was convicted and sentenced to pay a fine of Rs. 300 in default to suffer rigorous imprisonment for one month on each count (total fine Rs. 900) in STC No. 30 of 1994 and Rs. 300 in default to suffer rigorous imprison-ment for one month on each count (total fine Rs. 600) in S.T.C. No. 31 of 1994 by separate orders dated 27-4-1994. Some time thereafter, the first respondent herein, a shareholder of the company filed Crl. M.P. Nos. 1390 and 1391 of 1994 in S.T.C. Nos. 31 and 30 of 1994 respectively under sections 203(1)( a ) and 203(2)( a ) for restraining the petitioner from acting as the Managing Director of the company, etc. Thereupon, the learned Magistrate passed the impugned orders restraining the petitioner from acting as the managing director of, or taking part in any way either directly or indirectly in promotion, formation or management of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be any dispute that commission of fraud or conviction for any offence involving fraud is essential to attract the provisions of clause ( b )( i ) and first limb of clause ( b )( ii ) of section 203(1). To this extent, the marginal note and the provisions of the section go together. Thus, the controversy whether the marginal note to the section can be referred to for the purpose of construing the provisions of the section is confined to clause ( a ) where a person is convicted of any offence in connection with the promotion, formation or management of a company and second limb of clause ( b )( ii ) where a person has been guilty of any misfeasance in relation to the company or any breach of his duty to the company in the course of its winding up. Though the Act is nearly four decades old, it is reported by the learned counsel on either side that despite thorough investigation they could find no direct decision on the point at issue. They also reported that they could not lay their hands on any useful commentary or decisions by English Courts on section 188 of the Companies Act, 1948 (U.K.), which reads almost identical to section 203 of the Act. My attempt, in thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of not less than fifteen per cent of the value so declared, the full value of the consideration for such capital asset shall, with the previous approval of the Inspecting Assistant Commissioner, be taken to be its fair market value on the date of its transfer." It is significant to note that in the body of the section there was no reference to understatement of consideration in respect of the transfer. On that basis, it was contended by the revenue that the marginal note should not be read into the provisions of the sub-section. Bhagwati J. (as he then was) speaking for the Court, after elaborate discussion on various aspects, while rejecting the contention of the revenue concluded as under: "18. We must therefore hold that sub-section (2) of section 52 can be invoked only where the consideration for the transfer has been understated by the assessee or in other words, the consideration actually received by the assessee is more than what is declared or disclosed by him and the burden of proving such understatement or concealment is on the revenue...." (p. 1936) This conclusion makes it manifestly clear that the marginal note can be relied upon to understand the object and pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke into account of the ostensible purpose and object and the real legislative intent. Otherwise, a bare mechanical interpretation of the words and application of the legislative intent devoid of concept of purpose and object will render the Legislature inane...." (p. 1785) In the light of the above principles, let us examine the point set for consideration. Part VI of the Act deals with Management and Adminis-tration of Companies. It contains eight Chapters. Sections 202 and 203 are in Chapter I, which deals with general provisions. At this juncture, it would be appropriate to refer to the heading to sections 202 and 203. It reads thus: "Prevention of management by undesirable persons" To a large extent, this heading provides clue to the purpose and object of these two sections. It is fairly well settled that the "headings and titles prefixed to sections can be referred to in construing the act of Legisla- ture". - Principles of Statutory Interpretation by G.P. Singh, Second Edition at page 97. In Bhinka v. Charan Singh AIR 1959 SC 960, Subba Rao J., as he then was, quoting with approval the following passage from Maxwell on Interpretation of Statutes, 10th Edition at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned Magistrate or before me that there is any element of fraud in the offences the petitioner was found guilty. Therefore, the impugned orders are liable to be set aside. Even otherwise, that is, assuming that mere conviction of a Director or Managing Director of a company of any offence, regardless of its nature, is sufficient to invoke the provisions of clause ( a ) of sub-section (1) of section 203, it is not mandatory that they should be restrained from taking part in the promotion, formation or management of a company. The Court has the discretion, having regard to the facts and circum- stances of each case, to pass an appropriate order. It is open to the Court to hold that it is not necessary to restrain them from taking part in the management of the company. Or, it may pass an order restraining them from acting as such for such period, which it considers just and proper. But, in the present case, it is apparent that the learned Magistrate has proceeded as if he had no opinion in the matter. 9. Shri Padmanabha Reddy, the learned counsel for the first respondent strenuously contends that the Court has no option but to disqualify the petitioner. He also contends that th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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