9911796707
TMI Blog1997 (2) TMI 429X X X X Extracts X X X X X X X X Extracts X X X X ..... rector (also designated as executive director and company secretary) of the company. It is also alleged that Dr. V. Krishnamurthy, Sri Ved Kapoor, Sri Kanhaiyalal Rajgarhia, Sri T.P.G. Nambiar, Sri Pratap C. Reddy, Sri Vijay Dhar, Dr. D.N. Patodia and Sri Vinod L. Doshi are said to be at all material times pertaining to the complaint, the members of the board of directors of the company. The main object for which the company was established has been incorporated in the memorandum of association. Inspection of the books of account and other books and papers of the company was ordered by the Department of Company Affairs under section 209A of the Act, during the month of July, 1992. Accordingly, Sri Richard, Inspecting Officer, attached to the office of the Regional Director, Madras, commenced the inspection on July 27, 1992, and submitted an interim report dated October 23, 1992. After receipt of this report on November 6, 1992, forwarded by the Regional Director, Madras, advising to launch prosecutions for the various violations/contraventions of the Act, the Registrar of Companies filed various complaints before the Special Court for Economic Offences, Bangalore. C.C. No. 1181 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 11B of the Companies (Central Government's) General Rules and Forms, 1956. The details of the loans given to bodies corporate in excess of the maximum permissible limit have been furnished in the complaint. Therefore, it is alleged that the accused persons have committed an offence punishable under section 370(1) of the Act. It is alleged in C.C. No. 179 of 1993, that the company circulated large amount of application forms for raising capital of the company by private placement without complying with the provisions of sections 56 and 60 of the Act, and received favourable response from the public. The company's board of directors after allotting to 2,738 shareholders went ahead and made partial allotment to some and refunded to some other shareholders. This was done without complying with the provisions of sections 56 and 60 of the Act. The company's board of directors thereby have committed offence punishable under section 60(5) of the Act. The complainant has alleged in C.C. No. 678 of 1993, that in terms of section 217(2A) of the Act, read with the Companies (Particulars of Employees) Rules, 1975, the particulars of employees of the company drawing remuneration above the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arious sections and material particulars are similar in nature, they are disposed of by this common order. Retain a copy of this order in each file. Heard Sri Santosh Hegde, senior counsel appearing for Sri Vinod L. Doshi, who is the petitioner in Crl. P. Nos. 595 to 598 and 1151 of 1993, Sri Naganand, learned advocate appearing for Sri T.P.G. Nambiar in Crl. P. Nos. 551, 552, 1064 and 1464 of 1993, and Sri S. G. Bhagvan, learned counsel appearing for the petitioners in Crl. P. Nos. 607, 608, 626, 646, 662 and 663 of 1993, and Sri Ashok Haranahalli and Sri Mukunda Menon, learned advocates appearing for the respondent. Sri Santosh Hegde, learned advocate for Sri Vinod L. Doshi, at the very outset submitted that this petitioner was inducted as a director of the company because of his reputation, experience and standing in society on February 1, 1991. He had never attended any director's meeting at any time nor the general meeting of the company. He had never participated in any transaction of the company. Further, on June 24, 1992, he had tendered his resignation to the directorship which had taken effect from that day onwards. Though this fact was within the knowledge of the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble offences to proceed further in the investigation. In Rupan Deol Bajaj v. Knnwar Pal Singh Gill [1995] 6 SCC 194, the court reiterated the above view and held that when the complaint or charge-sheet filed disclosed prima facie evidence the court would not weigh at that stage and find out whether an offence could be made out. It is also further observed that it is well-settled law that the exercise of inherent power of the High Court is an exceptional one. Great care should be taken by the High Court before embarking to scrutinise the FIR/charge-sheet/complaint. In deciding whether the case is the rarest of rare cases to scuttle the prosecution in its inception, it first has to get into the grip of the matter whether the allegations constitute the offence. It must be remembered that the FIR is only an initiation to move the machinery and to investigate into cognizable offence. After the investigation is concluded and the charge-sheet is laid, the prosecution produces the statements of the witnesses recorded under section 161 of the Code, in support of the charge-sheet. At that stage, it is not the function of the court to weigh the pros and cons of the prosecution case or to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the court exercises its inherent power under section 482, the prime consideration should only be whether the exercise of the power would advance the cause of justice or it would be an abuse of the process of the court, and not otherwise. With this principle in mind, it is now necessary to consider the common arguments advanced in respect of the other matters by the advocates for the petitioners. Before proceeding to consider the various offences alleged to have been committed, it is necessary to mention as a prelude that these complaints came to be filed on the interim report submitted by the enquiry officer. The allegations of commission of offences are based on this report. The said report may disclose the various omissions and commissions and violations of the provisions of law. What can be gathered in these cases is that this report was submitted after enquiry and not merely on surmises or conjectures. Hence, this cannot be lost sight of at this stage and, therefore, it will have to be attached with some importance on the allegations made in the complaint in that regard to this enquiry report. It is also necessary to mention that the company, the managing director and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... According to the allegation, the punishment prescribed is under section 629A which provides penalty where no specific penalty is provided elsewhere in the Act. Learned counsel for the petitioner submitted that according to this section every officer of the company who is in default or such other person shall be punishable. In the said company there are managing director and also whole-time director. Therefore, these directors are not liable to be punished. In support of this argument, they placed reliance on a decision in Ravindra Narayan v. Registrar of Companies [1994] 81 Comp Cas 925 (Raj) wherein the Rajasthan High Court has held (headnote): "Complaints were filed against a company, its managing director and directors for an offence under section 220(3) of the Companies Act, 1956. The directors filed a petition for quashing the complaint against them: Held, allowing the petition, that under sub-section (3) of 220 of the Act, the company and every officer of the company who is in default is liable to punishment. The definition of 'officer who is in default' in section 5 of the Act, makes it clear that directors of the company fall within the definition if the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, it requires that the matter has to be tried by the court to find out as to whether these petitioners also are involved in the commission of the offence. The decisions cited above obviously are referring to one particular incident but it is pertaining to a period from January 23, 1991, to May 17, 1991. Under the circumstances, I am of the considered view that the impugned order cannot be quashed at the threshold. C.C. No. 298 of 1993 : The complaint averments are mentioned in para. 2 of the order which disclose that the annual general meeting ought to have been held in pursuance of section 166 of the Act. As they did not hold the annual general meeting, the directors committed offence under section 210(1) and (3) punishable under section 210(5) of the Act. Admittedly, the annual general meeting was not held. The petitioners sought to make out a ground by saying that the meeting could not be held and the balance-sheet and profit and loss accounts were not laid for the year on or before March 31, 1992, or extended period by June 30, 1992. Therefore, they complained that the complaint read as a whole does not constitute any offence. According to them, when the meeting was not h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. The offences alleged against these petitioners are under section 370(1), rule 11B of the Rules. The complaint contains the details of the loan advanced by the company. Whether it was permitted or not and whether the company violated section 370(1) and rule 11B are matters to be established by the complainant. The fact is that loans were granted by the directors and some of the directors have direct access. The words used under section 317(5) "if any person being director and all the persons who are knowingly parties are matters to be established by the complainant." (sic). Learned counsel for the petitioners however submitted that these specific pleadings are absent in the complaint. Therefore, the court below should have looked into all these ingredients at the inception itself and dismissed the complaint and in support of their argument, they also placed reliance on decisions in J . R. Grover, Director of K.D. Woollen Mills (P.) Ltd. v. Assistant Director, Enforcement Directorate [1987] 62 Comp Cas 807 (P H) and Siddharth Kejriwal v. Regional Director, ESI Corporation [1994] ILR 4 Kar 3484; [1997] 90 Comp Cas 496, which are already referred to above. But from a perus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt. It was further emphasised that the paid up capital of the company was Rs. 1 crore which has gone up to Rs. 860 crores by March 31, 1992. According to the complaint 63.5 per cent, shares were held by the members of the public and these members of the public were spread all over India but the petitioners claim that it is a private placement. Hence, they submitted that there is a serious question which has to be decided by the court with the materials to be produced by the parties. He further argued that a duty is cast on all the directors to perform their functions in the interest of the company. Neglecting to check fraud being played is also an offence attributable to the directors. A managing director may be looking after the day-to-day activities of the business, but the directors are responsible for the entire policy and affairs of the company. Such being the responsibility of the directors, non-participation in the board meeting and not taking action wherever necessary is also an offence. In support of their argument the petitioners placed reliance on a decision in Kartar Singh v. State of Punjab [1994] 3 SCC 569, 649, wherein their Lordships have held: "To encapsula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re allegations made in the petitions. Whether those allegations are sufficient to constitute an offence is once again a matter to be decided by the court. It is well-settled law that the complaint is only for initiation of proceedings. It need not contain all the details but contain such allegations as would be necessary to constitute an offence. In this case, the allegations are very specific and based on the preliminary report submitted by the enquiry officer. Therefore, the complainant will have to establish these facts before the court failing which the petitioners can take advantage of the same. But it can be said at this stage that the allegations are not totally lacking to quash the proceedings. However, in this case the question would be as to whether the shares held by the members is either public or private (friends or relatives and business associates) as contended by the petitioners. This can be established only by trial before the court. Under the circumstances, this petition also cannot be allowed by quashing the proceedings. C.C. No. 678 of 1993: The allegations made in the complaint are concisely stated in para. 5 of the order. According to this complaint, the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to learned counsel for the petitioners, this particular case comes within the third guideline issued by the Supreme Court which reads: "Where the uncontroverted allegations made in the FIR or complaint and the evidence collected in support of the same do not disclose the commission of any offence and make out a case against the accused." This argument of learned counsel as far as this case is concerned, appears to be justified. It is not disputed by the complainant that the balance-sheet was produced according to the report, the balance-sheet was produced before the Inspection Officer and the complaint also discloses that the balance-sheet was produced before the Registrar at the relevant time. The only allegation as stated earlier, at the cost of repetition, is the printed copy of the balance-sheet as on March 31, 1991, filed by the company with the complainant, containing the particulars of employees which were furnished in a detachable annexure to the balance-sheet. Paging was not done to the said annexure, thereby the accused persons have not strictly complied with the requirements of section 217(2A) of the Act. From a bare reading of section 217(2A), it is clear that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mini trial which is not the object, purpose or scope of section 482. In other words, the High Court would be usurping the jurisdiction of the magistrate. With this background, it is also necessary to refer to the decision of the Supreme Court in K.M. Mathew v. State of Kerala, AIR 1992 SC 2206, 2208, wherein their Lordships have held (headnote): "It is open to the accused to plead before the magistrate that the process against him ought not to have been issued. The magistrate may drop the proceedings if he is satisfied on reconsideration of the complaint that there is no offence for which the accused could be tried. It is his judicial discretion. No specific provision is required for the magistrate to drop the proceedings or rescind the process. The order issuing the process is an interim order and not a judgment. It can be varied or recalled. The fact that the process has already been issued is no bar to drop the proceedings if the complaint on the very face of it does not disclose any offence against the accused." From the above decision and also the discussions, it is clear that the accused persons could approach the trial court for necessary relief. Despite this, the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
