D.B. Negandhi vs Registrar of Companies ''E'' Wing

K.N. Phaneendra, J.—Petitioner, who is accused No. 3 in CC. No. 684/2006 pending on the file of Spl. Court of Economic Offences, Bangalore, has sought for quashing of the said criminal case against him filed by the Registrar of Companies, Bangalore, for the offence punishable under Section 220 of the Companies Act.

I have heard the arguments of learned counsel for the petitioner. The respondent''s counsel remained absent.

On perusal of the complaint averments, it is noticed that the Registrar of Companies lodged a complaint making allegations that accused No. 3 at the relevant point of time was a director of Accused Nonpublic company. It is contended that the financial year of the company of accused No. 1 ends on 31st of August every year and relevant financial year was 01.09.2004 to 31.08.2005 and for which year, the balance sheet and profit and loss accounts for the financial year ending 31.08.2005 of the company were required to be filed by accused No. 1 within 30 days from the day when the balance sheet and profit and loss accounts were laid and as such, compliance has not been made. Therefore, the accused persons are liable to be prosecuted under Section 220 of the Companies Act.

Learned counsel for the petitioner contended that the petitioner was only a director and not the authorized compliance director. Therefore, the director cannot be prosecuted for non-compliance of Section 220 of the Act, as the Director does not come under the said provision, as Section 220(3) only says that every officer of the company who is in default, shall be liable to punishment under the said provision.

It is just and necessary to go through the provisions under Section 220, which reads as follows:-

"220. Three copies of balance sheet, etc., to be filed with Registrar-

(1) After the balance-sheet and the profit and loss account have been laid before a company at an annual general meeting as aforesaid, there shall be filed with the Registrar within thirty days from the date on which the balance-sheet and the profit and loss account were so laid, or where the annual general meeting of a company for any year has not been held, there shall be filed with the Registrar within thirty days from the latest day on or before which that meeting should have been held in accordance with the provisions of this Act.

(a) a copy of the balance-sheet and the profit and loss account, signed by the managing director, manager or secretary of the company, or if there be none of these, by a director of the company, together with a copy of all documents which are required by this Act to be annexed or attended to such balance-sheet or profit and loss account: Provided that in the case of a private company, copy of the balance-sheet and copy of the profit and loss account shall be filed with the Registrar separately:

Provided further that,-

(i) in the case of a private company which is not a subsidiary of a public company, or

(ii) in the case of a private company of which the entire paid- up share capital is held by one or more bodies corporate incorporated outside India, or

(iii) in the case of a company which becomes a public company by virtue of section 43A, if the Central Government directs that it is not in the public interest that any person other than a member of the company shall be entitled to inspect, or obtain copy of the profit and loss account of the company, no person other than a member of the company concerned shall be entitled to inspect, or obtain copy of, the profit and loss account of that company under section 610.

(2) If the annual general meeting of a company before which a balance-sheet is laid as aforesaid does not adopt the balance-sheet or is adjourned without adopting the balance sheet or, if the annual general meeting of a company for any year has not been held, a statement of that fact and of the reasons therefor shall be annexed to the balance-sheet required to be filed with the Registrar.

(3) If default is made in complying with the requirements of Sub-sections (1) and (2), the company, and every officer of the company who is in default, shall be liable to the like punishment as is provided by section 162 for a default in complying with the provisions of sections 159, 160 or 161."

This provision, particularly sub-section (3) of Section 220 which specifies that if the company makes any default in complying with the requirements of sub-sections (1) & (2), the company and every officer, who is in default shall be liable to the punishment as is provided by Section 162.

Section 162 says that, if the company fails to comply with any of the provisions contained in Sections 159, 160 or 161, the company, and every officer of the company who is in default, shall be punishable with fine which may, extend to five hundred rupees for every day during which the default continues.

Sub-section (2) says that, for the purposes of this section and sections 159, 160 and 161, the expressions "officer" and "director" shall include any person in accordance with whose directions or instructions the Board of directors of the company is accustomed to act.

This provision also makes it clear that the officer and the director, who in accordance with the instructions issued by Board of directors is defaulted in complying with the provisions, they are liable for punishment.

So far as Section 220(3) is concerned, specifically it does not say anything about the director, however, it goes without saying, if the director of the company is the complying officer, then also he comes under the purview of Section 5 of the Act. Section 5 of the Companies Act, which describes, who is the officer in default. Section 5 reads thus:-

Meaning of "officer who is in default". For the purpose of any provision in this Act which enacts that an officer of the company who is in default shall be liable to any punishment or penalty, whether by way of imprisonment, fine or otherwise, the expression "officer who is in default" means all the following officers of the company, namely:-

(a) the managing director or managing directors;

(b)the whole- time director or whole- time directors;

(c) the manager;

(d) the secretary;

(e) any person in accordance with whose directions or instructions the Board of directors of the company is accustomed to act;

(f) any person charged by the Board with the responsibility of complying with that provision:

Provided that the person so charged has given his consent in this behalf to the Board;

(g) where any company does not have any of the officers specified in clauses (a) to (c), any director or directors who may be specified by the Board in this behalf or where no director is so specified, all the directors:

Provided that where the Board exercises any power under clause (f) or clause (g), it shall, within thirty days of the exercise of such powers, file with the Registrar a return in the prescribed form.

Looking to the above said provision, all the director who are not accustomed to the act or the directions or instructions are not there to the directors from the Board of directors, they cannot be called as ''officer in default''. Therefore, there must be specific allegation in the complaint that a director who is made as an accused in the complaint is either a managing director or whole time director or manager or secretary or the director who is having accustomed to the act or directed by the Board of directors as compliance officer.

In the absence of such specific allegations in the complaint, it cannot be said that the petitioner who is a director of the company is liable and can be prosecuted. Section 220(3) has to be established by means of facts in the complaint averments. In the absence of such averments in the complaint, in my opinion, such complaint is not maintainable.

Learned counsel for the petitioner also brought to my notice that considering the various decisions of different courts bearing in mind, the Central Government framed certain guidelines. The Ministry of Corporate Affairs has issued a circular in No. 3/57/2011/CL-11 dated 29.07.2011 addressing to all the Regional Directors, all the Registrars of Companies and all Official Liquidators, some guidelines with regard to the prosecution of directors of the companies. The said circular at paragraph-5 sub-clause (b) says that;

"5. It is further clarified that before taking penal action under the Companies Act, 1956 against the Directors, the following compliance should be verified by Registrar of Companies:-

(b) In case the status of a director i.e., whether he is a nominee director or not, is not reflected in the Annual Return or other documents of the company, available with Registrar, the same should be cross checked with the Annual report filed by the company.

Paragraph-6 sub-clause (c) says that,

For default u/S. 209(5), 209(6), 211 and 212 of the Act, the following persons shall be the ''officers in default for the purpose of prosecution under these provisions:-

(c) Any persons amongst officers and employees other than Managing Director/Manager/Directors who has been charged by the Managing Director/Manager or Board of Directors with specific responsibility of complying with aforesaid provisions, in addition to Managing Director/Manager/Board of Directors as the case may be.

If by reading the circular as per paragraphs 5 and 6, it goes without saying that only on the basis of person being the director of the company, he should not be fasten with the liability but there should be specific responsibility entrusted to him by the company that if he commits any default in making such compliance, then only the said person is liable under the said provision. In my opinion, the said provisions and circular equally applicable to Section 220 also. Even otherwise, Section 220(3) is very much clear that the director should be accustomed with the act that means to say that he should be the complying officer or he should be fastened with such responsibility to perform duty as such and he has to comply the directions of the Board of directors.

Nothing has been stated in the complaint, whether this particular petitioner is accustomed with that act or whether he is directed by the Board of directors and the said director is specified as the complying officer. In the absence of such materials in the complaint itself, in my opinion, the complaint is not maintainable, so far as this petitioner is concerned. Hence, the same is liable to be quashed.

Accordingly, the petition is allowed. Consequently, all further proceedings in CC. No. 684/2006 pending on the file of Special Court of Economic offences, Bangalore, is hereby quashed, so far as it relates to the petitioner is concerned.