D.B. Negandhi vs Registrar of Companies

K.N. Phaneendra, J.—I have heard the arguments of the learned counsel for the petitioners and perused the records.

Though the respondent is served with notice and represented, but he remained absent before the Court today.

In Crl.P.No.5893/2010 (C.C. No.111/2006) pending on the file of Special Court (Economic Offences), Bangalore, wherein this petitioner is arrayed as accused No. 3. On perusal of the materials on record, it is seen that the Registrar of Companies has lodged a complaint in C.C. No.111/2006 making allegations that the accused No. 1 M/s. Cauvery Software Engineering Systems Ltd., Bangalore (represented by accused No. 2 -Anup Saxena), is a registered Company under the Companies Act 1956 and the Company is situated at Alankar Business Centre, K.G. Road, Bangalore. The accused Nos. 2 to 6 were the Directors and the accused No. 7 was the Company Secretary of the said Company. By virtue of the provisions under Section 166 of the Companies Act, 1956, the accused No. 1 was required to hold an Annual General Meeting by 28.2.2005 at the latest. The specific allegation and the alleged offence committed by the Company is that the accused No. 1 failed and neglected to hold the said Annual General Meeting within the prescribed period and thereby committed offence under Section 166(1) of the Companies Act 1956. Therefore, the Registrar has requested the Court to take cognizance and to deal with the accused persons in accordance with law. After registration of the case, the learned Magistrate has issued summons to the accused. On receiving summons by the Court, accused No. 3 has approached this Court and infact this Court has granted stay of the proceedings before the Trial Court.

In Crl.P.5894/2010 (C.C. No.44/2006) pending on the file of Special Court (Economic Offences), Bangalore, it is alleged that the accused inspite of issuance of letters by the Inspecting Officer to the Company to produce the books of account and other records before him for inspection, the Company and its Directors failed to produce the same. Therefore, in exercise of the powers vested in the Inspecting Officer in terms of Section 209A(5) of the Act, the Inspecting Officer summoned the accused on 24.1.2005 requiring them to appear before him in the office of the complainant on 31.1.2005 at 2.00 p.m. to give evidence and to furnish details regarding shareholding pattern of the company''s promoters/Directors and their associates, details regarding the funds raised by the public issue and the end use of the said funds together with the fund flow statements year-wise and to produce, either personally or through an authorised representative, the relevant books of accounts and other books etc. Further they failed to appear and produce the books of accounts and other books and papers before the Inspecting Officer. Therefore, it is alleged that the accused have committed an offence punishable under Section 209A(8) of the Companies Act. Therefore, the complainant filed a complaint before the said Court for the purpose of taking action under the said provision.

In Crl.P.No.5896/2010 (C.C. No.685/2006) pending on the file of Special Court (Economic Offences), Bangalore, it is alleged that accused Nos. 2 to 6 being the Directors of the Company and the accused No. 7 was the Company Secretary of the Company, by virtue of section 166 of the Companies Act, 1956, they were required to hold an Annual General Body Meeting by 28.2.2006 at the latest. But they have not conducted the said Annual General Meeting within the prescribed period and they have not filed the annual returns for the said year and thereby they have committed offences under section 168 and also 162 of the Companies Act 1956. Therefore, the Registrar of Companies has requested to take appropriate action against the accused persons.

In Crl.P.No.5897/2010 (C.C. No.861/2005) pending on the file of Special Court (Economic Offences), Bangalore, it is alleged that the accused Nos. 1 to 4 in their statutory obligation under sections 210(1) & (3) of the Companies Act, 1956 to lay before the company in its Annual General Body Meeting which ought to have been held in pursuance of section 166 of the Act by 29.2.2004 at the latest its balance-sheet and profit and loss account for its financial year ending on 31.8.2003. Therefore, it is alleged that the accused persons have committed offences punishable under section 210(5) of the Companies Act and requested the Court to take appropriate action.

In all the above said cases, the allegations made against the Company is that the Company has not conducted the Annual General Meeting within the time prescribed for the relevant period and also not furnished the balance-sheet and registers before the Registrar within the time prescribed.

In all the above said cases, it is alleged, this petitioner is the Director of the said Company and it is stated, in the Company all the Directors are also responsible for the default committed by the Company as per section 5 of the Companies Act as they failed to see that the Company complies with the requirement under the above said provision of the Act.

Learned counsel for the petitioner strenuously contends that the above said penal provision clearly indicates that who are the persons actually responsible for the purpose of conducting the Meeting etc. Section 166 deals with the Annual General Body Meeting. If such General Body Meeting is not conducted within the specified period and default is committed, the penal provision under section 168 of the Act is attracted. Section 168 reads as follows:-

"Sec 168- Penalty for default in complying with section 166 or 167.

If default is made in holding a meeting of the company in accordance with section 166, or in complying with any directions of the Central Government under sub-section (1) of section 167, the company, and every officer of the company who is in default shall be punishable with fine which may extend to fifty thousand rupees and in the case of a continuing default, with a further fine which may extend to two thousand five hundred rupees for every day after the first during which such default continues."

(Emphasis supplied)

This provision clearly indicates that the offence committed by the persons who are responsible for conducting meeting under sections 166 and 167 is described as the Company, and every officer of the Company who is in default, shall be punishable with fine which may extend to Rs. 50,000/- etc. Therefore, in order to attract this provision under section 168 or under any other provision, the officers who are responsible should come under the provision of section 5 of the Act. Every officer of the Company is defined under Section 5 of the Companies Act. Section 5 reads as follows:-

"Section 5. 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."

In this particular provision, the specification has been meticulously made in order to attract the provisions of the Act and the persons who are responsible for compliance under default clause. Therefore, the person who is not coming under any of the categories mentioned in section 5, he can''t be prosecuted. There should be a specific allegation in the complaint so as to attract what role that has been given to that person and what default he has specifically committed. In section 5, the responsibility is attached to the Managing Director or Managing Directors, Whole time Directors or Whole time Director, Manager, Secretary or any person in accordance with whose directions or instructions the Board of Directors of the Company is accustomed to act; or any person charged by the Board with the responsibility to comply with that provision; or where any Company does not have any of the officers specified in clauses (a) to (c), of section 5, any Director or Directors who may be specified by the Board in this behalf. Therefore, in order to attract these provisions to make a Director as an accused to the proceedings, it should be established before the Court in the complaint itself that the Company did not have any of the officers specified under section 5 at clauses (a) to (c) and petitioner who is a Director has been specified by the Board in this behalf for compliance of such responsibility. Unless that is established before this Court, the petitioner one of the Directors of the Company is not ipso facto liable for the default committed by the Company.

In this background, let me go back to the averments made in the complaint. As rightly contended by the learned counsel for the petitioner, it is only specifically stated that the petitioner who is accused No. 3 in all the above said cases is only a Director of the Company. Nowhere it is stated what role that has been given to the petitioner in the Company, what are his responsibilities and whether the Board has entrusted any of the responsibilities upon him and that he has committed any default under the above said specific provisions. In the absence of such elucidation of facts in the complaint, it cannot be said that the petitioner is liable for the prosecution merely because he is one of the Directors of the Company. Therefore, I am of the opinion that in none of the complaints there is any allegation made particularly against this petitioner that he has committed any default as stated in the above said four complaints. Therefore, in my opinion, the complaints alleged against this petitioner, particularly his default is meritless and no prosecution can be continued against this man. Otherwise it would amount to abuse of process of Court. Therefore, the above said proceedings are liable to be quashed. Hence, I proceed to pass the following:-

ORDER

All further proceedings in C.C. Nos.111/06, 44/06, 685/06 and 861/05 pending on the file of Special Court (Economic Offences), Bangalore, insofar as they relate to the petitioner are hereby quashed.