P. Venkatakrishna Reddy vs Registrar of Companies

Arumugham, J.—The first accused before the trial court is the revision petitioner herein. He challenged the correctness and the legality of the

judgment of conviction and sentence rendered by the learned Principal Sessions Judge at Madras in Criminal Appeal No. 36 of 1987, dated

October 17, 1987, confirming the said conviction of the accused/revision petitioner to suffer rigorous imprisonment till the rising of the court and

imposing a fine of Rs. 5,000, in default to suffer rigorous imprisonment for three more months for the offences u/s 209A(5) and (8) of the

Companies Act, 1956.

The short facts of the prosecution case as culled out from the records of both courts below are stated as follows : The revision petitioner along

with eight others being the managing director and directors of a private company by name Udaya Pipes and Concrete Products Private Limited, a

company incorporated under the Indian Companies Act having its office at Madras and branch at Bangalore, were tried by the learned Additional

Chief Metropolitan Magistrate for Economic Offences II. On a complaint preferred by the Additional Registrar of Companies, Madras-6, alleging

that the first accused/revision petitioner in the capacity of the managing director along with the other accused as directors of the said company

failed to produce the account books of the company for the years 1979-80 and 1980-81 before the inspecting officer, when he inspected the

registered office of the said company from August 1, 1985, and August 3, 1985, and thus has contravened the provisions of section 209A(5) and

(8) of the Companies Act. Nor did they produce the account books of the company for the said period. But on completion of inspection one

Radhakrishnan, director of the company, gave a letter, exhibit P-1, requesting time till September 10, 1985, to produce the books of account,

which was followed by another letter, exhibit P-2, thereby asking time till September 20, 1985. But they have not produced the books of account

till October 14, 1986. This was the charge revealed by the evidence of P.W. - 1, Mr. B. C. Davey, Assistant Registrar of Companies, Madras-6.

P.W. - 2, Mr. M. Sigamani, senior technical assistant, deposed that basing on the inspection report he issued a show-cause notice u/s 209A(5)

and (8) of the Companies Act and no reply was received from the company or managing director. Therefore, according to him, the concerned file

was transferred to legal section and consequently the complaint above referred to was filed on July 24, 1986, in the court.

On being questioned with regard to the incriminating circumstances found against them u/s 313 of the Criminal Procedure Code, 1973, the

revision petitioner and others disclaimed any knowledge about the inspection by P.W. - 1, but they sent a reply on February 27, 1986, and

thereby clearly explained and showed the cause for the non-production of the account books and that, therefore, they had not committed any

offence as framed against them. But none were examined on their behalf to substantiate their defence. But they have relied on six documents which

were marked as exhibits D-1 to D-6.

On assessing the oral evidence given by two witnesses, namely, P.Ws. - 1 and 2, and the documents relied on by the prosecution, exhibits P-1

to P-6, and six documents marked on behalf of the revision petitioner, exhibits D-1 to D-6, the trial court found the revision petitioner guilty of the

offence tried against him and accordingly convicted and sentenced him. In rendering the said judgment it was the finding of the trial court that

accused Nos. 2 to 9 were not guilty and accordingly all of them were acquitted. On appeal filed by the first accused in C. A. No. 36 of 1987 after

reassessing the entire records and evidence dealt with by the trial court, the learned Principal Sessions judge confirmed the finding of conviction

and sentence recorded by the trial court and against which the present revision is being directed as stated above.

While challenging the legality and correctness of the judgment of conviction and sentence rendered by both the courts below concurrently, Mr.

Harikrishnan, learned counsel appearing for the revision petitioner, contended before me that both the courts below thoroughly overlooked the

mandatory provisions provided in the section under which the charge has been framed against the revision petitioner and that has been duly

exercised by the issuance of a notice given by P.W. - 2 and that has been marked as exhibit P-5 dated February 17, 1986, which was found

served on the revision petitioner on February 20, 1986, as per exhibit P-6 and to which three replies had been sent to the Registrar of Companies

under exhibits D-3, D-4 and D-5 and under which sufficient cause has been shown to the authorities constituted under the company law, namely,

P.Ws. - 1 and 2, and explained the attendant situation due to which the first accused/revision petitioner was unable to produce the account books

and that, therefore, he has not committed any offence. And that in the context of the above cause adequately shown under the above said exhibits

D-3 to D-5 and that inasmuch as the same has not been rejected and there was no response from the complainant, learned counsel contended that

the launching of the prosecution u/s 209A(5) and (8) of the Companies Act is not at all proper and cannot be sustained; then learned counsel

would further contend that inasmuch as a notice, exhibit P-5, has been issued by P.W. - 2 as required by sub-section (2) of section 209A of the

Act; then in the content of the cause and explanation given by the first accused/revision petitioner under exhibits D-3, D-4 and D-5 no prosecution

can be launched against the accused and that in short the court cannot take cognizance of the offence charged and try it; and, thirdly, learned

counsel submitted that on the day of exhibit P-6, namely, February 20, 1986, pursuant to the order of this court, the company was ordered to be

wound up and, consequently, the official liquidator took charge and custody of the entire properties and records of the company on the very same

day and thereby sealed off the entire properties and premises of the company, that since then onwards all the properties including the books of

account and records have been in the custody and charge of the official liquidator appointed by this court and that, therefore, the accused was not

in a position to produce the same before the authorities. And that while so it is highly arbitrary on the part of P.Ws. - 1 and 2, learned counsel

contended that by ignoring all the above said facts, the launching of the prosecuting against the accused is highly and clearly an error of law

committed to the utter disregard of the mandate built in under the provisions of the company law itself and that, therefore, the finding of conviction

and sentence recorded by the both courts against the revision petitioner is liable to be set aside by the interference of this court.

Per contra, Mr. Mohan strains every one of his nerves to persuading me that the duty was cast upon the revision petitioner and other accused

being the managing director and directors of the company to be carried out and administered in pursuance of the company law, they failed to

produce the books of account maintained to the authorities concerned when they inspected the registered officer of the company from August 1,

1985, to August 3, 1985, that the failure to do so clearly amounts to an offence as contemplated u/s 209A of the Act, that the offence has been

materialised by the issuance of notice under exhibit P-5 and that, therefore, learned counsel contends that the explanation or cause shown by the

revision petitioner under exhibits D-3 to D-5 would not come to his rescue from the offence committed by him already and while projecting the

said contention learned counsel supports the finding recorded by both the courts below against the revision petitioner.

In the light of the above rival contentions projected on behalf of the respective parties herein the only question which arises for consideration

before me is whether the courts below while finding the revision petitioner guilty of the offence charged and tried against him committed any error

of law or irregularity in doing so and as such it is liable to be interfered with in this revision?

Before proceeding to discuss the various findings recorded by the courts below on the basis of the tendered oral and documentary evidence, it

has become useful for me to advert to section 209A of the Companies Act which reads a follows :

The books of account and other books and papers of every company shall be open to inspection during business hours -

(i) by the Registrar, or

(ii) by such officer of Government as may be authorised by the Central Government in this behalf :

Provided that such inspection may be made without giving any previous notice to the company or any officer thereof.

A mere causal reading of the above sub-section (1) of section 209A makes it clear that either the Registrar of Companies or such officer of the

Government authorised by the Central Government in this behalf is entitled to inspect the registered officer of the company and inspect all the

books of account and other books and papers at any time without giving any prior notice. It is further imperative that on such inspection being

made, it has been mandatorily provided that the company shall produce the books of account and other papers of the company for inspection of

such persons and on no account the company is entitled to withhold the production of the said books of account and so on. This sub-section (1) of

the said section made the obligation of the company to produce the books of account on inspection mandatory in nature and obligatory. Then sub-

section (5) of the said section reads as follows :

Notwithstanding anything contained in any other law for the time being in force or any contract to the contrary, any person making an inspection

under this section shall have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908, while trying a suit, in respect

of the following matters, namely :-

(i) the discovery and production of books of account and other documents at such place and such time as may be specified by such person;

(ii) summoning and enforcing the attendance of persons and examining them on oath;

(iii) inspection of any books, registers and other documents of the company at any place.

Then the relevant sub-section (8) proceeds as follows :

If default is made in complying with the provisions of this section, every officer of the company who is in default shall be punishable with fine which

shall not be less than five thousand rupees, and also with imprisonment for a term not exceeding one year.

Perhaps P.Ws.-1 and 2 who gave the evidence and lodged the complaint against the accused proceeded on the pretext of the above said sub-

sections (5) and (8) for the revision petitioner having not been complied with under sub-section (1) of section 209A. If section 209A of the

Companies Act contains sub-sections (5) and (8) alone, then we can at least justify the action of launching of the prosecution against the revision

petitioner for a moment. However, the launching of the prosecution contemplated under sub-sections (1), (5) and (8) of section 209A has been

restricted by the provisions themselves and subjected to a condition to be performed before launching the prosecution as was rightly contended by

learned counsel for the revision petitioner. In this context it is meaningful to advert to sub-section (2) of section 209A which reads as follows :

It shall be the duty of every direction, other officer, or employee of the company to produce to the person making inspection under sub-section

(1), all such books of account and other books and papers of the company in his custody or control and to furnish him with any statement,

information or explanation relating to the affairs of the company as the said person may require of him within such time and at such place as he may

specify.

In the context of the abovesaid sub-section (2) for the purpose of appreciation of the rival contentions involved in this case, suffice it for me to

refer to the above said sub-section (2) only and the rest are unnecessary for the disposal of the instant case. This sub-section (2) has cast the

mandatory duty on the inspecting officers to require all the books of account and papers of the company to be produced by the company or its

employees specifying the time within which they should produce and the place for the production and inspection of the same. Therefore, it has

become imperative on the part of the inspection officers constituted under the company law, where no books of account and papers of the

company were produce before them for inspection, to require the company or its employees to produce such books of account or the papers of

the company within such time as they may think fit and fixing the place to comply with the same by specifying the above said aspects impliedly in

writing to the company or its employees. This condition which has been built in sub-section (2) of the section itself, is not only mandatory in nature,

but appears to be a sine qua non for the authorities acting under the company law to launch any criminal prosecution against any company or its

director for any offence u/s 209A(8).

The words referred to in the said sub-section (2) ""the said person"" directly refer to the inspecting authorities constituted under the law

exercising the power to act u/s 209A(1) and with regard to which there cannot be any doubt or two views to be projected before any court of

law. Similarly, the last sentence ""the said person may require of him within such time and at such place as he may specify"", clearly projects and

adverts to that such person, namely, the prosecuting authority in the instant case or the Registrar or the person appointed for such inspection may

specify the time, date and place where the company or its staff should comply with their requirements and the word ""specify"" particularly indicates

that specification includes and would mean only specification made in writing. Perhaps P.Ws.-1 and 2 on being fully conscious of sub-section (2)

and its mandatory obligations cast upon them issued exhibits P-5 notice to the revision petitioner and others of February 17, 1986. Suffice it for me

at this stage to refer to the last two paragraphs of exhibit P-5 which read as follows :

You are, therefore, being the managing director of the above mentioned company, requested to show cause within 10 days from the date of issue

of this notice, as to why penal action, as provided u/s 209A(5) of the Companies Act, 1956, should not be taken against you for non-compliance

with the provisions of section 209A(1) of the Act and the proviso thereto, you are requested to submit your reply in triplicate.

Please take notice that if no reply is received or cause shown within the above stipulated time, it will be presumed that you have nothing to say in

the matter and prosecution will be launched against you without any further reference in the matter.

Thus, the above requirement clearly specified by P.W.-2 to be complied with by the revision petitioner was seen on full compliance of what

has been mandated or required in sub-section (2) of section 209A. It is seen further that this notice, exhibit P-5, has been duly served on the

revision petitioner on February 20, 1986, under exhibit P-6. The same day on which the official liquidator sealed off the registered office of the

company and took custody and charge of all the properties and records of the company in question as I have already referred to. But what is more

interesting in this case, as rightly pointed by Mr. Harikrishnan, learned counsel for the revision petitioner, is that the revision petitioner was not silent

on the receipt of exhibit P-5 under exhibit P-6. He had written three letters as evidence from exhibits D-3, D-4 and D-5. It has to be noticed that

the revision petitioner had addressed a letter to the Additional Registrar of Companies of February 27, 1986, under exhibit D-3 wherein he has

stated that one S. Radhakrishnan, director, has since been entrusted with the day to day running of the company from February, 1985, onwards,

that since the said Radhakrishnan died on November 17, 1985, the required documents of the company could not be produced when inspection

was made from August 1, 1985, to August 3, 1985, and that, therefore, to procure the said documents and papers from the custody of the said

Radhakrishnan and to produce before the authority he wanted 30 (thirty) days time. This was followed by another notice sent to the revision

petitioner by P.W.-1 on April 15, 1986, and then exhibit D-5 had been addressed to P.W.-1 on behalf of the company. The perusal of exhibits D-

3, D-4 and D-5 has clearly established the cause and reasoning for the non-production of the books of account and papers of the company not

only during the inspection made from August 1, 1985, to August 3, 1985, but also within the time specified and required under exhibit P-5 and

exhibit D-4. While taking into consideration D-5, I have no hesitation to hold that ample and convincing cause has been shown by the revision

petitioner on behalf of the company to the authorities concerned for having not produced the books of account or the papers of the company as

required. But strangely either P.W.-1 or P.W.-2, the competent persons to act upon the cause shown on behalf of the company for the non-

compliance with sub-section (1) of section 209A has not exercised their mind on the question as to whether that they had accepted the cause

shown by the revision petitioner or rejected the same. In short, there was no response at all to the explanation and cause shown to the notice given

under exhibits P-5 and D-4. One other clinching circumstance available in favour of the revision petitioner in this case is that P.Ws.-1 and 2

inspected the company from August 1, 1985, to August 3, 1985, and found the non-compliance with sub-section (1) of section 209A of the Act

by the revision petitioner. But significantly till February 17, 1986, for a period of more than six months they were silent and did not proceed against

the accused, the delay is to be taken as relevant in the context of the opportunity provided under sub-section (2) of section 209A made available

to the accused herein to tender his explanation or cause for their non-compliance, if any. Thus, a combined reading of the sub-sections of section

209A of the Act demonstrably clinches the fact that if the authorities found that the mandatory clause of sub-section (1) of section 209A of the Act

has been contravened, before launching of the prosecution for the offence under sub-section (8) against such defaulters of the company, they

should be heard by providing an opportunity to them with a view to facilitate them to explain their inaction, otherwise known as non-compliance

with the mandatory provision by giving and specifying ample time and place in writing and then only the prosecution can be launched. In the instant

case, it has to be noticed that P.Ws.-1 and 2 have not acted upon nor exercised their mind on the cause shown by the revision petitioner about

their explanation tendered in compliance with exhibits P-5 and D-4. Without doing so the principle built in, in all the sub-sections of section 209A

of the Act, launching the prosecution against such defaulters in the context of their explanation would clearly be not only against the spirit of the

mandatory obligations provided in the section itself, but also against the principles of natural justice and thus in my firm view, the launching of

prosecution by P.Ws.-1 and 2 would clearly be in the teeth of the maxim audi alteram partem.

In the context of what has been observed above, I feel it rather unnecessary to go into the factual aspects of the case with regard to which

there is not much controversy at the Bar. Enough for me at this stage to hold that in rendering the judgment of conviction and sentence against the

revision petitioner both the trial court as well as the lower appellate court clearly and totally overlooked the above said legal aspects and did not

even attempt to consider these aspects while rendering the judgment on a criminal charge being framed and tried against a person and thereby to

sustain a conviction against him. In this regard for the reasons stated above, I am satisfied to subscribe my view fully in favour of the contentions

raised on behalf of the revision petitioner by learned counsel.

One another important aspect available in this case, however, perhaps, has been lost sight of in spite of the specific plea taken on behalf of the

first accused/revision petitioner is that, after exhibit P-5, as I have already adverted to, the accused or any other directors were not in the custody

of any of the books of account or papers of the company as the official liquidator pursuant to the order of this court sealed the registered office and

took custody of all the properties including the books of account and papers of the company in question. If that is so, it is rather strange for P.Ws.-

1 and 2 to expect the first accused/revision petitioner to comply with section 209A of the Act warranting to launch the criminal prosecution against

him. As stated above, all the above said legal aspects have been totally overlooked by both the courts below in maintaining the judgment of

conviction and sentence, which in my firm view, is clearly an erroneous approach, cannot be sustained and, therefore, the instant case totally

warrants the interference of this court to set aside the said judgment of conviction and sentence recorded by both the courts below.

In the result, the revision case succeeds and accordingly it is allowed. The conviction and sentence recorded by both the courts below against

the revision petitioner are hereby set aside and the accused is set at liberty. The fine amount paid, if any, is directed to be refunded to the revision

petitioner immediately.