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Judgment
D.S. Tewatia, J.—This judgment will dispose of Cr Misc No. 4085-M, 4087-M and 4089-M of 1981, as they involve common question of law.
Petitioner No. 1 is the Managing Director, petitioner No 2 is the Chairman, Petitioner No. 3 is the Vice Chairman and rest of the petitioners 4 to 11 are the Directors of Dainik Finance and Chit Fund Company Private Limited incorporated as Private Limited Company under the Companies Act, 1956, on 24th June, 1969 This Company had its registered office at G.T. Road, Batala. The Reserve Bank of India by virtue of the powers conferred on it by sections 45-J and 45-K of the Reserve Bank of India Act, 1934 (hereinafter referred to as the Act) issued directions in 1973 (which directions were superseded by the Miscellaneous Non-Banking Companies (Reserve Bank) Directions, 1977, while keeping the right, obligation or liability acquired, accrued or incurred by earlier 1973 directions intact) inter alia requiring all non-banking companies not to accept deposits in excess of the limits prescribed in the said instructions.
The company of which the petitioners are the functionaries as already noticed admittedly accepted deposits in violation of the said Reserve Bank Instructions of 1977. Section 58- B provides for penalty for such violation of Reserve Bank Instructions. On coming to know about the violation of the instructions by the said company, Mr. R.C. Raizada, who was authorised to file complaint for the violation of the provisions of Chapter III-B of the Reserve Bank of India Act, 1934, and the directions issued thereunder made a complaint before the Court of City Magistrate, Batala, against the company as also against the 11 Petitioners herein.
The learned Magistrate after perusing the complaint and the preliminary evidence summoned them and framed charges to which the accused did not plead guilty. At this stage the petitioners invoked the inherent jurisdiction of this Court for quashing the charge and the complaint inter alia on the ground :--
(i) That the provisions of Section 45 J were ultra fires the provisions of the Constitution inasmuch at that by giving power to the Reserve Bank of. India to issue directions the Legislature delegated its functions of laying down the Legislative policies and principles and the said provisions thus suffer from the vice of excessive delegation of Legislative powers ;
(ii) That the Directors of the Company could not be held liable for the violation of the instructions in question in view of the provisions of Section 58 C ; and
(iii) That the Cognizance of the complaint by the Magistrate was barred by limitation.
While the third contention has not been pressed, the order two contentions, in my opinion, are without merit
Section 45 J of the Act is in the following terms:
The Bank may, if it considers necessary, in the public interest so to do, by general or special order,--
(a) Regulate or prohibit the issue by any non-banking institution of any prospectus or advertisement soliciting deposits of money from the public; and
(b) specify the conditions subject to which any such prospectus or advertisement, if not prohibited, may be issued.
The Legislature by mentioning in Section 45J the relevancy of ''public interest'' have provided the requisite guidance to the Reserve Bank for discharging its functions in terms of the said provision.
It may be highlighted that the Reserve Bank is a non-political statutory body constituted to regulate the issue of bank notes, to keep up reserves with a view to secure monetary stability in India and generally to operate currency and credit system of the country to its advantage as stated in the preamble to the Reserve Bank Act. Credit control being the main function of a Central Bank in any country and of Reserve Bank in this country, such control necessarily involves control of non-banking credit as well. The Reserve Bank has the necessary qualifications to exercise credit control not only the functioning of the banking companies but also the functioning of the non-banking companies. The Reserve Bank of India has been cast in a role which eminently suited the requirement of the credit control and monetary system of the country. It is expected of this institution to perform its duties and functions u/s 45-J of the Act in public interest, a requirement which it is eminently suited to always foresee.
In the circumstances it cannot be said that the provisions of Section 45-J suffered from the vice of excessive delegation of the Legislative power
Before proceeding to notice the second contention of the learned counsel, the provisions of Section 58B(5)(a) and section 58C deserve noticing:--
58B(5) If any person--
(a) receives any deposit in contravention of any direction given or order made under Chapter IIIB ; or
(b) xx xx xxx
he shall the punishable with imprisonment for a term which may extend to three years and, shall also, be liable to fine which may extend :--
(i) in the case of a contravention falling under clause (a) to twice the amount of the deposit received;
58C(1) where a person committing a contravention order fault referred to in section 58B is a company, every person who, at the time the contravention or default was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company as well as the company shall be deemed to be guilty of the contravention or default and shall be liable to be proceeded against and punished accordingly ;
Provided that nothing contained in this sub-section shall render any such person liable to punishment if he proves that the contravention of default was committed without his knowledge or that he had exercised all due diligence to prevent the contravention or default.
(2) Notwithstanding anything contained in sub-section (1), where an offence under this Act has been committed by a company and it is proved that the same was committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary, other officer or employee shall also be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.
In regard to the scope of the liability of the Directors, for offences u/s 88B for the violation of the instructions in question Mr. Grewal, counsel for the petitioners drew my attention to a decision of Calcutta High Court reported as Mahalderam Tea Estate P. Ltd. and Others Vs. D.N. Prodhan and Another, and urged that only that Director who was incharge and was responsible to the company for the conduct of the business of the company alone would incur criminal liability, if any, and not other Directors. Calcutta High Court in that case was dealing with the provisions of Section 14-A of the Employees Provident Funds Act, 1952, which are par materia with the provisions of Section 58C. The decision enunciated the proposition that primarily the liability for the offence is that of the company. That liability can be extended to ether persons like Directors vicariously only under the conditions laid down in the Section. It was further observed that a Director of the company may be concerned only with the policy to be followed and might have no hand in the management of its day to day affairs and therefore, such persons necessarily must be immune to criminal prosecution for the offences committed by the company.
The ratio of Mahalderam Tea Estate (P) Ltd''s case (supra) would be of no help to the petitioners herein. The petitioners herein are not being prosecuted for an offence that may be committed by a Director incharge of the day to day affairs of the company. The offence committed as a result of the violation of the policy instructions of the Reserve Bank of India in regard to the acceptance of deposits beyond the prescribed limits is not one which a given functionary of the non-banking company in question commits while transacting day to day business of the bank Whether the company should transgress the limit regarding acceptance of deposits fixed in the instructions of the Reserve Bank of India in question is a matter which in the nature of things is to be discussed in the meeting of the Board of Directors. The balance sheet of the company is discussed and approved by the Board of Directors. The balance sheet should reveal to every Director of the Board any violation of the directions of the Reserve Bank. The screening and approval of the balance-sheet involves conduct of the business of the company and therefore to that extent every Director is responsible to the company for the conduct of its business and thus liable to be proceeded against and punished in terms of Section 58 C for the default referred to in Section 58-B.
It was lastly highlighted on behalf of the petitioners that in the complaint it was not specifically mentioned that the Directors in question were responsible to the Company for the conduct of its business and therefore, the complaint did not disclose any offence of the kind qua the Directors and therefore, the same deserves to be quashed.
In my opinion, there is no merit in this contention. In the complaint the violation of the provisions in question has been pin pointed and it has been mentioned that the accused named in the complaint were all liable for the commission of the said offence. It is at the trial that the requisite material has to be made available to establish the liability of the accused. The requisite material is not to be contained in the complaint or even to be adverted to in the complaint. What is to be mentioned in the complaint is the offence committed and the persons liable for the commission of the said offence.
I, therefore, hold that every Director whether ordinary Director or the Director having label of Managing Director or Chairman or Vice-Chairman is equally responsible individually and collectively for the violation of such policy instructions of the Reserve Bank of India in question as precluded the company to receive deposite beyond the prescribed limits.
For the reasons aforementioned the petitions are dismissed.