INTRODUCTION AND BACKGROUND OF THE CASE

The complaint has been filed under Section 212(7) of Companies Act[1] for contravention of Section 212 read with Schedule VI of Companies Act on the ground that during the course of inspection by Deputy Registrar of companies.

It was found that it its Balance Sheet for the period ending 31st March, 2002, the company had not made proper disclosure in terms of Schedule VI of Companies Act since the company had given collateral security pursuant to order of this Court attaching its bank account to the extent of Rs. 6.24 crores[2], but the company had not made any provision in its Balance Sheet for the aforesaid contingent liability.

This contravention, according to the complainant, came to its knowledge on 24th May, 2006 when the report of Deputy Registrar of Companies was received in its office. Section 468 of the Code of Criminal Procedure[3], to the extent it is relevant that no Court shall take cognizance of an offence punishable with imprisonment for a term not exceeding one year after expiry of one year.

Section 469 of the Code[4] to the extent it is relevant provides that where the commission of the offence was not known to the ‘person aggrieved by the offence’ or to any police officer[5], the period of limitation in relation to an offence shall commence from the first day on which such offence comes to the knowledge of the aggrieved person or to any police officer, whichever is earlier[6].

FACTS

  1. Petitioner No. 1 and 3 are the Managing Director and Director respectively of petitioner No. 2, Dr. Morepen Ltd. (hereinafter referred to as the “company”)
  2. 7th June, 2005, Ministry of Company Affairs directed inspection of books of accounts and other records of the company. Pursuant thereto, inspection was carried out by Deputy Registrar of Companies for the period from 11th July, 2001 to 30th September, 2004, on various dates starting from 10th October, 2005 and the inspection continued up to 10th March, 2006[7].
  3. During the course of inspection, it was noticed that the company had acquired 8,86,716 shares of Total Care Limited on 8th March, 2003 and since the aforesaid shares constituted 95% of the total paid up capital of Total Care Limited.
  4. In terms of provisions of Section 212(1) of Companies Act, 1956[8], Total Care Limited thereby became subsidiary of the company and accordingly balance sheet of Total Care Limited for the period subsequent to 8th March, 2003 ought to have been attached along with the Balance Sheet of the company[9].
  5. The complaint under Section 212(9) of Companies Act[10] for contravention of Section 212(1)[11] thereof was therefore filed by the respondent-Registrar of Companies against the petitioners and one Chander Shekhar N.K., another Director of the Company.
  6. It was alleged in the complaint that the contravention came to the knowledge of the complainant/respondent only on 24th May, 2006, the date on which the Inspection Report was received in the office of the complainant and, therefore, the complaint was within the prescribed period of limitation.
  7. As a matter of abundant caution, the complainant, however also filed an application under Section 473 of Code, for condonation of delay. 

ISSUE

  • Whether the complainant-Registrar of Companies is a ‘person aggrieved by the offence’ within the meaning of Section 469(1)(b) of the Code[12] ?

LEGAL PROVISIONS AND CASE LAWS

Section 469(1)(b) in The Code Of Criminal Procedure, 1973

Where the commission of the offence was not known to the person aggrieved by the offence or to any police officer, the first day on which such offence comes to the knowledge of such person or to any police officer, whichever is earlier[13].

Section 212 in the Companies Act, 1956

Balance sheet of holding company to include certain particulars as to its subsidiaries, There shall be attached to the balance sheet of a holding company having a subsidiary or subsidiaries at the end of the financial year as at which the holding company' s balance sheet is made out, the following documents in respect of such subsidiary or of each such subsidiary, as the case may be[14].

Section 621 in the Companies Act, 1956

Offences which are cognizable only on complaint by registrar, shareholder or government[15].

Section 217(5) in The Companies Act, 1956

If any person, being a director of a company, fails to take all reasonable steps to comply with the provisions of subsections or being the chairman, signs the Board' s report otherwise than in conformity with the provisions of sub- section (4), he shall, in respect of each offence, be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to two thousand rupees, or with both[16].

Section 469 in the Companies Act, 1956

The Court may, at any time after making a winding up order, make an order on any contributory for the time being on the list of contributories to pay, in the manner directed by the order, any money due to the company, from him or from the estate of the person whom he represents, exclusive of any money payable by him or the estate by virtue of any call in pursuance of this Act[17].

Section 209 in the Companies Act, 1956

Every company shall keep at its registered office proper books of account with respect to[18]-

All sums of money received and expended by the company and the matters in respect of which the receipt and expenditure take place;

All sales and purchases of goods by the company

The assets and liabilities of the company

Section 211 in the Companies Act, 1956

Form and contents of balance sheet and profit and loss account. Every balance sheet of a company shall give a true and fair view of the state of affairs of the company as at the end of the financial year and shall, subject to the provisions of this section, be in the form set out in Part I of Schedule VI, or as near thereto as circumstances admit or in such other form as may be approved by the Central Government either generally or in any particular case[19].

Section 482 in the Code of Criminal Procedure, 1973

Saving of inherent powers of High Court. Nothing in this Code shall be deemed to limit or affect the inherent powers of the High Court to make such orders as may be necessary to give effect to any order under this Code, or to prevent abuse of the process of any Court or otherwise to secure the ends of justice[20].

Section 113 in the Companies Act, 1956

 Every company, unless prohibited by any provision of law or of any order of any court, tribunal or other authority, shall, within three months after the allotment of any of its shares, debentures or debenture stock, and within two months after the application for the registration of the transfer of any such shares[21].

Section 468 in the Code Of Criminal Procedure, 1973

Bar to taking cognizance after lapse of the period of limitation[22].

Assistant Registrar Of Companies v. H.C. Kothari And Others[23]

An investment company is, therefore, a company whose principal business is the acquisition of shares, debentures or other securities. It is clear that the income derived from the business is not the criteria. The test would rather be, as to what the principal business of the company is. A balance-sheet should show what the principal business of the company is.

Sulochana v. State of Registrar of Chits[24]

"a person can be said to be aggrieved, and if apart from the general interest such a person, as a member of the public, may have, he has a particular or special interest in the subject-matter supposed to be wrongly decided[25]."

Nestle India Ltd v. State[26]

"person aggrieved by the offence" occurring in Section 469(1)(b) of the code[27] should be given a limited or restricted coverage which would be one who is personally and directly affected by an offence and not to any member of the public or even an officer who is charged with the duty of enforcing prohibitory regulations under the Statute. 

P.K. Choudhury v. Commander[28]

Where the Hon'ble Supreme Court reiterated the settled proposition of law that an accused is entitled to be heard before the delay in instituting the criminal proceeding is condoned by the Magistrate.

Philip v. Assistant of Registrar of Companies[29]

In the case before Kerala High Court, a complaint was filed on October, 24, 2001 under Section 628 of Companies Act, 1956 alleging fictitious entries in the books of accounts and Balance Sheet of a company for the period 1995–1996.

PETITIONER’S ARGUMENT

  1. In support of his contention the counsel for the petitioner said the Registrar of Companies cannot be said to be person ‘aggrieved by the offence.
  2. The learned counsel for the petitioner has referred to the decision of Madras High Court in Sulochana v. State of Registrar of Chits[30], and the decision of this Court in Nestle India Ltd v. State,[31].
  3. If Registrar of Companies is a person aggrieved in case of default on the part of the company in delivering the share certificate/debenture certificate or transferring shares/debentures, it cannot be said that it is only the shareholders of the company, who would be ‘persons aggrieved by offence’ in respect of violations of Section 212(a) read with Section 212(1) of Companies Act[32], Section 211(7) read with Schedule VI of Companies Act[33] or Section 217(5) read with sub-section (1) of Section 217 of Companies Act[34].
  4. In fact, the person affected on account of violations of various provisions of Companies Act by its Directors, officers, employees, etc.
  5. The learned counsel for the petitioners has referred to the decision of the Hon'ble Supreme Court in P.K. Choudhury v. Commander[35], where the Hon'ble Supreme Court reiterated the settled proposition of law that an accused is entitled to be heard before the delay in instituting the criminal proceeding is condoned by the Magistrate.
  6. Last contention raised by the learned counsel for the petitioners is that the company cannot be prosecuted for the contraventions subject matter of these complaints.
  7. Section 209(6) of Companies Act[36] would show only directors, officers and employees of the company have been made liable for these contraventions and the company itself has not been subjected to any criminal liability on account of these contraventions.

RESPONDENTS CONTENTION

  1. Learned counsel for the respondent has referred to decision of Kerala High Court in Thomas Philip v. Assistant of Registrar of Companies,[37]. In the case before Kerala High Court, a complaint was filed on October, 24, 2001 under Section 628 of Companies Act, 1956 alleging fictitious entries in the books of accounts and Balance Sheet of a company for the period 1995–1996.
  2. Merely because a Balance Sheet comes into the hands of the Registrar, it cannot be assumed that the Registrar had come to know of all the offences revealed on a vetting of the Balance Sheet.
  3. The learned counsel for the petitioners, before the High Court, relied upon Regulation 17 of Companies Act to contend that Registrar, on receipt of a document like Balance Sheet, is required to examine the document or cause it to be examined and which further stipulates that if there be any defect or incompleteness in the document, it has to be returned within a period of 15 days[38]. 
  4. It cannot be said that all the offences against Companies Act come to the knowledge of Registrar, on the date Balance Sheet or other relevant document is filed in his office. The number of companies, in our country, may be running into lakhs[39].
  5. It would be impractical and unrealistic to expect the Registrar or his office to carry out a detailed scrutiny and cross-checking of the Balance Sheets and other documents filed in his office, on the date the documents are filed or even soon thereafter.

JUDGMENT

  • The Hon'ble Supreme Court held that the company, being a juristic, could be prosecuted even for an offence for which the mandatory sentence of imprisonment and fine, is provided, though when found guilty the Court has the discretion to impose a sentence of fine only.
  • RATIO DECIDENDI- The question of criminal liability of a company would arise only if an offence has been committed by the company. When there is no provision in Companies Act, making a company liable for prosecution on account of a contravention of this nature, the judgment of the Hon'ble Supreme Court would have absolutely no application.
  • For the reasons given in the preceding paragraphs, the impugned order is hereby modified to the extent that summoning of the company Dr. Morepen Ltd. is quashed[40].
  • The summoning and prosecution of the petitioners Sanjay Suri and Ajay Sharma is, however, maintained.
  • The petitions stand disposed of, with this modification.

ANALYSIS

  • The complaint has been filed under Section 212(7) of Companies Act for contravention of Section 212 read with Schedule VI of Companies Act[41] on the ground that during the course of inspection by Deputy Registrar of companies, it was found that it its Balance Sheet for the period ending 31st March, 2002, the company had not made proper disclosure in terms of Schedule VI of Companies Act since the company had given collateral security pursuant to order of this Court attaching its bank account to the extent of Rs. 6.24 crores[42], but the company had not made any provision in its Balance Sheet for the aforesaid contingent liability.
  • This contravention, according to the complainant, came to its knowledge on 24th May, 2006 when the report of Deputy Registrar of Companies was received in its office. Section 468 of the Code of Criminal Procedure[43], to the extent it is relevant that no Court shall take cognizance of an offence punishable with imprisonment for a term not exceeding one year after expiry of one year. Section 469 of the Code[44] to the extent it is relevant provides that where the commission of the offence was not known to the ‘person aggrieved by the offence’ or to any police officer, the period of limitation in relation to an offence shall commence from the first day on which such offence comes to the knowledge of the aggrieved person or to any police officer, whichever is earlier.
  • Court cannot go into the question as to whether the petitioners were actually responsible for compliance of the provisions Company not liable for contravention of the provisions of Section 217(1) of Act[45] and it is only the directors of the Company who are liable for the offence.
  • The position of the Company Prosecutor who is the complainant in the present case is akin to that of a police officer. If a police officer is not the “aggrieved person”, the Registrar of Companies would also not be an aggrieved person[46]. An aggrieved person would be one who is directly affected by the acts of commission or omission of another person.

CONCLUSION

  • It cannot be said that it is only the shareholders of the company, who would be ‘persons aggrieved by offence.
  • It is not the intention of the Legislature to make all the directors, officers and employees of the company liable for the contravention of a provision of Act[47].
  • Only those Directors are liable to be prosecuted who were responsible for ensuring compliance with the relevant provisions.
  • Court rightly said that question of criminal liability of a company would arise only if an offence has been committed by the company. When there is no provision in Companies Act, making a company liable for prosecution on account of a contravention of this nature, thus modifying and quashing  the summon of company, Dr. Morepen[48].

[1] Companies Act, 1956. S.212 (7), Acts of Parliament 1956 (India)

[2] SCC Online, https://www.scconline.com/blog/post/tag/, (Last visited on Jan 26, 2022)

[3] Code of Criminal Procedure, S. 468

[4] Code of Criminal procedure, S. 469

[5] Delhi High Courts,(7-9) https://delhicourts.nic.in/Jan10/SANJAY%20SURI%20VS.%20STATE.pdf  (Last visisted on Jan 31, 2022)

[6] Vlex, https://vlex.in/vid/sanjay-suri-and-ors-572334202 (Last visited on Feb 3, 2022)

[7] Sanjay Suri & Ors. vs State & Anr, https://indiankanoon.org/doc/51226068/ (Last visted on Feb 4, 2022)

[8] Companies Act, 1956, S. 212(1), Acts of Parliament 1956 (India)

[9] Lawyers services, https://www.lawyerservices.in/Sanjay-Suri-and-Others-Versus-State-and-Another-2010-01-29 (Last visisted on Jan 3, 2022)

[10] Companies Act,1956,  S. 212(9) ,Acts of Parliament, 1956 (India)

[11] Companies Act, 1956, S. 212(1), Acts of Parliament, 1956 (India)

[12] Code of Criminal Procedure, S. 469(1)(b)

[13] Ibid

[14] Companies Act, 1956. S.212. Acts of Parliament 1956 (India)

[15] Companies Act, 1956. S. 621. Acts of Parliament 1956 (India)

[16] Companies Act, 1956. S. 217(5) . Acts of Parliament 1956 (India)

[17] Companies Act, 1956. S. 469. Acts of Parliament 1956 (India

[18] Companies Act, 1956. S. 209. Acts of Parliament 1956 (India

[19] Companies Act, 1956. S. 411. Acts of Parliament 1956 (India)

[20] Code of Criminal Procedure,1973,  S. 482

[21] Companies Act, 1956. S. 113. Acts of Parliament 1956 (India)

[22] Code of Criminal Procedure,1973,  S.468

[23] Assistant Registrar Of Companies v. H.C. Kothari And Others, 1992 75 Comp Cas 688 Mad

[24] Sulochana v. State of Registrar of Chits, 1978, Crl. L.J. 116

[25] Sulochana v. State of Registrar of Chits, 1978, Crl. L.J. 116

[26] Nestle India Ltd v. State, 1999 JCC (2), Delhi 473,1999 (50) DRJ 846

[27] Code of Criminal Procedure, 1973,S. 469(1)(b) 

[28] P.K. Choudhury v. Commander, 48 BRTF 2008 (2) JCC 934

[29] Philip v. Assistant of Registrar of Companies, 2006 (133)

[30] Sulochana v. State of Registrar of Chits, 1978, Crl. L.J. 116

[31] Nestle India Ltd v. State, 1999 JCC (2), Delhi 473 : 1999 (50) DRJ 846.

[32] Companies Act, 1956. S.212. Acts of Parliament 1956 (India)

[33] Companies Act, 1956. S. 211. Acts of Parliament 1956 (India)

[34] Companies Act, 1956. S. 217. Acts of Parliament 1956 (India)

[35] P.K. Choudhury v. Commander, 48 BRTF 2008 (2) JCC 934

[36] Companies Act, 1956. S. 209. Acts of Parliament 1956 (India)

[37] Thomas Philip v. Assistant of Registrar of Companies, 2006 (133)

[38] Lawyers services, https://www.lawyerservices.in/Sanjay-Suri-and-Others-Versus-State-and-Another-2010-01-29 (Last visisted on Jan 3, 2022)

[39] Indiankanoon, https://indiankanoon.org/doc/51226068/ (Last visited on Feb, 2. 2022)

[40] Delhi High courts .in https://delhicourts.nic.in/Jan10/SANJAY%20SURI%20VS.%20STATE.pdf (Last visisted on Feb, 5 2022)

[41] Companies Act, 1956. S.212. Acts of Parliament 1956 (India)

[42] SCC Online Blog, https://www.scconline.com/blog/post/2017/05/23/(Last visited on Feb. 3, 2022)

[43] Code of Criminal Procedure, 1973 S.468

[44] Code of Criminal Procedure, 1973 S.469

[45] Companies Act, 1956. S.217. Acts of Parliament 1956 (India)

[46] Indian kanoon, https://indiankanoon.org/doc/51226068/ (Last visited on Feb 6, 2022)

[47] SCC Online Blog, https://www.scconline.com/blog/post/2017/05/23/(Last visited on Feb. 3, 2022)

[48] Delhi High courts .in https://delhicourts.nic.in/Jan10/SANJAY%20SURI%20VS.%20STATE.pdf (Last visited on Feb, 5 2022)

About the Author: This Case Brief is prepared by Shubhangi Chhaya, law student at Christ (Deemed to be) University. She can be reached at shubhangichhaya1200@gmail.com

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