B.S. Raikote, J.
1. The petitioner is the one and the same in all these three cases and he has filed these criminal petitions for quashing the proceedings. Criminal Petition No. 1711 of 1995 arises out of the proceedings in C.C. No. 64 of 1994 pending before the Special Judge for Economic Offences, Hyderabad. Criminal Petition No. 1712 of 1995 arises out of the proceedings in C.C. No. 66 of 1994 and Criminal Petition No. 1713 of 1995 out of the proceedings in C.C. No. 68 of 1994, pending before the same court. The petitioner is accused no. 5 in C.C. No. 64 of 1994, and accused No. 2 in C.C. No. 66 of 1994, and C.C. No. 68 of 1994. It is relevant to be noted that in C.C, No. 64 of 1994, Andhra Bank Financial Services Limited is accused No. 1 represented by Sri C.V. Siva Prasad, accused No. 5 (hereinafter referred to as 'the lending company'). Accused Nos. 2 and 3 are the ex-chairman, accused No. 4, Y. Sundara Babu, is the ex-managing director, and accused No. 6 is another loanee company. In C.C. Nos. 66 and 68 of 1994, accused No. 1 is the ex-managing director and accused No. 2 is the managing director at the time of filing the complaint. Since common questions of fact arise, I am disposing of these petitions by this common judgment.
2. Admittedly, as per the complaint itself the petitioner was appointed as the managing director of the said financing company with the effect from September 16, 1992. These three cases are filed alleging that the company has committed offences under the different sections of the Indian Companies Act. C.C. No. 64 of 1994 was filed against the five accused persons alleging that the financing company as a lending company has advanced loans in excess of limits prescribed under the Central Government Notification No. G.S.R. 448(E), dated April 17, 1989 [See [1989] 65 Comp Cas (St.) 585] (the notification issued under section 370(1) of the Companies Act, 1956). According to the said notification, the maximum lending limit of the bank is 30 per cent. of the subscribed capital and free reserves, which comes to Rs. 1.5 crores. Accordingly, it is alleged that the financing company having lent the loan in excess of 30 per cent. without a resolution of the shareholders has committed an offence under section 370 of the Companies Act, 1956. It is further alleged that the accused persons being officers-in-default are liable to be punished under section 370 of the Companies Act. In paragraph (5) of the complaint it is stated that the subject offence in this matter is that during the period since commencement of business till March 31, 1992, the lending company had granted loans to various corporate bodies and as on March 31, 1992, the total amount of such loans granted and outstanding was Rs. 511.48 lakhs. It is also stated that from April 1, 1992, onwards the lending company continued to grant loans to the corporate bodies to the extent of Rs. 139.50 lakhs. On the basis of these allegations, it is prayed in the complaint that the accused shall be punished according to law being the 'officers-in-default' during the relevant and material times of the subject of the offence.
3. C.C. No. 66 of 1994 was filed against accused Nos. 1 and 2 who are the ex-managing director and managing director at the time of filing of the complaint under sub-sections (7) and (8) of section 211 read with Schedule VI to the Companies Act, 1956, for failure to comply with the requirements of sub-sections (1) and (2) of the said section. In this complaint, it is alleged that on the basis of the inspection conducted by the officers of the Central Government from April 25, 1994, to May 30, 1994, it was disclosed that the balance-sheet and profit land loss account for the year ended March 31, 1992, did not show the true and fair view of the state of affairs as required under section 211 read with Schedule VI to the Act and such a balance-sheet was also contrary to the guidelines issued in pursuance of the circular issued in January, 1991. It is further stated in the complaint that the amounts should have been reflected in the profit and loss account and balance sheet as on March 31, 1992, and the actual liability outstanding as on March 31, 1992, and the outstanding liability under the STS scheme as on March 31, 1992, was Rs. 160.25 crores. It is further stated that the company should have disclosed the details of each and every purchase and sale of shares and bonds by way of schedule to the balance-sheet as on March 31, 1992. The company has not done so. Thus, the company has not complied with Part I, Schedule VI to the Companies Act. On the basis of these allegations, the complainant prays that accused Nos. 1 and 2, ex-managing director and the managing director, as on the date of filing of the complaint, shall be punished as the officers-in-default under section 211 (sub-sections (7) and (8) of the Act).
4. C.C. No. 68 of 1994, is filed against the lending company for the offences under sub-sections (6) and (7) of section 209 of the Companies Act, 1956, for failure to comply with the requirements of sub-sections (1) and (3) of the said section 209 of the Act. In this case also it is alleged that as per the inspection of the company by the officers of the Central Government from April 25, 1994, to May 30, 1994, it is revealed that the lending company has not kept the books of account properly as required under sub-sections (6) and (7) of section 209 of the Companies Act. It is further stated that the aggregate amount of money accepted under the STS scheme in 1991-92 amounted to Rs. 1,170.45 crores and in 1992-93 the amount was Rs. 398.77 crores. Even though the funds accepted on own account as well as from STS claims were treated alike, the company opted to treat the amount as accepted under the STS scheme as 'off the book transaction deal'. This is on account of a wrong and incorrect view taken by the company. It is further alleged that the security transactions recorded in the books of account of the company as shown in the published account as on March 31, 1992, are incorrect. In other words, the lending operations of the company (prohibited by the RBI) were disguised as security transactions and shown in the books of account and published in accounts as purchase and sale of securities. Thus, the company has not complied with the requirements of section 209 of the Act. On the basis of these allegations, it is prayed in the complaint that accused Nos. 1 and 2 as the officers-in-default of the company shall be punished under section 209 of the Companies Act.
5. In all these case, the defence of the petitioner is that he has assumed charge as managing director with effect from September 16, 1992, being appointed with effect from September 16, 1992. He relies upon the appointment order dated March 4, 1993, filed in the material papers at annexure-III. This is the appointment order issued by the Government of India, Ministry of Law, Justice and Company Affairs Department, stating that the appointment of the petitioner as managing director of the company with effect from September 16, 1992, to June 13, 1993, is approved. It is further stated that the appointment of the petitioner is intimated to the Registrar of Companies, Andhra Pradesh, Hyderabad, vide letter dated October 1, 1992, under form No. 32. A copy of Form No. 32 is also filed. In that form No. 32, the petitioner's name is at Serial No. 2. Under column No. 5 of the form, it is stated that the date of appointment of the petitioner is September 16, 1992. It is further stated that the appointment as director and managing director is effective from September 16, 1992, as nominated by Andhra Bank on deputation. Learned counsel appearing for the petitioner relying upon these documents and also the averments in the criminal petitions stated that the petitioner has been appointed with effect from September 16, 1992, as the managing director and all these alleged offences have taken placed prior to the petitioner assuming charge on September 16, 1992. Therefore, on the basis of all the complaints filed in all these cases, so far as the petitioner is concerned, no offence can be said to have been made out, and, accordingly, it is a fit case for quashing the proceedings under section 482 of the Criminal Procedure Code, 1973.
6. Secondly, learned counsel for the petitioner submitted that even in the complaints, it is not alleged that the petitioner has committed the offences 'willfully'. Unless it is alleged that there a 'wilful default' on the part of the particular officers, no offence can be constituted under the respective sections mentioned in each of the complaints. In support of his contention, learned counsel for the petitioner also relied upon the judgment of the Bombay High Court in H. Nanjundiah v. V. Govindan, Registrar of Companies [1986] 59 Comp Cas 356.
7. On the other hand, learned counsel appearing for the respondent Registrar of Companies submitted that there is some substance in the argument of the petitioner so far as Criminal Petition No. 1712 of 1995 is concerned and in so far as Criminal Petitioner No. 1711 of 1995 and Criminal Petition No. 1713 of 1995 is concerned a prima facie case is made out on the basis of the complaint filed and, therefore, the petitioner is not entitled to any relief under section 482 of the Criminal Procedure Code, 1973.
8. Regarding the principle under what circumstances this court can quash the proceedings under section 482 of the Criminal Procedure Code (561A of the old Code) both counsel relied upon the judgments of the Supreme Court in R.P. Kapur v. State of Punjab, : 1960CriLJ1239 and State of Haryana v. Bhajan Lal, : 1992CriLJ527 . In R.P. Kapur's case, : 1960CriLJ1239 , the Supreme Court laid down certain guidelines under what circumstances this court can exercise the inherent jurisdiction under section 482 of the Criminal Procedure Code, 1973, as under (page 869) :
Ordinarily, criminal proceedings instituted against an accused person must be tried under the provisions of the Code, and the High Court would be reluctant to interfere with the said proceedings at an interlocutory stage. It is not possible, desirable or expedient to lay down any inflexible rule which would govern the exercise of this inherent jurisdiction. However, we may indicate some categories of cases where the inherent jurisdiction can and should be exercised for quashing the proceedings. There may be cases where it may be possible for the High Court to take the view that the institution or continuance of criminal proceedings against an accused person may amount to the abuse of the process of the court or that the quashing of the impugned proceedings would secure the ends of justice. If the criminal proceeding in question is in respect of an offence alleged to have been committed by an accused person and it manifestly appears that there is a legal bar against the institution or continuance of the said proceedings the High Court would be justified in quashing the proceeding on that ground. Absence of the requisite sanction may, for instance, furnish cases under this category. Cases may also arise where the allegations in the first information report or the complaint, even if they are taken at their face value and accepted in their entirety, do not constitute the offence alleged; in such cases no question of appreciating evidence arises; it is a matter merely of looking at the complaint or the first information report to decide whether the offence alleged is disclosed or not. In such cases it would be legitimate for the High Court to hold that it would be manifestly unjust to allow the process of the criminal court to be issued against the accused person. A third category of cases in which the inherent jurisdiction of the High Court can be successfully invoked may also arise. In cases falling under this category the allegations made against the accused person do constitute an offence alleged but there is either no legal evidence adduced in support of the case or the evidence adduced clearly or manifestly fails to prove the charge. In dealing with this class of cases it is important to bear in mind the distinction between a case where there is no legal evidence or where there is evidence which is manifestly and clearly inconsistent with the accusation made and cases where there is legal evidence which on its appreciation may or may not support the accusation in question. In exercising its jurisdiction under section 561A, the High Court would not embark upon an enquiry as to whether the evidence in question is reliable or not. That is the function of the trial magistrate, and ordinarily it would not be open to any party to invoke the High Court's inherent jurisdiction and contend that on a reasonable appreciation of the evidence the accusation made against the accused would not be sustained.'
9. In the latter judgment in State of Haryana v. Bhajan Lal, : 1992CriLJ527 , the Supreme Court formulated seven broad principles as guidelines for exercising the inherent jurisdiction under section 482 of the Criminal Procedure Code, 1973, by the High Courts as under (page 629) :
'1. Where the allegations made in the first informations report or the complaint, even if they are taken at their face value and accepted in their entirely do not prima facie constitute any offence or make out a case against the accused.
2. Where the allegations in the first informations report and other materials, if any, accompanying the first informations report do not disclose a cognizable offence, justifying an investigation by police officers under section 156(1) of the Code except under an order of a magistrate within the purview of section 155(2) of the Code.
3. Where the uncontroverted allegations made in the first information report or complaint and the evidence collected in support of the same do not disclose the commission of any offence and make out a case against the accused.
4. Where, the allegations in the first information report do not constitute a cognizable offence but constitute only a non-cognizable offence, no investigation is permitted by a police officer without an order of a magistrate as contemplated under section 155(2) of the Code.
5. Where the allegations made in the first information report or complaint are so absurd and inherently improbable on the basis of which no prudent person can ever reach a just conclusion that there is sufficient ground for proceeding against the accused.
6. Where there is an express legal bar engrafted in any of the provisions of the Code or the concerned Act (under which a criminal proceeding is instituted) to the institution and continuance of the proceedings and/or where there is a specific provision in the Code or the concerned Act, providing efficacious redress for the grievance of the aggrieved party.
7. Where a criminal proceeding is manifestly attended with mala fide and/or where the proceeding is maliciously instituted with an ulterior motive for wreaking vengeance on the accused and with a view to spite him due to private and personal grudge.'
10. Further, in paragraph No. 109 of the said judgment, the Supreme Court has given a note of caution to the effect that the power of quashing the criminal proceedings should be exercised very sparingly and with circumspection and that too in the rarest of rare cases; that the court will not be justified in embarking upon an enquiry as to the reliability or genuineness or otherwise of the allegations made in the first information report or the complaint. Keeping in view, these principles enunciated by the Supreme Court, I now proceed to consider the merits of each of these cases.
11. Criminal Petition No. 1711 of 1995 is filed for quashing the proceeding in C.C. No. 64 of 1994 filed for the offence alleged to have been committed by the petitioner-accused No. 5 under section 371 of the companies Act for failure to comply with section 370(1) of the said Act, on the allegation that the accused persons as the officers-in-default of accused No. 1-company have advanced loans as lending company in excess of 30 per cent. Permitted in terms of the Central Government Notification No. G.S.R. 448(E), dated 17.4.1989, [See [1989] 65 Comp Cas (St.) 585] without the special resolution of the lending company in terms of section 371B. It is relevant to extract paragraph No. 5 of the complaint which reads as under :
'5. That the subject offence in this matter is that during the period since commencement of business till 31-3-92, the lending company had granted loans to various bodies corporate/companies and as on 31-3-92, the total amount of such loans granted and remaining outstanding was Rs. 511.48 lakhs. From 1-4-92 onwards, the lending company continued to grant loans to bodies corporate/companies to the extent of Rs. 139.50 lakhs. The details of such loans are furnished in annexure 'A' which is enclosed with the complaint, and the same may be considered as part and parcel of the complaint.'
12. Relying on this allegation, learned counsel for the petitioner contended that no offence can be said to have been made out against the petitioner-accused No. 5 in the case, since the alleged lending of loans was from the commencement of the business till March 31, 1992. Even from the details the loans advanced also pertain to a period up to March 31, 1992. Regarding the date found at item No. 8 of the said annexure 'A' as June 30, 1993, is the only one regarding the calculation of the interest on the loans already advanced prior to March 31, 1992. From these facts, it is clear that the allegations and the complaint relate to a period up to March 31, 1992, whereas the petitioner has been appointed as the managing director with effect from September 16, 1992, a date after March 31, 1992. Therefore, the petitioner could not have been made one of the accused in the case. Hence, the proceedings are liable to be set aside. On the other hand, counsel appearing for the Registrar of Companies contended that as per the complaint even from April 1, 1992, onwards the lending company continued to grant loans to bodies corporate/companies to the extent of Rs. 139.50 lakhs as per annexure 'A', therefore, there is a prima facie case against the petitioner.
13. There is substance in the argument of learned counsel for the petitioner. Paragraph No. 2 of the Complaint itself states that :
'Accused No. 2 was the chairman of the lending company from 25-2-91 to 30-6-92. Accused No. 3 was the chairman of the lending company during the period from 1-7-92 to 31-3-93. Accused No. 4 was the managing director of the lending company during the period from 14-6-91 to 7-9-92. Accused No. 5 is the managing director of the lending company with effect from 16-9-92. Accused Nos. 2 to 4 are the officers of the lending company during the relevant and material times of the subject offence. Therefore, accused Nos. 2 to 5 are the officers-in-default in accordance with section 5 of the Companies Act, 1956.'
14. From this allegation in the complaint, it is clear that it is accused No. 4 who was the managing director of the lending company during the relevant period from June 14, 1991 to September 7, 1994. It is further clear that A-2 to A-4 were the officers of the lending company during the relevant and material times of the subject of offence. However, it also described the present petitioner as accused No. 5 as one of the officers-in-default in the next sentence. The short question would be whether the petitioner who is accused No. 5 in this case is an officer-in-default as per section 5 of the Companies Act, 1956, for the purpose of the offences under the provisions of the Companies Act, 1956.
15. As per section 5 of the said Act, for the purpose of the provisions of the Act an officer of the company, who is in default, is made liable to punishment or penalty. Under sub-clauses (a) to (g) of the said section it has described such defaulting officers in cases of lapses and violations for the purpose of the punishment and penalty and they are managing director or managing directors, the whole-time director or whole-time directors, the manager, the secretary and any person under whose directions or instructions the board of directors of the company are accustomed to act, any person charged by the board with the responsibility of complying with that provisions of the Act. Examining the present case in the light of section 5 of the said Act, it is clear that at the relevant point of time, of section 5 of the said Act, it is clear that at the relevant point of time, i.e., up to March 31, 1992, the petitioner was not the managing director, as admitted in the complaint itself. No particulars are given in the complaint except the particulars stated in annexure 'A' filed along with the complaint. From the reading of both the complaint and as well as annexure 'A', it is clear that the entire case pertains to the lending of loans prior to March 31, 1992, and one entry dated June 30, 1993, found at item No. 8 of annexure 'A' is only an item calculating the interest on the loan already advanced on April 22, 1992. From the entire reading of the complaint and its annexure 'A' it is clear that the petitioner who has joined his duties as the managing director with effect from September 16, 1992, cannot be said to be an officer-in-default regarding the loan transactions that have taken place prior to his joining his duties on September 16, 1992. As per the allegations, in the complaint itself it is clear that the relevant period of the offence is up to March 31, 1992. Since the petitioner was not a managing director during that period he cannot be a defaulting officer. In this view of the matter, I am of the opinion that the complaint in C.C. No. 64 of 1994 does not disclose the offence alleged against the petitioner. In view of the law declared by the apex court in K.P. Kapur's case, : 1960CriLJ1239 and State of Haryana v. Bhajan Lal, : 1992CriLJ527 , the court may quash the proceedings under section 482 of the Criminal Procedure Code, if the first information report or the complaint itself does not disclose any offence. Without embarking on any further enquiry, on a plain reading of the complaint itself, the complaint does not disclose any offence against the petitioner. Hence, the proceedings in C.C. No. 64 of 1994 so far as it relates to the petitioner are liable to be quashed.
16. In Criminal Petition No. 1712 of 1995, the petitioner has sought quashing of the proceedings in C.C. No. 66 of 1994. According to this complaint, the balance-sheet and profit and loss account for the year ending March 31, 1992, did not show the true and fair view of the state of affairs hence the accused have committed the offence under section 211 read with Schedule VI to the Companies Act, 1956.
17. As pointed out by learned counsel for the petitioner, it is accused No. 1, ex-managing director who is described as officer-in-default. To quote :
'That accused No. 1 is the ex-managing director of the Andhra Bank Financial Services Ltd. (hereinafter referred to as 'company') during period from 25-2-91 to 7-9-92 and he was thereby officer-in-default during all the relevant and material times when the subject offence took place. Accused No. 2 has been the managing director of the company since 16-9-92.'
18. From the reading of the complaint itself, it is clear that it is only accused No. 1 who is described as officer-in-default but not the petitioner who is accused No. 2. The very allegations in the complaint states that the balance-sheet and profit and loss account for the year ended March 31, 1992, was not kept in accordance with law. As stated above, the present petitioner was not the managing director during that period and he assumed charge as the managing director only with effect from September 16, 1992. In this view of the matter, it can be safely concluded that no offence is made out against the present petitioner under section 211 read with Schedule VI to the Companies Act, 1956. Moreover, learned counsel for the respondent-complainant fairly conceded that so far as this complaint is concerned prime facie no offence is made out against the present petitioner. In view of these circumstances, I am of the opinion that these proceedings also are liable to be quashed so far as they pertain to the present petitioner.
19. Coming to the last case, i.e., Criminal Petition No. 1713 of 1995, it is seen from the pleadings that in this case the petitioner has sought for quashing of the proceedings in C.C. No. 68 of 1994. This is a complaint filed under section 209(6) and (7) of the Companies Act, 1956, for failure to comply with the requirements of section 209(1) and (3) of the said Act. The allegation is that the company has not kept proper books of account with respect to all sums of money received and spent and also regarding the money pertaining to all sales and purchases of goods by the company. Even the assets and liabilities of the company have not been kept properly. In this complaint also the present petitioner is made accused No. 2 and accused No. 1 is the ex-managing director. Paragraph No. 1 of the complaint reads as under :
'That accused No. 1 is the ex-managing director of Andhra Bank Financial Services Ltd. (hereinafter referred to as 'company') during the period from 25-2-91 to 7-9-92 and he was thereby officer-in-default during all the relevant and material times when the subject offence took place. Accused No. 2 has been the managing director of the company since 16-9-92.'
20. From the reading to this complaint also, it is clear that it is only the accused No. 1 who has been described as 'officer-in-default' but not accused No. 2. He has been shown as the person who has taken charge as managing director of the company from September 16, 1992. Further, in paragraph No. 3, it is stated that 'in these circumstances, the security transactions recorded in the books of account of the company as shown in the published account as on March 31, 1992, are incorrect.' From this allegations and from the entire allegation in the complaint it is further disclosed that the irregularity that is sought to be pointed out is only for period prior to March 31, 1992, but not after the present petitioner assumed his charge with effect from September 16, 1992. Therefore, on the basis of the allegations made in the complaint, particularly in paragraph No. 1 it is clear that the petitioner is not described as officer-in-default, rightly so because he has assumed charge only with effect from September 16, 1992. Hence, I am of the opinion that the complaint, prima facie, does not disclose the commission of any offence by the present petitioner under section 209 of the Companies Act, 1956. Following the principle laid down by the apex court in the judgments referred to above even these proceeding in C.C. No. 68 of 1994 are liable to be quashed.
21. On the basis of the allegations made in these complaints if the proceedings are allowed to go on the petitioner would be put to great loss and hardship and it would definitely result in abuse of the process of the court. The allegations imputed are of the period prior to March 31, 1992, and the petitioner has assumed the charge only with effect from September 16, 1992, he cannot be termed as an officer-in-default under section 5 of the Companies Act, 1956, so as to make him liable for the offences committed under different sections of the said Act as alleged in the complaint. In similar circumstances, the High Court of Calcutta in Ajit Kumar Sarkar v. Asst. Registrar of Companies [1979] 49 Comp Cas 909 also held that a person against whom there are no specific averments in the complaint cannot be said to be an officer-in-default. I am extracting the relevant portion as under (page 919) :
'The next point taken is that the case against the company and one of the directors has not been filed as service could not be effected on them. Without the company being prosecuted along with the petitioner the present proceedings cannot go on. That the company is a necessary party goes without saying. Only if the company is convicted the others may be convicted as the directors derived their liability from the company. Hence, the company is a necessary party and the prosecution should be conducted only in the presence of the company, as accused.
Further, it is contended by the petitioner that the petition of complaint is liable to be quashed on the ground that there is no specific averment in it as to the officers who are in default apart from the company. In this connection, my attention has been drawn to section 5 of the Companies Act wherein 'officer-in-default' has been defined and explained. It means 'an officer who is knowingly guilty of default'. In section 162 of the Companies Act it is provided that 'the company and every officer of the company who is in default shall be punishable' which is further clarified in section 162(2) that the expression 'officer' shall include 'any person in accordance with whose directions or instructions the board of directors of the company is accustomed to act'.
Here it was incumbent on the prosecution to fix the liability with respect to the particular 'officer-in-default' and there should have been a specific averment to that effect in the complaint. In the petition of complaint, it is only stated that 'accused Nos. 2 to 5 are the officers and directors of the company' and in para. 3 there is an averment that 'the company and its directors are under a statutory obligation to file with the complainant an annual return'. This statutory obligation is imposed under sections 159 and 162 of the Companies Act. If all the directors are liable for every default then the expression 'every officer who is in default' becomes redundant and meaningless. As already stated above 'an officer includes a director'.
In this connection, the case reported in [1978] CLJ 336 (sic) lends support to this contention of the learned advocate for the petitioner.
In view of what I have stated above on the last two points taken by the petitioner, I hold that the cognizance taken on the basis of such petitions of complaint is bad and accordingly the proceedings are quashed.'
22. This judgment is followed by the High Court of Orissa in a decision in Bipin Behari Nayak v. Registrar of Companies [1988] 63 Comp Cas 271; [1995] 5 Comp LJ 376.
23. In view of my above conclusion, it is now not necessary for me to consider the second point urged by learned counsel for the petitioner that the complaints did not specifically allege that there was a 'wilful default' on the part of the accused persons. When it is held that the petitioner is not an officer-in-default, as per section 5 of the Companies Act, 1956, the question whether such alleged default was wilful or not does not arise. Therefore, the judgment of the Bombay High Court in H. Nanjundiah v. V. Govindan, Registrar of Companies [1986] 59 Comp Cas 356 relied upon by the petitioner does not arise for consideration.
24. For the foregoing reasons, I allow the Criminal Petitioner Nos. 1711, 1712 and 1713 of 1995, and, accordingly, quash the proceedings pending on the file of the Special Judge for Economic Offences, Hyderabad, in C.C. No. 64 of 1994 in C.C. No. 66 of 1994 and in C.C. No. 68 of 1994 in so far as these proceedings pertain to the petitioner.