D.R. Khanna, J.
1. The present case somewhat brings out how clubs which are other wise places of recreation and relaxation get converted into hot-beds of group rivalries. Whether they are the result of one group or the other monopolising their hold over the entire affairs is difficult to say. In the present case, there are circumstances pointing towards that, though exaggeration of insignificant matters by the other side is also there.
2. This petition under section 633(2) of the Companies Act was moved by some members of the managing committee of the Chelmsford club in which they stated that there were apprehensions that the Registrar of Companies was likely to prosecute them under various provisions of the Companies Act and, thereforee, he should be restrained from doing so. It was claimed that there had been no acts of negligence, breach of duty, etc., on their part and in the circumstances they should not be made to undergo the rigour of baseless prosecution. This petition was moved on April 7, 1983. At the same time, the petitioners sent a letter to the Registrar that they had moved this petition and, as such, till its disposal, the prosecution be not started. The Registrar, however, commenced three criminal cases against the petitioners of April 13, 1983. One has been under section 209(5), the second under section 211 and the third under section 217 of the Companies Act.
3. Notice of this petition under section 633(2) of the Companies Act was issued to the Registrar of Companies who appeared on May 26, 1983, and sought some time to file a reply. In the reply which was later filed, it was contended that the prosecutions had already been set in motion and, thereforee, the provisions of section 633(1) of the Companies Act came into operation and the company court could not adjudicate upon the controversies raised in the petition. Section 633(1) in this regard provides that the only court which can entertain objections to the prosecution is the one hearing the criminal case.
4. Confronted with this position, the petitioners made reference to Chapter XXXIV of the Clarifications and Circulars on Company Law issued by the Company Law Board which provides that prosecution should not be started after application for relief has been filed by any officer of the company under section 633. The petitioners, thereforee, contend that their right to get relief under sub-section (2) of section 633 could not be frustrated by the unwarranted act of the Registrar in launching prosecutions in defiance of the instructions contained in the said circular. On merits, the Registrar took a non-committal stand and had nothing to say on one side or the other. In the meanwhile, one Mr. C. L. Madhok moved a petition under section 633(3) of the Companies Act for intervention and stated that he has been a member of the club for a fairly long time and that there existed circumstances which necessitated the filing of the prosecutions against the petitioners and that as such the company court should not at this belated stage intervene to quash them.
5. I have heard the parties and given my due consideration to all the circumstances. So far as the provisions contained in section 633(1) of the Companies Act are concerned, they are quite explicit that once the prosecution has been started by filing of the complaint, the only court competent to entertain any objection to the propriety thereof is the court hearing that case. This is also the view of different High Courts in the cases reported as Tolaram Jalan, In re [1959] 29 Comp Case 34; AIR 1959 Orissa 205, Sri Krishna Parshad v. Register of Companies and In re Auto Link Financiers P. Ltd. . However, sub-section (2) of section 633 provides for situations where prosecutions have not been started and there are only reasons to apprehend that proceedings in that regard are likely to be brought. The question to be considered is when certain rights were available to the petitioners under sub-section (2) to get the matter of alleged negligence, breach of duty, etc., determined by the court, whether the same could be set at naught by the Registrar by moving the complaints under sub-section (1) in the meanwhile. This obviously was against the circular of the Company Law Board as referred to above. This circular though not of statutory nature, contains one of the policy decisions which the Company Law Board and the Central Government have formulated. Their operative and binding character qua the third parties may be quite doubtful. However, so far as the Registrar of Companies, who is an authority subordinate to the Company Law Board is concerned, the same did call for respect and adherence. It could not be that those directions were applied in the case of some of the companies and ignored with regard to others. When once the petitioners had moved the company court under sub-section (2) of section 633, he could have waited for the result of these proceedings or at the most required the court to expeditiously dispose of them instead of stealing a march over the petitioners and filing the complaints.
6. Mr. K. S. Bindra, appearing from the side of the intervene, has vehemently contended that these circulars have no binding character and in any case they could not be considered to have any legitimacy after the coming into force of the new Code of Criminal Procedure, 1973. He has made reference to the new provisions of the law of limitation introduced and has pointed out that any delay in the filing of the complaints by the Registrar would have resulted in the cases getting barred by time and the person holding offices of the company who had committed misfeasance and other illegal acts escaping due punishment. It is pointed out that the punishments awardable under the complaints already lodged could be up to one year and the limitation for commencing any such prosecution under section 466, Cr. PC, is one year from the date of the occurrence or the knowledge of the complaint. However, section 470(2), Cr. PC, given protection to the complainants in such circumstances inasmuch as the time during which the institution of the prosecution lies stayed by any order has to be excluded. From the side of the petitioners it has rather been pointed out that in any case, the period of limitation never weighed with the Registrar as the complaints were filed on 13th April, 1984, while the show-cause notices which the Registrar had earlier issued to the petitioners were in February, 1983. By then, the Registrar, it is contended, had already know about the alleged misfeasance, breach of duty, etc. I would, not, however, like to dilate more on this aspect.
7. Since I have already observed that the rights available to the petitioners to get their claim under section 633(2) determined could not be affected by subsequent filing of the complaints under sub-section (1), I proceed to discuss the contentions raised by the petitioners as to how the so-called acts of misfeasance and breach of duty, etc., have no basis.
8. The petitioners have first made reference to the prosecution instituted under section 217 of the Companies Act. The notice which was served upon the petitioners by the Assistant Registrar of Companies mentioned two acts of misfeasance. One was with respect to the non-realisation of the amounts due on certain government investments and the other was failure to realise the amounts due from certain ex-employees who had left the service of the club. About the former, the amount was Rs. 3,500 and the petitioners have brought out that they had been writing to the concerned government departments for clearance of the dues but they were not paid in spite of the best efforts exerted in this regard. Those amounts were not lying with any private party and were in fact government securities. The amount was also not very high. Unfortunately, the red tapism that has come to be in most of the government departments does delay the clearance of the dues. For this purpose, the petitioners could not be made criminally liable. Their conduct has been bona fide inasmuch as they have been pursuing the government departments for realisation of the amounts.
9. The second amount due from the ex-employees was of Rs. 400 odd. There were stated to be 7 employees and the break-up was two minor amounts. Any institution of suits against them for those amounts would naturally have been penny wise and pound foolish. The prosecution sought to be launched under section 217 was thus entirely misplaced and, thereforee, I have little hesitation in directing the Registrar not to initiate any such prosecution and in case, in spite of the pendency of the petition under section 633(2) and in violation of the circular of the Company Law Board, he has commenced any, the same should be dropped.
10. The second prosecution is under section 209(5) of the Companies Act. The allegation under this was that during the course of inspection, it was noticed that the fixed assets register as required under section 209 had not been maintained properly by the company and the quantitative details in respect of the various assets acquired from time to time had not been entered in the concerned register. The location of the fixed assets was also stated to have not been entered there.
11. The petitioners have pointed out that no prescribed register in any particular form has been laid under the Companies Act or the Companies (Court) Rules. Rather the club has in fact maintained a fixed assets register. In case some further details should have been incorporated in the same, a direction to this effect could have been issued by the Registrar instead of straightaway proceeding to launch the prosecution. Moreover, the averments made in this notice were generalised and vague. There was no specific mention of any particular item.
12. In any case, as the matter came up for discussion during arguments, it was felt that such a register should contain the dates of acquisition of different assets and the places where they have been fixed so that their identity could be correlated. Mr. Ved Vyas, appearing on behalf of the petitioners as well as the club, stated that necessary steps in this direction will be taken forthwith.
13. There have been no specific instances of misappropriation or misfeasance with regard to any item. In the circumstances, the institution of prosecution would not be worth while.
14. Lastly, I come to the show-cause notice which had been issued under section 211 of the Companies Act. The same brought out a number of acts of misfeasance, breach of duty, negligence, etc. The first of them was with regard to the interest earnings of Rs. 1.52 lakhs and Rs. 2.37 lakhs during 1969 and 1980 from fixed deposits. The background in this regard is that although the main object of the Chelmsford club has been recreation and sports, a country golf club was claimed to have been started and for this purpose extensive agricultural land was acquired near Qutab. Had the object been to start the golf club, it could be said that this was an off-shoot activity of the club. However, what was done under the garb of this golf club was to start allotting one acre plots to different members for their personal farm houses, etc. The club appeared to have for this purpose started acting as land coloniser for its members or a house building society. It is not shown that the objects and memorandum of the company permitted such a course for the benefit of the individual members. Be that as it may, nothing more need be said about this.
15. The interest which was the subject-matter of this allegation had accrued to the club from various amounts deposited by the members for the acquisition of plots by them. It has been pointed out by the petitioners that the land is at present in the process of acquisition by the government and is also affected by the Ceiling Act. Some litigation in that regard is pending and, as such, it is not known if the deposits made by the members and interest accrued would have to be returned to them on the company losing the land. It is, as such, pleaded that interest-earning has not been treated as revenue income.
16. One of the contentions raised by Mr. Bindra has been that the handling of the accounts of the company has been such that the management committee is defrauding the income-tax department and not showing substantial part of its income as such. I am afraid the company court cannot go into this aspect. It is for the income-tax authorities to look into the accounts and ensure that the income otherwise does not escape taxation.
17. Whether the activity embarked upon by the club with regard to the acquisition of plots for the members was within the permissible limits of the objects and memorandum of the company and whether any misfeasance or breach of duty had been committed by the petitioners or not, I will not express any opinion. Let the prosecution have its course.
18. There is next the allegation that the club is Realizing 13 months' subscription from members instead of 12 months for every year, but the excess subscription of one month was not being shown as income but is credited in the members' reserve fund. This was done as a result of a resolution of the managing committee and the position has continued for a large number of years. In case the general body of the club had felt aggrieved by this resolution of the managing committee, it could have reversed the same or given any direction in this regard. The fact remains that there has been no misappropriation or malafides involved in this. I am, thereforee, unable to sustain the prosecution on this score.
19. Next item is of excess realisations from the 'tambola'. In this connection there is also a resolution of the Financial Sub-Committee in the year 1970 and the realisations are being credited to the building reserve account. Again there is nothing to show that any mala fide or misappropriation was involved. Whether this conduct on the part of the club violates the provisions of the Gambling Act as contended by Mr. Bindra is not for me in these proceedings to comment upon. It is for the administration or any other person feeling aggrieved to take action as may be permissible under the law. The Registrar need not take action under that Act.
20. There are some realisations made by the Club from Diwali Mela Bazars. It is an annual feature and entertainment stalls and booths are set up. After meeting the expenses, some surplus is left. This, according to the club, goes to the employees' dispensary fund. From that a dispensary for the benefit of employees is being operated. The sanction given by the administration for such a bazzar is also subject to this condition. No. exception, thereforee, can be taken to the same.
21. There is another item of complimentary Air India tickets. The circumstances in which these tickets are given are that Air India gets some advertisements displayed in the club premises, and instead of paying for the same, two Air tickets are given to the club every year. The tickets which are the subject-matter of the prosecution by the Registrar are two in number and they were utilised by Mr. Venkata Raman, treasurer and Mr. Chopra, Hon'y Secretary. They, of course, paid 50% of the cash towards those tickets from their pockets to the credit of the club. It is, however, not shown that the travels undertaken by these officers were in any manner connected with the affairs of the club. Thus, the benefit which otherwise could have ensured to the club for the display of advertisements by Air India prima facie appeared to have gone for the personal benefit of two office-bearers. I will not, thereforee, like to interfere in the prosecution on this score. It is for the petitioners to set up their defense in accordance with law.
22. Another allegation is with regard to the misappropriation effected by staff members in the mineral water stock. About that a criminal case is already pending against them. That shows that the managing committee had been vigilant to take action against the defaulting officers when they noticed bungling on their part. The managing committee, thereforee, cannot be made liable.
23. Then there is the item of water cooler and bottle cooler. A plant was purchased in July, 1979. According to the Registrar, the amounts spent on them were shown as repairs to furniture and fixtures instead of showing them in capital account. The relevant register was got produced from the petitioners in court today, and the Registrar has now been satisfied that it was the capital account which had been debited in that regard. The prosecution, thereforee, would be misplaced.
24. The Registrar has also referred to the loss of Rs. 45,000 suffered by the club in a fire in the green room. It is alleged that the club had not shown the amount of loss in its accounts for the year 1980. The petitioners have, however, pointed out that in this very year, repairs were carried out and accounted and, as such, the question of the loss being shown in that year did not arise. In my view, the Explanationn should be accepted.
25. Lastly, there is a general allegation that the accounts of the company for the years 1978, 1979 and 1980 were not true and fair and did not reflect the affairs of the company correctly. The allegations in this regard are vague. Had any specific instance been brought out, that would have been considered. In case they have reference to the above irregularities, then opinion about them has already been expressed.
26. The complaint under section 211 of the Companies Act can, thereforee, proceed subject to the observations made above.
27. Another circumstance to which the parties have made reference is that a suit was instituted against the company and its managing committee which was partially decreed by J. D. Jain J. and a number of strictures were passed with regard to the affairs of the company. At present, an appeal against that judgment is pending before a Division Bench of this court and some stay has been allowed. In my view, the controversy raised in that litigation will receive adjudication in due course. The same could not affect the propriety of determining this petition under section 633(2) of the Companies Act. It has been as such that this order has been made.
28. The petition is disposed of accordingly.