Registrar of Companies Vs. Bharat Produce Co. Ltd. and ors. - Court Judgment

Manoj Kumar Mukherjee, J.

1. The rule is directed against the order dated June 15, 1979, passed by the learned Chief Metropolitan Magistrate, Calcutta, dropping the proceeding of Case No. C-1718 of 1978 which was initiated on a complaint filed by the petitioner against the two opposite parties for an offence under Section 269(2) read with Section 629A of the Companies Act, 1956.

2. In the complaint it was stated that Bharat Produce Company Ltd., the accused opposite party No. 1, was incorporated as a public limited company on January 15, 1940, under the Indian Companies Act, 1913. Pursuant to a special resolution passed on July 9, 1956, it was converted into a private company. The company was again converted into a public company on or about December 15, 1970, by virtue of the provisions contained in Section 43A of the Companies Act, 1956, and continued to function as such. Sri Subkaran Chhawchharia (accused opposite party No. 2) was appointed as a director of the company on January 6, 1959, and in the general meeting of the company held on February 16, 1959, a special resolution was passed appointing him as a whole-time director with effect from January, 1959, at a remuneration of Rs. 500 per month.

3. The further allegation in the complaint is that the books of account of the company were inspected by an officer authorised by the Central Government under Section 209(4) of the Companies Act, 1956, as it stood before the Companies (Amendment) Act, 1974, came into force and duringthe course of the said inspection it was noticed that the accused No. 2 continued to be a whole-time director of' the company ever since January, 1959, till date. The records further reveal that he was reappointed as whole-time director for the first time on September 24, 1973, after the commencement of the Companies (Amendment) Act, 1960, in the meeting of the company held on that day. According to the complaint, in terms of Section 269(2) of the Companies Act, 1956, the re-appointment of a person as a whole-time director for the first time after the commencement of the Companies (Amendment) Act, 1960, cannot have any effect unless approved by the Central Government and as the two accused persons failed to obtain the approval of the Central Government in regard to re-appointment of accused No. 2 as a ' whole-time director ' on or about September 24, 1973, they contravened the provisions of Section 269(2) of the Companies Act rendering themselves liable for punishment under Section 629A of the Companies Act.

4. It was further averred in the complaint that the company was called upon by the complainant on or about April 28, 1976, to explain the said contravention of Section 269 of the Companies Act, 1956. Thereafter, series of correspondence were exchanged between the company and the complainant from time to time with a view to afford opportunity to seek approval of the Central Government. Since the company failed to comply with the requirements of Section 269 of the Companies Act, 1956, finally a show-cause notice was sent to the accused persons on or about August 10, 1978, to which the company replied, vide its letter dated August 22, 1978. In spite of repeated references the accused persons neither applied for nor obtained the approval of the Central Government and the accused No. 2 was continuing in office as a whole-time director till date. On such averments, the complainant prayed for process against the company and the accused No. 2 under Section 269(2) read with Section 629A of the Companies Act, which according to the complainant was a continuing offence.

5. The learned. Chief Metropolitan Magistrate took cognisance of the said complaint on November 20, 1978, and issued summons against the two accused opposite parties for their appearance. After entering appearance the accused opposite party No. 2 filed an application for discharge and for dropping the proceeding on the ground that the complaint was not maintainable either in fact or in law. The complainant, in his turn, filed an objection reiterating the maintainability of the complaint both on facts and in law. After hearing the parties on the said application, the learned Chief Metropolitan Magistrate held that Section 269(2) of the Companies Act, 1956, did not create any offence and that the cognisance was barred by limitation.

6. The first question that falls for determination in this rule is, whether Section 269(2) of the Companies Act, 1956 (hereinafter referred to as ' the Act '),creates an offence punishable under Section 629A of the Act. To answer this question, it will be necessary to refer to the above sections of the Act.

They read as follows :

' 269. (2) Where a public company or a private company which is a subsidiary of a public company, is an existing company, the re-appointment of a person as a managing or whole-time director for the first time after the commencement of the Companies (Amendment) Act, 1960, shall not have any effect unless approved by the Central Government. '

' 629A. If a company or any other person contravenes any provision of this Act for which no punishment is provided elsewhere in this Act or, any condition, limitation or restriction subject to which any approval, sanction, consent, confirmation, recognition, direction or exemption in relation to any matter has been accorded, given or granted, the company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to five hundred rupees, and where the contravention is a continuing one, with a further fine which may extend to fifty rupees for every day after the first during which the contravention continues. '

7. Mr. Ghosh, the learned advocate appearing for the petitioner, contends that Section 269(2) expressly provides that the re-appointment of a person shall not take effect unless approved by the Central Government and that necessarily means that there is an implied prohibition against the company from allowing such a person to act as a director and the latter's acting as such before the receipt of the approval. Inasmuch as the opposite party No. 2 continued to function as whole-time director on such re-appointment by the company, they violated the implied prohibition and thereby contravened Section 269(2) for which they are liable for prosecution under Section 629A of the Act, argued Mr. Ghosh. Mr. Dhar, the learned advocate appearing for the opposite parties, on the other hand, contends that Section 269(2) is declaratory in nature and does not contain any prohibition against acting under such re-appointment. Mr. Dhar further argues that there can be a contravention only when there is a direction or, prohibition and since there is no such direction or prohibition in Section 269(2), there cannot be any contravention of the said provision so as to make any person liable under Section 629A of the Act. In support of his contention, Mr. Dhar relies upon a Division Bench judgment of the Allahabad High Court, in the case of (1) Raghunath Swamp Mathur v. Hay Swarup Mathur [1968] Cr. LJ 670; [1967] 37 Comp Cas 802 (All) and a judgment of the Queens' Bench in the case of (2) Sales-Malic Ltd. v. Hinchcliffe [1959] 1 WLR 1005.

8. There cannot be any manner of doubt that before a person can be said to have contravened any provision of the Act there must be a specific prohibition or direction thereunder. In the Act with which we are concernedthere are some specific provisions incorporating such directions and prohibitions. For example, in Section 197A of the Act, it has been specifically provided that no company shall, after the commencement of the Companies (Amendment) Act, I960, appoint or employ at the same time or after the expiry of six months from such commencement continue the appointment or employment at the same time of more than one of the categories of managerial personnel, namely, managing director and manager. Similarly, in Section 204 of the Act, it has been expressly stated that no company shall, after the commencement of the Act, appoint or employ any firm or body corporate to any office or place of profit under the company other than office of trustee for the holders of debentures of the company for a term exceeding five' years at a time. There are many other similar provisions in the Act which issue express directions or prohibitions and, needless to say, contravention of such directions or provisions are punishable under the Act. Unlike these provisions, Section 269(2) does not issue any direction or prohibition ; it only declares that re-appointment of a person as a managing director or whole-time director for the first time after the commencement of the Companies (Amendment) Act, 1960, shall not have any effect unless approved by the Central Government.

9. Mr. Ghosh contends that if a person is allowed to function as such without the approval of the Central Government his functioning will be contrary to the spirit of the said section. No doubt there is some substance in the contention of Mr. Ghosh but in view of the plain language of Section 269(2) read in juxtaposition with the other provisions of the Act, as stated hereinbefore, I am unable to accept the contention of Mr. Ghosh.

10. In the case of Sales-Malic Ltd., [1959] 1 WLR 1005 (QB), a similar question cropped up while interpreting Section 21 of the Betting and Lotteries Act, 1934, which declared all lotteries to be unlawful. In that case, the company was prosecuted for installing and maintaining a machine to conduct a lottery and was prosecuted under the above section. It was contended on behalf of the company that Section 21 of the Betting and Lotteries Act, 1934, did not create a substantive offence but was merely declaratory of the law. The prosecutor on the other hand contended, that Section 21 by implication created an offence for which the penalties prescribed by the Act, could be inflicted. In negativing the contention of the prosecutor, Lord Parker C.J., speaking on behalf of the court, observed that Section 21 did not create an offence but it was only a declaration that all lotteries were unlawful.

11. The case of Raghunath Swarup [1968] Cr. LJ 670 ; [1967] 37 Comp Cas 802 (All) at p. 803, decided the identical question which falls for determination in this case with these words:

' All that Section 269(2) of the Companies Act does is that it prevents the re-appointment of a person as a managing or whole-time director forthe first time after the commencement of the Companies (Amendment) Act, 1960, from taking effect, i.e., from being operative in law, unless approved by the Central Government, and there is nothing in the section which contains any prohibition directed against acting or purporting to act under such a re-appointment. Before an act can be regarded as an offence there must be a specified statutory prohibition against the commission of the act and such a prohibition is entirely lacking in Section 269(2) of the Companies Act.'

It was further held therein (p. 304):

' Section 629A does not create any offence and only provides penalty for such contraventions of the Act for which no specific penalty has been provided elsewhere. Section 629A of the Act presupposes a contravention of the provisions of the Act and there can be a contravention only when there is a direction or prohibition. As we have already observed Section 269(2) of the Companies Act contains no direction or prohibition and Section 629A does not, therefore, have any application.'

12. I am in respectful agreement with the views expressed in the above two cases and I hold that Section 269(2) is only declaratory and does not create an offence. I am not unmindful that this view of mine may permit a director of a company to function without prior approval of the Central Government but the plain language of Section 269(2) compels me to take the above view.

13. As Section 269(2) of the Act does not create any offence, the question whether it creates a continuing offence or the bar of limitation under Section 468, Cr. P C, applies does not arise. The application accordingly fails and the rule, is discharged.