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Judgment
Bhaskaran, J.—This batch of revision petitioners arises out of a common order passed by the learned Third Metropolitan Magistrate,
Madrad, upholding the preliminary objections with regard to the maintainability of the complaints and dismissing the complaints filed by the
Assistants Registrar of Companies against several companies and the directors of those companies u/s 162 of the Compensation Act, 1956,
hereinafter referred to as "" the Act "" , for failure to file the amount return and certificate u/s 161 of the Act and failure to file the balance-sheet , etc.,
as provided u/s 220 of the Act.
A preliminary objection has been taken in all the question under revision on behalf of the companies and the directors that the prosecution
cannot be launched against all the directors for failure to comply with any provisions of the Act but should be filed only against the company and
those director who are in default under the Act, and since the complainant has mechanically stated that "" the companies and the directors are under
statutory obligation to file the statutory return and since they filed to file the returns all of them are liable"", the complaints are not maintainable and
the prosecution cannot be launched. The learned trial Magistrate upheld the objection and dismissed all the companies as such. Hence, these
revisions by the Assistant Registered of Companies.
Section 159 of the Act deals with submission of annual return by the company having a share capital . Sub-section (1) of this section providers
that every company having a share capital shall, within sixty days from th day on which each of the annual general meetings is held, prepare and file
with Registered a return containing the particulars specified in Part I of Schedule V to the Act. u/s 220 of the Act, three copies of the balance-
sheet and profit and loss account have to be filed with Registrar of Companies within thirty days from the date on which the balance-sheet and the
profit and loss account were so laid . u/s 220(3) , for violation of the aforesaid requirements, the company and every officer of the company who is
in default , shall be liable to the like punishment as is provided by section 162 of the Act. Under sub-section (1) of section 162, if a company fails
to comply with any of the provisions contained in section 159, 160 or 161 , the company , and every officer of the company who is in default, shall
be punishable. Under sub- section (2) of section 162, it is stated that the expressions "" officer"" and "" director"" shall include any person in
accordance with whose directions or instructions the board of directors of the company is accustomed to act. The term "" officer "" is defined u/s
2(30) as including any director, managing agent, secretaries and treasures, manager or secretary , or any person in accordance with whose director
or instructions the board of directors or any one or more of the directors is or are accustomed to act. Thus, the term "" officer "" includes any
director of the company besides others. The term "" officer "" who is in default "" has been defined in section 5 as any officer of the company who is
knowingly guilty of the default, noncompliance , failure , refusal or contravention mentioned in the provisions of the Act or who knowingly and
willful authorises or permits such default, non-compliance , failure , refusal or contravention.
A reading of the various provisions of thee Act mentioned above would make it clear that for failure to comply with the relevant provisions of
the Act, besiders the company, any officer of the company, who includes a director, who is knowingly guilty of the default, is liable to be punished
u/s 162 of the Act.
In Ajit Kumar Sarkar v. Assistant Registrar of Companies [1979] 49 Comp Cas 909, it has been observed by the Calcutta High Court at
paged 920 as follows:
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.
Inn the above case, the complaint did not contain a specific plea as to the officers who are in default apart from the company. The Calcutta High
Court held that the complaint was bad. Further, the company in that case was not an accused and, therefore, the court held that the company was
a necessary party and that the prosecution should be conducted only in the presence of the company as accused and that only if the company was
convicted, the other officers in default can be convicted. On both the abovesaid grounds, the court quashed the prosecution. In the instant case,
since in none of the complaints the complainant has fixed the liability on any director as officer in default but has simply stated that all the directors
of the company are liable for non-compliance of the requirements under the Act, the trial Magistrate, following the above decision of the Calcutta
High Court, held that the complaints are not maintainable and, accordingly, dismissed all the complaints.
Learned counsel for the petitioner in these revision would submit that the liability of the company for non-compliance is absolute, that in all these
cases the companies are carried on by the board of directors and, as such, for non-compliance of the provisions of the Act, all the directors are
liable and whether a particular director can escape liability on the basis that he is not an officer in default has to be gone into only after recording
evidence and the complaints cannot be rejected in limine. He would further submit that an officer in default means an officer knowingly in default
and in these cases all the directors must be deemed to be officers in default since notices have been served on all the directors before the
prosecution was launched and none of the directors had given and reply and only after giving reasonable time after the issue of notice, the
prosecution has been launched and, therefore, prima facie it must be taken that all the directors are officers in default knowingly. He would rely
upon Madan Gopal Dey and Another Vs. State and Another,
Learned counsel for the revision petitioner also submitted that the decisions relied on by the learned trial Magistrate are distinguishable on the
facts of the present case, since in that case, the directors alone were sought to be prosecuted without impleading the company, whereas inn the
instant cases, the companies are also proceeded against and since the liability of each company is absolute, the complaints cannot be thrown out.
Further, according to him, in the Calcutta case, Ajit Kumar Sarkar v. Assistant Registrar of Companies [1979] 49 Comp Cas 909 it has not been
established that any notice issued by the Registrar of Companies has been served on the directors giving them opportunity to comply with the
requirements of the Act, whereas in the cases on hand, notices in fact have been issued and served on the directors, but they have not even replied
to those notices and the prosecutions have been launched only after giving them sufficient opportunity.
Learned for the respondents, on the other hand, submitted that if all the directors are made liable, then there is no need to include the term
officer in default"" alone should be liable , in the Act and that is why the Calcutta High Court has pointed out that if all the directors are liable for
every default, then the expression ""every officer who is in default"" becomes redundant and meaningless.
In the decision in Arot Citizen Bank, In re [1957] 27 Comp Cas 550, for failure of laying of balance-sheet before the meeting, the company
and its directors were sought to be prosecuted. Against the conviction, the directors filed a revision to this court contending that they cannot be
held to have knowingly and wilfully defaulted. This court dismissed the while considering the scope of the word ""knowingly and wilfully"", it has
quoted with approval the following passage of the Calcutta High Court in Bhagirath Chandra Das v. Emperor [1947] 17 Comp Cas 93
If directors, who are responsible for the management of a company and who presumably know the duties imposed upon them by law, make no
attempt to see that those duties are carried out, there is justification for holding, in my opinion, that they have wilfully and knowingly permitted the
company to fail to carry out those duties. The suggestion that these various directors were mere figureheads not taking any active part in the control
of the company is, in my opinion, not worthy of serious consideration. They were directors, they attended meetings throughout the period with
which we are concerned and they were responsible for the management of the company.
In the decision in Bhagirath Chandra Das v. Emperor [1947] 17 Comp Cas 93 which relates to prosecution u/s 32(5), Shyam Sundar Jalan v.
State [1977] 47 Comp Cas 61 and section 134 of the old Act corresponding to section 162(1) - Ajit Kumar Sarkar v. Assistant Registrar of
Companies [1979] 49 Comp Cas 909 - and section 220 Madan Gopal Dey v. State [1968] 72 CWN 312 ; [1969] 39 Comp Cas 119 - of the
present Act, it has been observed as follows (headnote of 17 Comp cas 93):
It is clearly the duty of the directors to see that the particular returns, the list and summary u/s 32 and the copies of the balance-sheet and the
profit and loss account are submitted u/s 134. There is nothing on record to show that these directors made any attempt to see that they were
prevented in any way from seeing that the proper list, statement and returns were submitted . If directors , who are responsible for the management
of the company and who presumably know the duties imposed upon them by law, make no attempt to see that those duties are carried out, there is
justification for holding, in my opinion, that they have wilfully and knowingly permitted the company to fail to carry out those duties.
In Madan Gopal Dey and Another Vs. State and Another, after quoting the decisions in Bhagirath Chandra Das v. Emperor [1947] 17 Comp
Cas 93 and Arcot Citizen Bank, In re [1957] 27 Comp Cas 550 (Mad) of respectively the Calcutta High Court and this (Madras) High Court
with approval, the Calcutta High Court has held as follows (p. 125 of 39 Comp Cas):
The relevant provisions of the Companies Act have been enacted to protect the shareholders and, in some cases, to protect the general public and
they impose definite duties on the directors. When the directors fail to perform their statutory duty, they bring themselves within the mischief of the
penal provisions of the law. In order that a conviction under the sections involved in the present cases of `an officer of the company'' may be
sustained, the only thing to prove is that the particular officer knowingly and wilfully authorised or permitted these defaults. The offence is complete
if the officer of the company knew of the defaults and permitted the same.
Learned counsel for the petitioner also relied on the decision in Shyam Sundar Jalan v. State [1977] 47 Comp Cas 61 in support of his
contention that whether a particular director is an officer in default or not is a matter of evidence and the complaint cannot be thrown out at the
threshold. In that case, prosecution was launched under the Income Tax Act against the directors of a company for failure to deduct Income Tax
on the salary of the employees, for failure to submit the returns in time, and for other violations of the provisions of the Income Tax Act. It was
contended, that under the Income Tax Act, the principal officer designated is responsible for compliance of the requirements under the various
provisions of the Income Tax Act and, therefore, all the directors cannot be prosecuted. It was held that it was a matter of evidence whether the
director named in the complaint could be treated as principle officer of the company.
Learned counsel for the revision petitioner submitted that prima facie, the companies in question are run through their board of directors, that
the board of directors appoint officers like secretary, manager and managing director to administer the affairs of the company and, as such , every
director of the company is responsible for compliance of the requirements as provided under the Act, but in order to visit them with penal
provisions of the Act whether that officer is an officer in default is a matter of evidence. According to him, notices have, in fact, been served on all
the directors and there was no reply before action could be taken and, therefore, it has to be held that all the directors are officers in default and it
is always open to any of the directors to prove by letting in evidence that he was not an officer in default; in other words, he did not commit any
default knowingly.
In Ajit Kumar''s case [1979] 49 Comp Cas 909 (Cal), the Calcutta High Court has observed that if all the directors are liable for every
default, then the expression ""every officer who is in default"" becomes redundant and meaningless. But, in my view, a harmonious construction
would be that in some cases all the directors of the company may be held liable or treated as officers in default or some of the directors alone may
be treated as officers in default for non- compliance of any of the provisions of the Act depending upon the constitution of the company. That is
why if the Registrar of Companies had issued notice to all the directors calling upon them to perform the statutory obligations and if any reply was
sent by any of the directors repudiating the liability and that some other officer was liable for the alleged default, the Registrar of Companies can
take into consideration the averments in the reply and decide whether that director could be proceeded with or not. So, whether a particular
director could, be proceeded against or not in a complaint filed against the company is a matter of evidence and in the absence of a reply to the
notice, the Registrar of Companies can proceed against all the directors since all the directors must be deemed to be knowingly guilty of default
since they were put on notice of the default. This presumption is , of course, rebuttable on evidence.
In this connection, the decision in V.M. Thomas v. Registrar of Companies [1980] 50 Comp Cas 247 relied on by the learned counsel for the
respondents herein requires mention. In that case, prosecution was launched against the company, its managing director and another director. The
company and its managing director pleaded guilty, but the other director disputed his liability. The other director was also found guilty and
convicted. He preferred a revision to the High Court. The Kerala High Court in that case found that a notice was sent to the director by the
Registrar of Companies but it was returned unserved. Taking that fact into consideration, the Kerala High Court held that it cannot be said that in
spite of the petitioner before it having been cautioned in time, the default took place and, therefore , he had knowingly and wilfully authorised or
permitted the default or non-compliance. From this observation, conversely it follows, that if notice is served and if no reply is received, it must be
held that that officer has knowingly committed default. In the instant case, admittedly the company is the first accused and notices have been served
on all the directors who are made the accused, but no reply has been given by any of them. In those circumstances, the complaint filed by the
Assistant Registrar of Companies against the company and all its directors treating them prima facie as officers in default is valid.
So far as the company is concerned, its liability is absolute, once the default is proved and no question of ""knowingly committing default"" arises
in the case of the company. Therefore, it is open to any of the directors of prove by letting in evidence that he is not an officer in default. In these
circumstances, I find that on the averments made in the complaints filed after issuance of notice to all the directors, the complaints cannot be said to
be not maintainable.
The result is, these revision petitions are allowed , the order of the trial Magistrate is set aside and the miscellaneous petitions raising
preliminary objections to the complaints before the trial Magistrate are dismissed. The trial Magistrate will take all the complaints on