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Judgment
(1) The petitioners are accused 2 to 5 in S.T.C. No. 3/1989 on the file of the Special Judge for Economic Offences, Hyderabad. The case was filed by the Registrar of Companies against five accused under sub-section (11) of S. 233-B of the Companies Act. The first accused is the company. Accused 2 to 5 who are the petitioners herein are the directors of the company. The petitioners have filed this petition under S. 482, Cr.P.C. to quash the proceedings against them on the ground that the allegations in the complaint did not make out any offence against them.
(2) S. 233-B(11) of the Companies Act provides that if default is made in complying with the provisions of this section, the company shall be liable to be punished and every officer of the company who is in default, shall be liable to be punished. S. 2, Clause 30 of the Companies Act defines "officer" which includes any director etc. S. 2, Clause 31 says that the officer who is in default in relation to any provision referred to in S. 5 has the meaning specified in that section. S. 5 defines "officer who is in default". It says for the purpose of any provision in this Act which enacts that an officer of the company who is in default shall be liable to any punishment or penalty, whether by way of imprisonment, fine or otherwise, the expression "officer who is in default" means any officer of the company who is knowingly guilty of the default, non-compliance, failure, refusal or contravention mentioned in that provision, or who knowingly and wilfully authorises or permits such default, non-compliance, failure, refusal or contravention.
(3) The question to be considered in this petition is whether the petitioners come under the definition of "officer who is in default" and are they liable for punishment.
(4) The learned counsel for the petitioners has referred to a decision of Bombay High Court in Consolidated Pneumatic Tool Co. (I) Ltd. v. Addl. Registrar of Companies (1989) 65 Com Cas 259 : (1977 Tax LR 1733). The learned Judge who rendered the judgment after referring to the relevant provisions of the companies Act, observed (at page 270) (of Com Cas) : (at p. 1740 of Tax LR) as follows :
"It would, therefore, be manifest from this composite definition emerging out of those provisions that it is not every officer of the company who will be liable but that officer must be an officer in default knowingly or he must have authorised the said default knowingly or wilfully."
The learned Judge further observed that
"the prosecution must establish, though not necessarily by direct evidence but at least inferentially supported by enough material, that the default has been done knowingly or the default has been authorised knowingly or wilfully. In other words the bare fact of default or contravention does not make an officer of the company suffer penal consequence but to incur that disqualification, he must have knowledge and that for the second part, he must also have the intention."
Further he observed that
"significantly, there is not even a whisper in the complaint either about the knowledge, much less about the intention."
In the facts of the case the learned Judge considered the case of the petitioners 3 to 5 who were residing abroad and petitioners 2 and 6 who were not concerned with the day-to-day affairs of the company and under the circumstances, knowledge cannot be imputed to these directors, much less any intention. Relying on this decision the learned counsel for the petitioners contended that there must be specific allegation in the complaint that the petitioners are knowingly guilty of the default, non-compliance, failure, refusal or contravention, but as there is no such allegation in the complaint they are not liable for prosecution. In another decision of the Madras High Court in Assistant Registrar of Companies v. Southern Machinery Works, (1986) 59 Com Cas 670 also the similar question was considered. The Madras High Court held that
"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 the default since they were put on notice of the default. This presumption is of course rebuttable on evidence."
It is true that notices were given to the directors calling upon them to perform their statutory obligations. So we have to refer to the relevant allegations in the complaint. In para 6 of the complaint after referring to the various violations it is alleged that the company and the accused have been reminded several times by the department as well as the complainant but the accused herein have failed to make any application to the Central Government for the appointment of the Cost Auditor and therefore violated the provisions of Sections 233-B (1) and (2) of the Companies Act. In para 7 it is stated that accused 2 to 5 being the directors of the company during the material and relevant time have allowed the default committed and continued and they are the officers-in-default within the meaning of S. 5 of the Companies Act. Para 8 reads that the accused herein have been given sufficient time, notices and opportunity and despite, they failed to comply with the requirements of S. 233-B of the Companies Act. These allegations according to the learned counsel for the respondent do constitute necessary allegations to make out that an offence has been committed by the petitioners herein, the directors of the company. The learned counsel for the respondent further contended that it is a matter of proof whether notices have been issued by them or not, which has been denied by them, or whether the default was committed within the meaning of S. 5 of the Companies Act. The learned counsel for the respondent referred to a citation in Gopal Khaitan and Others Vs. The State and Others, wherein it is stated that
"An regards the first group of offences as mentioned above S. 5 of the Companies Act defines an "officer who is in default" and lays down inter alia that the said expression means any officer of the company who is knowingly guilty of the default, non-compliance etc. Even in such cases the directors who have got duties imposed upon them by law which cannot be observed in their breach and it is no defence for the directors to say that the Managing Director alone was responsible for non-compliance of the requirements of the statute. The further contention that the non-compliance is in fact due to inadvertence and as such there is no mens rea on their part is not also tenable in law so far as this particular field of criminal liability is concerned, negligence blameful inadvertence or failure to supervise may properly be designated as mens rea."
As stated above in spite of the notices being given the petitioners have failed to comply with the requirements and therefore they are in default and it is alleged that they are officers in default within the meaning of S. 5 of the Companies Act. S. 5 which is referred to above defines who is an officer in default. In the complaint it is stated that the accused i.e. the petitioners are officers in default. Therefore, the question whether they actually come within the meaning of S. 5 and liable for punishment or not is a matter which can be proved during the course of the trial. At this stage it is not possible to interfere under S. 482, Cr.P.C. and quash the proceedings against them because there are necessary allegations in the complaint which indicate that they have committed an offence. So the proceedings against them cannot be quashed.
(5) The learned counsel for the petitioners has pointed out that the petitioners are residing at different places and it will be difficult for them to attend the court of the Special Judge, Economic Offences, Hyderabad on all the dates of hearing and, therefore, requested that their personal attendance may be dispensed with. In view of the fact that they were prosecuted under the Companies Act the learned of Special Judge is directed to dispense with their personal attendance in Court except on those dates when their personal attendance is necessary for the purpose of the trial. With the said direction the petition is dismissed.
(6) Petition dismissed.