Javed Ajaz vs State of M.P. & Others

Since a common question of law is involved in these petitions therefore, they are heard together and are being disposed of by this common order. For the sake of convenience the facts are borrowed from M.Cr.C.No.7739/2015.

By this petition under Section 482 of Cr.P.C, 1973, the petitioners / accused persons are praying for quashment of order dated 4.8.2015 passed by the Court of Special Judicial Magistrate CBI and Economic Offence Indore in Cri. Case No.4/05 (Ministry of Company Affairs V/s. Bonanza Biotech Ltd.) and discharge the petitioners from the criminal case No.4/2005.

The facts of the case are that the respondent No.2 - Bonaza Biotech Ltd. and its six officers namely Shri Deep Trivedi, Smt. Druma Vaghela, Amit Patel, Rakesh Pandya, Sharad Gujrati and Inderjeet Singh Vaghela, Directors of the Company without obtaining the previous approval of the Central Government gave loan to private company under the same management. As per Form No.32, filed with the Registrar of the Companies, Gwalior, showing name of the petitioner and other co-accused persons as Managing Director / whole time Director / Directors of the Company. The Central Government in exercise of the powers under Section 235(1) of the Companies Act, 1956 (hereinafter referred as ''the Act of 1956''), ordered the investigation into the affairs of the company and appointed Shri Ashish Verma, Additional Director, Income Tax as "Investigator".

Sub-section (1) of Section 295 of the Act of 1956, lays down that no company shall, without the prior approval of the Central Government, give any loan or give any guarantee or provide any security directly or indirectly to any director of the lending company or its holding company or any relative of such director or a firm in which such director or relative is partner, any private company of which any director is a director or member or any body corporate at a general meeting of which not less than 25% of the total voting power is exercised or controlled by any such director or any two or more such directors together. Sub-section (4) of Section 295 lays down that every person who is knowingly a party to any contravention of Sub-section (1) including any particular person to whom the loan is made shall be punishable with fine which may extend to Rs.50,000/- or with simple imprisonment of term, which may extend to 6 months. Sub-section (5) further states that all such persons who are parties to a contravention or jointly and severally liable to the lending company for the repayment of the loan.

During investigation, it was found from the balance sheets of that company for the year 1996-97 to 1999-2000 that the company had given loans to a private company (the accused No.8) under the same management in which directors of the company are directors and members and the relatives of directors are members of the borrowing company. The details of such loan along with particulars of the names of the company, Director etc. are furnished below:-

Name of the company Amount of loan (in Rs.) Names of common directors Names of relatives of common directors and also directors of loanee company Names of common shareholders Source of documents relied upon Remarks

Vaidehi Auto Teck Pvt. Ltd. 7000 Sunil Bajaj Sunil Bajaj and Smt. Sunil Bajaj Sunil Bajaj and Smt. Sunil Bajaj Balance sheet for the years 1996-97 to 1999-2000 This loan attracts clause © of subsection (1) of Section 295 of the Act.

As per statement of accused and balance sheets of the company, the loan in question attracted Section 295 of the Act of 1956 and hence, required the approval of the Central Government. On 1.12.2004, the Ministry of Company Affairs confirmed that the accused did not make any application for any approval of the Central Government and, therefore, all Directors of the company and the borrowing company, individuals have rendered themselves liable for penal action under subsection (4) of Section 295 of the Act of 1956.

The Central Government on 16.12.2013, while exercising its power under Section 235 (1) of the Act of 1956, ordered Serious Fraud Investigation Office (hereinafter referred as ''SFIO'') for investigation of the affairs of the company.

The company filed a writ petition on 15.4.2004 before High Court of M.P. for staying of investigation. The High court granted stay of investigation. On 31.8.2004, stay of investigation was vacated and the writ petition filed against the investigation was dismissed. After vacation of stay, the investigation was commenced and the violation mentioned in the complaint was taken with the company. After scrutinizing and evaluating the record of SFIO submitted its investigation report to the Central Government for consideration. On 26/27.2.2005, the Central Government accorded sanction to SFIO to initiate prosecution against the company.

Section 295 of the Act of 1956, deals with loan to Directors. As per Section 295(4) any contravention of sub-section (1) or (3), shall be punishable either with fine which may extend to (fifty thousand rupees) or with simple imprisonment for a terms which may extend to six months. Sub-section (1), (4), (5) and (6) of Section 295 of the Act of 1956 reads as under :-

(1) Save as otherwise provided in sub-section (2), no company (hereinafter in this section referred to as "the lending company) [without obtaining the previous approval of the Central Government in that behalf shall directly or indirectly,] make any loan to, or give any guarantee or provide any security in connection with a loan made by any other person to, or to any other person by, -

(a) any director of the lending company or of a company which is its holding company or an partner or relative of any such director;

(b) any firm in which any such director or relative is a partner;

(c) any private company of which any such director is a director or member;

(d) any body corporate at a general meeting of which not less than twenty-five per cent of the total voting power may be exercised or controlled by any such director or by two or more such directors together;or

(e) any body corporate, the Board of directors, managing director, [***] or manager whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company.

(4) Every person who is knowingly a party to any contravention of sub-section (1) or (3) including in particular any person to whom the loan is made or who has taken the loan in respect of which the guarantee is given or the security is provided, shall be punishable either with fine which may extend to fifty thousand rupees) or with simple imprisonment for a term which may extend to six months: Provided that where any such loan, or any loan in connection with which any such guarantee or security has been given or provided by the lending company, has been repaid in full, no punishment by way of imprisonment shall be imposed under this subsection; and where the loan has been repaid in pan, the maximum punishment which may be imposed under this sub-section by way of imprisonment shall be proportionately reduced.

(5) All persons who are knowingly parties to any contravention of sub-section (1) or (3) shall be liable, jointly and severally, to the lending company for the repayment of the loan or for making good the sum which the lending company may have been called upon to pay in virtue of the guarantee given or the security provided by such company.

(6) No officer of the lending company or of the borrowing body corporate shall be punishable under sub-section (4) or shall incur the liability referred to in subsection (5) in respect of any loan made, guarantee given or security provided after the 1st day of April, 1956 in contravention of clause (d) or (e) of sub-section (1), unless at the time when the loan was made, the guarantee was given or the security was provided by the lending company, he knew or had express notice that that clause was being contravened thereby.

On 19.7.2005, a complaint under Section 621 of the Act of 1956, for the violation of Section 295 of the Act of 1956, has been filed.

The petitioners filed an application for discharge of accused on the ground that the Act of 1956, have been substituted by the Companies Act, 2013, (hereinafter referred as ''the Act of 2013'') which came into force on 30.8.2013, and from said date said Section 295 of the Act of 1956 does not exist in eye of law.

It is also stated that the provisions of repeal as provided under Section 465 of the Act of 2013, have not been notified and, therefore, the present complaint cannot be continued and deserves to be dismissed. It is also alleged that Section 621 of the Act of 1956, offence is compoundable and once the same has been compounded by the Company Law Board, the present complaint is liable to be dismissed. The learned Special Judge Magistrate CBI erred in rejecting the application vide impugned order dated 4.6.2015, rejected the application.

The Company Law Board, Mumbai Bench on 13.6.2008, allowed the application for compounding of the offence committed under Section 295 of the Company Act, 1956. Para 3 and 4 are relevant which reads as under :-

"3. I have through the application of the applicants, the report submitted by the Registrar of Companies, Madhya Pradesh, and also the submissions made by the Authorised Representative at the time of hearing and note that application made by the applicants for compounding of offence committed under Section 295 of the Companies Act, 1956, merits consideration.

Having regard to the facts and circumstances of the case, the offence committed under section 295 of the Companies Act, 1956 in respect of failure on the part of the company the tranaction attracted the provisions of Clause 295[1] {c} of the Companies Act, 1956 which had required approval of the Central Government before entering into the transaction. The approval was not obtained. There is no provision for post facto approval of the Central Government. The provisions of the Section 295 does not provide for punishment to inadvertent defaulters and are compoundable, is compounded against the company on payment of Rs.10,000/- Sharad Gujarati and Indrajeet Singh Vaghela, Directors of the company on payment of Rs.1,000/-. The Officers above named to pay the Compounding Fees from their personal account. The remittance shall be made by way of Demand Drafts drawn in favour of "Pay and Accounts Officer, Ministry of Corporate Affairs, Mumbai". Since the company and its officer named above have remitted demand draft of Rs.16,000/- to this Bench towards compounding fees, the Registrar of Companies, Madhya Pradesh is hereby directed to take further necessary action u/s 621A (4)/(c)(d) of the Companies Act, 1956."

The aforesaid order was challenged by the respondents by filing Miscellaneous Company Appeal under Section 10(F) of the Act of 1956. The High Court considering the fact that the company appeal was filed beyond a period of 120 days and the order under challenge in the present appeal was originally challenged in the company appeal and subsequently, the present appeal has been filed and, therefore, even excluding the period under the Limitation Act during which the appellant was prosecuting the remedy against the impugned order in Company Appeal No.5/2008 then, also since Company Appeal No.5/2008, itself was filed beyond period of 120 days and it has been found in that appeal period of 120 days cannot be condoned and Company Appeal No.5/2008, itself has been dismissed as barred by time, therefore, the appeal is found to be barred by time have been filed beyond 120 days and by rejecting the application for condonation of delay dismissed the appeal as barred by time.

It is submitted that for the vicarious liability of Director of the company, the essential ingredient is to be pleaded in the complaint and in absence of the aforesaid, no cognizance can be taken against the petitioners.

His next submission is that, provisions of Section 212 (16) of the Act, were not applicable since they only save pending investigation or any action taken pursuant to the said investigation but the present case would not fall within the purview of the investigation or any action taken pursuant to the investigation.

His third submission is that cognizance of offence cannot be taken beyond the period of limitation prescribed under Section 468 of Cr.P.C. The learned Magistrate failed to appreciate that the provisions of Section 628 of the Act are not in force after 30.8.2013 and even the provisions of Section 448 of the Act of 2013, which are corresponding provisions have not been notified and prayed that the impugned order be set aside and the criminal case registered against the present petitioners be quashed.

Per contra, Shri Chelawat, learned counsel for the respondent No.1 has submitted that the complaint was filed on 19.7.2005, for violation of Section 295 of the Act, ie., much before coming into existence of the provisions of the Act of 2013. The sanction of the Central Government was granted on 6,5/7.5.2005 and thus, the complaint was filed within time as per Section 468 of Cr.P.C. He also submits that under Section 468 (2) of Cr.P.C., the offence which is punishable with imprisonment for 6 months are required to be filed within time, ie., one year from the date of knowledge of commission of the offence. He also submits that the pleas of limitation and Directorship was not raised before the learned Magistrate and the question of vicarious liability of the Directors of the Company can be only decided after considering the oral and documentary evidence and the same cannot be decided summarily in the present petition(s) and prayed for dismissal of the petitions filed under Section 482 of Cr.P.C.

It is not in dispute that on 16.12.2003, the Central Government while exercising its power under Section 235 (1) of the Act of 1956, ordered SFIO for investigation of affairs of the Company. On 15.1.2004, company filed a writ petition for stay of investigation. On 15.1.2004, a stay was granted in favour of the petitioner(s). On 31.8.2004, the stay of investigation was vacated and petition filed against the investigation was dismissed. After vacating of stay the investigation was commenced and the violation mentioned in the complaint was taken up with the company. The company did not co-operated with the investigation. However after scrutinizing and evaluating the record SFIO prepared the investigation report on 20.1.2005 and submitted its report to the Central Government and on 26.5.2005, the Central Government granted sanction to SFIO to initiate prosecution against the company. Thereafter, on 19.7.2005 complaint was filed.

As per Section 235, only three persons, ie., Registrar, Share-holders and persons authorized by the Central Government can filed complaint before the court of competent jurisdiction for the offence committed by the company / officer in default of the company. The SFIO has been established by Ministry of Corporate Affairs as a multi-disciplinary organization and takes up cases of investigation only on the specific orders passed by the Ministry of Corporate Affairs and does not take up the cases suo moto and, therefore, upon receiving the order under Section 235 of the Act of 1956, SFIO investigated the affairs of the company. The Central Government after scrutinizing the investigation report submitted by the SFIO recommended for prosecution under Section 242 of the Act of 1956 and accorded sanction to SFIO to file complaint against such company and the officers in default which shall be in accordance with the provisions of Section 621 of the 1956 Act.

The period of limitation under Section 468 (2) of Cr.P.C, would start from the date of knowledge to the Central Government and, therefore, in the present case date of submission and report, ie., 20.1.2005 shall be the starting point of the limitation for filing of the complaint.

The limitation prescribed under Section 468(2) shall commence to start in terms of provisions under Section 469 of Cr.P.C., Clause B of Section 469 of Cr.P.C. The Central Government came to know about the commission of offence only on 20.1.2005 and hence, the complaint has been filed within a period of limitation from the date of knowledge.

The plea whether petitioners were Director on the date of offence can only be decided by the learned trial court after oral and documentary evidence wherein all the parties shall have right to urge and produce so as to facilitate to meet the ends of justice and same cannot be decided summarily in this application under Section 482 of Cr.P.C. The new Act of 2013, nowhere said that upon repeal of old Act, all the proceedings filed under the old Act stand repealed. As per Sub-section 16 of Section 212 of New Act, all investigation or action by SFIO under the provisions of the Act shall continue to be proceeded with under that Act as its Act has not been passed. Thus, proceeding under the old Act will continue.

Learned counsel for the petitioners placed reliance upon the decision of the Madras High Court in the case of Assistant Registrar of Companies V/s. H.C. Kothari & Others, decided on 10.10.1991. On perusal of the aforesaid decision, the facts of that case are based upon different footings and did not relates with the present facts and circumstances of the case.

For the above mentioned reasons, no case for quashment or setting aside of order dated 4.8.2015 passed by the court of learned Special Judicial Magistrate CBI & Economic Offence Indore in Criminal Case No.4/05, as prayed by the petitioners is made out.

Accordingly, all the petitions filed under Section 482 of Cr.P.C. are hereby dismissed.

A copy of this order be retained in other connected matters.