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Judgment
K.N. Basha, J.—The petitioner, who has been arrayed as A-2 out of 13 accused in E.O.C.C. No. 129 of 2006 on the file of the learned
Additional Chief Metropolitan Magistrate, E.O.II, Egmore, Chennai, has come forward with this petition seeking for the relief of quashing the
above said proceedings for the alleged offence u/s 207 of the Companies Act, 1956 (hereinafter referred to as ""the Act"") for the alleged non-
payment of dividend or non-posting of warrant for financial years 1995-1996 to 1999-2000 within the stipulated time.
In this case, the petitioner has been implicated as A-2 on a private complaint filed by the respondent herein. The petitioner was one of the
Directors of a company known as M/s. Square D Software Limited. The name of the company was changed into M/s. DSQ Software Limited
with effect from 01.04.1997.
The sum and substance of the allegation, as per the complaint, is that the Company delayed in funding the dividend accounts of the company and
failed to distribute the dividend within the stipulated time, viz., within a period of 42 days for the financial years 1995-1996 to 1998-1999 and
within a period of 30 days for the financial year 1999-2000 and therefore, it is alleged that the Company and its Directors have contravened the
procedure contemplated u/s 207 of the Act and committed the offence under that Section.
Mr. Habibullah Basha, learned senior counsel put forward the following contentions:
(i) The complaint filed in this case is barred by limitation. u/s 207 of the Companies Act, prior to amendment, within 42 days time from the date of
declaration, dividend should be distributed and the failure of the same would attract the offence under this Section and after the amendment, the
time limit is 30 days from the date of declaration. In this case, the dividend was declared by the company on 19.09.1996 and forty two days for
posting the dividend warrant expired on 31.10.1996 and therefore, the complaint ought to have been filed within a period of one year from that
date i.e. on or before 01.11.1997 as the punishment for the offence u/s 207 of the Companies Act, 1956, during the relevant period, i.e. 1995-
1996 is punishable with simple imprisonment for a term which may extend to seven days and shall also liable to be fine. u/s 468(2)(b) of Cr.P.C.,
the period of limitation shall be one year, if the offence was punishable with imprisonment for a term not exceeding one year. Therefore, the
complaint is liable to be dismissed as the same is barred by limitation.
(ii) The petitioner resigned from the Directorship of the company as early as on 10.06.1996 and his resignation was accepted by the Company and
also a resolution was passed on 19.09.1996 and the dividends were also declared on 19.09.1996. Therefore, the petitioner cannot be held liable
as he has resigned even prior to the date of declaration of dividend. The fact that the petitioner resigned as early as on 10.06.1996 is also admitted
in the counter filed by the respondent. It is also not disputed by the respondent that the dividend was declared only on 19.09.1996 and under such
circumstances, the petitioner is not at all liable to be prosecuted for the contravention of Section 207 of the Act.
(iii) Even assuming that the petitioner was the Director during the relevant period of commission of offence, the complaint does not contain any
allegation to the effect that the petitioner was in charge and responsible for the conduct of the business of the company and there is also no
allegation or averment in the complaint to the effect that the petitioner was having knowledge about the default committed by the company for the
contravention of provision u/s 207 of the Act. Therefore, the petitioner cannot be fastened with the vicarious liability of the offence said to have
been committed by the company.
Per contra, Mr. M. Damodharan, learned Additional Central Government Standing Counsel made the following submissions:
(i) The complaint is not barred by limitation. Only on the receipt of the report of the Inspector dated 01.12.2005, the respondent got the
knowledge about the commission of the offence and thereafter the respondent was authorised through the letter dated 01.05.2006 to file the
complaint against the petitioner and others and the respondent accordingly filed the complaint on 23.08.2006 and therefore the complaint was filed
well within the stipulated period of one year. u/s 469(1)(b) of the Code, the limitation starts from the date of knowledge of the commission of the
offence by the aggrieved person. u/s 470(b) of the Code, the period required for obtaining sanction of the Government shall be excluded for
computing the limitation. Therefore, in this case, the complaint was filed within the stipulated period of one year from the date of knowledge of the
commission of the offence and after obtaining the sanction and as such the complaint is not barred by limitation.
(ii) The petitioner resigned as a Director as per his letter dated 10.06.1996 and his resignation was accepted by the Board of Directors on
19.09.1996 and the dividend was declared on the same day, i.e. on 19.09.1996. The contravention of the provision of Section 207 of the Act was
committed even during the financial year 1995-1996, apart from the financial years 1997-98, 1998-99 and 1999-2000 and therefore, the offence
was committed even during the period the petitioner was working as Director till 19.09.1996 and as such he cannot escape from the liability of the
offence. The learned ACGSC also placed reliance on the following decisions:
R.S. Nayak Vs. A.R. Antulay and Another, ;
Thomas Philip v. Asst. Registrar (2006) 131 Comp. Cases 842 (Ker);
The Registrar of Companies Vs. Fair Growth Agencies Limited, ;
Registrar of Companies v. Rajshree Sugar & Chemicals Ltd (2000) 101 Comp. Case 271 (SC);
I have carefully considered the rival contentions put forward by either side and also perused the impugned complaint, petition, counter and other
materials available on record.
The following important questions arise in this case for the consideration of this Court, viz.,
(i) Whether the offence u/s 207 of the Act has been validly taken cognizance before the expiry of the period of limitation?
(ii) Whether the petitioner, who has resigned from the Directorship of the Company as per his resignation letter dated 10.06.1996, could be
fastened with the vicarious liability of the alleged contravention of the provision u/s 207 of the Act by the company for the non-payment of dividend
or non-posting of warrant by the company for the financial years 1995-1996 to 1999-2000?
(iii) Whether the allegation contained in the complaint constitutes the offence u/s 207 of the Act as against the petitioner?
Let me now have a bird''s eye view in respect of the relevant provisions:
(i) Section 621 of the Companies Act reads as follows:
Offences against Act to be cognizable only on complaint by Registrar, shareholder or Government -
(1) No Court shall take cognizance of any offence against this Act, thereof, except on the complaint in writing of the Registrar, or of a shareholder
of the company, or of a person authorised by the Central Government in that behalf;
(ii) Section 207 of the Act, during the relevant period of the commission of offence (before amendment) reads hereunder:
Where a dividend has been declared by a company but has not been paid, or the warrant in respect thereof has not been posted, within
forty-two days from the date of the declaration, to any shareholder entitled to the payment of the dividend, every director of the company (its
managing agency or secretaries and treasurers; and where the managing agency is a firm or body corporate, every partner in the firm and every
director of the body corporate; and where the secretaries and treasurers are a firm, every partner in the firm and where they are a body corporate,
every director thereof;) shall, if he is knowingly a party to the default, be punishable with simple imprisonment for a term which may extend to
seven days and shall also be liable to fine:
(iii) Section 207 of the Act (After amendment) reads hereunder:
Where a dividend has been declared by a company but has not been paid, or the warrant in respect thereof has not been posted, within thirty
days from the date of the declaration, to any shareholder entitled to the payment of the dividend, every director of the company shall, if he is
knowingly a party to the default, be punishable with simple imprisonment for a term which may extend to three years and shall also be liable to a
fine of one thousand rupees for every day during which such default continues and the company shall be liable to pay simple interest at the rate of
eighteen percent per annum during the period for which such default continues:
(iv) Section 468(2)(b) of Code of Criminal Procedure reads as follows:
Bar to taking cognizance after lapse of the period of limitation - (1) Except as otherwise provided elsewhere in this Code, no court shall take
cognizance of an offence of the category specified in Sub-section (2), after the expiry of the period of limitation.
(2) The period of limitation shall be -
(b) one year, if the offence is punishable with imprisonment for a term not exceeding one year
Let me now consider the first question whether the offence u/s 207 of Companies Act has been validly taken cognizance within the period of
limitation ?
9.1. There is no dispute that limitation for initiation of proceedings for offence under the Companies Act had not been prescribed under the Act
itself and hence, the general law under the Code of Criminal Procedure will stand attracted.
9.2. Since the offence alleged u/s 207 of the Act is punishable with simple imprisonment for a term which may extend to 7 days and shall also be
liable to fine, the period or limitation for taking cognizance of the offence will be one year. u/s 468(2)(b) of Cr.P.C., the period of limitation for
taking cognizance of the offence is one year if the offence is punishable with imprisonment for a term not exceeding one year.
9.3. It is relevant to note u/s 469 of the Code of Criminal Procedure, the period of limitation would commence only from the date on which the
offence comes to the knowledge of the persons aggrieved by the offence.
9.4. In this case, the respondent filed the complaint as he was authorised by the communication dated 01.05.2006 to file a complaint against the
petitioner and others. Therefore, it is very clear that the respondent is the authorized person as contemplated u/s 621(1) of the Companies Act to
prefer the private complaint against the petitioner herein.
9.5. It is pertinent to note that in this case the complaint was filed on 23.08.2006 before the learned Additional Chief Metropolitan Magistrate,
Economic Offences, E.O.I, Egmore, Chennai. The learned Magistrate has taken cognizance by his order dated 29.08.2006. The order of the
Magistrate reads as follows:
Perused. The complainant has filed a complaint against the accused for the violation of offence u/s 621 and 207 of Companies Act. On a perusal
of the records reveals prima facie case to take the complaint on file against the accused for the said violation. Accordingly, the complaint is taken
on file against the accused and forwarded to A.C.M.M. (E.O.II), for disposal according to law.
9.6. It is evident from the perusal of the complaint that there is absolutely no averment as to how the period of limitation is calculated. It is also not
disclosed in the complaint in respect of the date of the knowledge of the commission of the offence by the said company. In paragraph 10 of the
complaint, it is merely stated in respect of the period of limitation as follows:
That the Ministry of Company Affairs vide its letter No. 5/10/2005-CL.II dated 1st May 2006 (Annexure E) has accorded its sanction and
instruction of filing prosecution against the accused above named and hence the present complaint is well within the period of limitation as
contemplated u/s 468 of Criminal Procedure Code.
9.7. The respondent/complainant has come forward with the details of computing the period of limitation only for the first time while filing the
counter before this Court. In paragraph 5 of the counter, it is stated by the respondent/complainant that after investigation was completed by the
respondent office, a report was submitted to the Central Government (Ministry of Company Affairs) on 01.12.2005 and thereafter the Central
Government granted sanction to prosecute the Board of Directors of the company through its letter dated 01.05.2006 and the complaint was filed
on 23.08.2006. It is also stated in the same paragraph that the complaint was filed within the period of one year from the date of the knowledge of
the commission of the offence in respect of the financial year 1995-1996 on the basis of the results of the investigation. Therefore, the counter filed
by the respondent reveals that the limitation was computed on the basis of the alleged knowledge of the commission of the offence on the basis of
the investigation report dated 01.12.2005 and ultimately, the complaint was filed on 23.08.2006 after obtaining sanction order dated 01.05.2006
from the Ministry of Company Affairs.
9.8. At this juncture, it is relevant to note that there is absolutely no provision available under the Companies Act contemplating prior sanction for
initiating prosecution for the offence u/s 207 of the Act. The contention of the learned ACGSC to the effect that the Central Government had the
knowledge about the commission of the offence only on the basis of the report of investigation dated 01.12.2005 and thereafter, the complaint was
filed after obtaining sanction order from the Ministry of Company Affairs dated 01.05.2006 is unacceptable. It is relevant to note that as early as
on 23.10.2003 itself the Government passed an order to investigate into the affairs of the company by appointing Mr. Sharad Krishan Sharma as
Inspector to investigate into the affairs of the company, viz., DSQ Software Limited. Therefore, the Government could have had the knowledge
even as early as in the year 2003 itself about the alleged commission of the offence by the said company u/s 207 of the Act as per the document
dated 23.10.2003 produced by the learned ACGSC. As already pointed out, there is no provision available under the Companies Act
contemplating the prior sanction for initiating prosecution for the offence u/s 207 of the Act. It is also rightly contended by the learned senior
counsel for the petitioner that the knowledge of the alleged commission of the offence under the Companies Act must have come to the notice of
the Central Government on 19.09.1996, viz., the date of declaration of dividend.
9.9. This Court in NEPC India Ltd. v. Registrar of Companies reported in 1999 (Vol.97) Comp. Cases 500 held as follows:
C.C. No. 167 of 1998 also relates to an offence u/s 207 of the said Act. It is seen from the complaint itself, the respondent came to know about
the default on September 8, 1997. However, para.3 of the complaint indicated that the inspection has been done and the same was completed on
January 20, 1997. Under the circumstances, even at the time of the inspection itself, the respondent could have been well aware of the commission
of the offence by the said company. They have caused a delay of nearly eight months in sending the show-cause notice. The delay caused by the
respondent cannot be made use of to save their complaint. The complaint was filed in the court on August 31, 1998. Taking into consideration the
fact that even according to the averments in the complaint, the respondent had completed the inspection on January 20, 1997, naturally the
complaint ought to have been filed within a period of one year, but according to the complaint itself, it was filed on August 31, 1998, and, as such,
it is beyond the time.
In the above cited decision, this Court ultimately quashed the complaint on the ground that the complaint is barred by limitation. The principle laid
down in the decision cited supra is squarely applicable to the facts of the instant case as in this case also the Inspector commenced his investigation
as per the order dated 23.10.2003 and ultimately, submitted the report only on 01.12.2005 and therefore, it is crystal clear that the
respondent/complainant must have had the knowledge of the commission of the offence as early as in the year 2003 itself and therefore, the
complaint is clearly barred by limitation.
9.10. As already pointed out, Section 468(2)(b) of Cr.P.C. contemplates that the period of limitation is one year if the offence is punishable with
imprisonment for a term not exceeding one year. u/s 207 of the Act, prior to amendment, contravention of Section 207 is punishable with simple
imprisonment for a term which may extend to seven days. As far as the petitioner is concerned, relevant period is only in respect of the financial
year 1995-1996 for the alleged commission of offence u/s 207 is 1995-96 as it is admitted by the respondent/complainant that the petitioner
resigned on 10.06.1996 and his resignation was accepted by the Board of Directors on 19.09.1996. Therefore, this Court is of the considered
view that the complaint preferred by the respondent is barred by limitation on the following grounds:
(1) The complainant or the Central Government must have had the knowledge about the alleged commission of the offence u/s 207 of the Act from
the date of the declaration of dividend, i.e. 19.09.1996 and therefore, the complaint ought to have been filed within a period of one year from that
date i.e. on or before 01.11.1997 as the punishment for the offence u/s 207 of the Act, during the relevant period, i.e. 1995-1996, is punishable
with simple imprisonment for a term which may extend to seven days and u/s 468(2)(b) of Cr.P.C., the period of limitation shall be one year, if the
offence was punishable with imprisonment for a term not exceeding one year.
(2) Even assuming that the complainant or the Central Government not had the knowledge about the alleged commission of offence u/s 207 of the
Act, on the date of declaration of dividend, i.e. On 19.09.1996, the documents relied on by the respondent/complainant, viz., order of the
Government of India (Ministry of Company Affairs) dated 23.10.2003 appointing the Inspector to investigate into the affairs of the accused
company clearly shows that the respondent could have had the knowledge of the commission of offence as early as in the year 2003 and therefore,
the complaint filed only in the year 2006 is certainly barred by limitation as the complaint is not filed within a period of a year from the date of
knowledge of the commission of the offence as the complaint was admittedly filed only on 23.08.2006 and the learned Magistrate has taken
cognizance on 29.08.2006.
(3) No averments or explanations given in the complaint in respect of computing the period of limitation and further there is no whisper about the
date of knowledge of the alleged offence by the complainant.
(4) There is no provision under the Act contemplating prior sanction for prosecution of the companies u/s 207 of the Act and as such the
complainant cannot take shelter under the guise of obtaining sanction for the purpose of computing the period of limitation. It is also pertinent to
note that the complainant neither filed any application u/s 470(3) Cr.P.C. explanation for excluding the period of obtaining consent or sanction nor
filed any petition u/s 473 Cr.P.C. for extension of period of limitation for filing the complaint and taking cognizance of the offence by the trial Court.
(5) The order of the learned Additional Chief Metropolitan Magistrate, Economic Offences, E.O.I, Egmore, Chennai, dated 29.08.2006 for taking
cognizance of the offence is also bereft of details about the limitation and there is no mention to the effect that the complaint was filed within the
period of limitation by the learned Magistrate and as such the learned Magistrate has committed a serious error of law in taking cognizance of the
offence beyond the period of limitation in this case.
Therefore, this Court is of the considered view that the complainant filed the complaint beyond the period of limitation and the cognizance was
taken by the trial Court only after the expiry of the period of limitation and as such the entire proceedings is liable to be quashed in respect of the
petitioner herein.
9.11. This Court has taken a similar view in V. Karthikeyan v. Registrar of Companies reported in 2001 (106) Comp. Cas 685
10.1. Now let me consider the second question viz.. Whether the petitioner, who has resigned from the Directorship of the Company as per his
resignation letter dated 10.06.1996, could be fastened with the vicarious liability of the alleged contravention of the provision u/s 207 of the Act by
the company for the non-payment of dividend or non-posting of warrant by the company for the financial years 1995-1996 to 1999-2000 within
the stipulated time ?
10.2. It is not disputed even in the counter filed by the respondent/complainant that the petitioner has resigned from the Directorship as early as on
10.06.1996 and the same was accepted by the Board of Directors of the company on 19.09.1996. It is pertinent to note that as far as the
petitioner is concerned, the respondent/complainant implicated the petitioner in respect of the contravention of Section 207 of the Act during the
period 1995-1996. Even in the counter filed by the respondent/complainant it is specifically stated in paragraph 6 as follows:
This Respondent states that the petitioner was a Director in this company upto 31.12.1996 that is the date of recording of his resignation in the
record of the Office of the ROC, Chennai, and in the report of the Inspector, offences committed from the financial year 1995-1996 onwards
were found.
Therefore, it is clear that the respondent/complainant implicates the petitioner herein only for the offence said to have been committed during the
financial year 1995-1996. At this juncture, it is relevant to point out that in the earlier para it is admitted by the respondent/complainant that the
resignation of the petitioner was accepted by the Board of Directors on 19.09.1996 and as such it cannot be stated that the petitioner continued as
a Director upto 31.12.1996, which is the date of Registration of the resignation of the petitioner by the Registrar of Companies. It is relevant to
note that as per the complaint, as narrated in para 6 of the complaint, the delay in respect of declaration of dividend for the financial year 1995-96
is only two days, such delay is very negligible. As it is already pointed out that the dividend was declared by the company, as admitted by the
complainant, on 19.09.1996 and on that date the resignation already submitted by the petitioner dated 10.06.1996 is also accepted by the Board
of Directors and therefore, it is crystal clear that the petitioner was not a party to the declaration of dividend made by the Board of Directors on
19.09.1996 and as such the petitioner cannot be vicariously held liable for the alleged contravention of Section 207 of the Act. Therefore, on this
ground also, the proceedings initiated by the complainant, as far as this petitioner is concerned, is liable to be quashed.
11.1. Let me now consider the third question involved in this matter, viz., Whether the allegation contained in the complaint constitutes the offence
u/s 207 of the Companies Act as against the petitioner?
11.2. The provision u/s 207 of the Act contemplates the implication of any Director of the body corporate only in the event of such Director is
knowingly a party to the default. At the risk of repetition, it is relevant to incorporate the provision u/s 207 of the Act which reads hereunder:
Where a dividend has been declared by a company but has not been paid, or the warrant in respect thereof has not been posted, within
forty-two days from the date of the declaration, to any shareholder entitled to the payment of the dividend, every director of the company (its
managing agency or secretaries and treasurers; and where the managing agency is a firm or body corporate, every partner in the firm and every
director of the body corporate; and where the secretaries and treasurers are a firm, every partner in the firm and where they are a body corporate,
every director thereof;) shall, if he is knowingly a party to the default, (Emphasis supplied) be punishable with simple imprisonment for a term which
may extend to seven days and shall also be liable to fine:
11.3. A perusal of the complaint clearly shows that there is not a whisper against the petitioner to the effect that the petitioner was knowingly a
party to the default. It is also pertinent to note that in the cause title itself it is stated that the first accused is the Managing Director and the third and
tenth accused are the whole time Directors and fourth, fifth, sixth, seventh, eleventh and twelfth accused are the Directors. Therefore, it is very
clear that the petitioner is not a whole time Director to aware about the entire affairs of the company. Therefore, in view of the absence of specific
averment in the complaint to the effect that the petitioner had the knowledge about the commission of the offence by the company or the petitioner
was knowingly a party to the default, the petitioner cannot be held vicariously liable for the contravention u/s 207 of the Act and as such even on
this ground the proceedings is liable to be quashed as against the petitioner herein.
12.1. One more infirmity in this case is that the complainant has not sent any show-cause notice to the petitioner or any of the accused in this case
to explain about the alleged contravention of Section 207 of the Act. Though there is no specific provision available under the Companies Act
contemplating the issue of show-cause notice, proviso to Section 207 contemplates implied procedure of sending show-cause notice calling for
explanation for the contravention of Section 207 of the Act. This Court can read into the Provision and Proviso to Section 207 reads hereunder:
Provided that no offence shall be deemed to have been committed within the meaning of the foregoing provisions in the following cases, namely:
(a) where the dividend could not be paid by reason of the operation of any law;
(b) where a shareholder has given directions to the company regarding the payment of the dividend and those directions cannot be complied with;
(c) where there is a disputed regarding the right to receive the dividend;
(d) where the dividend has been lawfully adjusted by the company against any sum due to if from the shareholder; or
(e) where, for any other reason, the failure to pay the dividend or to post the warrant within the period aforesaid was not due to any default on the
part of the company.
12.2. In view of the above stated proviso to Section 207 of the Act, unless and until the Central Government or the complainant gives opportunity
by issuing a show-cause notice to the accused, the accused may not be in a position to explain the reason for delay in distributing the dividends
within the stipulated period. If the accused satisfies anyone of the category of cases enumerated under the proviso to Section 207 of the Act, then
such accused could not have deemed to have been committed the offence u/s 207 of the Act. The perusal of several reported cases in respect of
the offence u/s 207 of the Act reveals that the concerned authorities issued show-cause notice to the accused calling explanation in respect of the
contravention of Section 207 of the Act. This Court is constrained to point out this serious infirmity in this case only with a view to highlight that the
prosecution was initiated against the petitioner and other accused hurriedly and arbitrarily without following the procedure contemplated under the
proviso to Section 207 of the Act and this infirmity itself is not a ground for quashing the proceedings.
It is also made clear that the decisions relied on by the learned ACGSC are not helpful to advance the case of the complainant. In one of the
decisions relied on by the learned ACGSC in R.S. Nayak Vs. A.R. Antulay and Another, , the Hon''ble Apex Court has categorically held in
respect of the considerations for discharge of accused u/s 227, 239 and 245 Cr.P.C. that the test of ""prima facie"" case has to be applied to decide
whether any materials available on record to proceed against the accused. The principle of law laid down by the Hon''ble Apex Court is squarely
applicable to the instant case as in this case the allegations contained in the complaint do not make out a prima facie case for the offence u/s 207 of
the Act.
The Hon''ble Supreme Court in State of Haryana v. Bhajan Lal reported in 1992 (2) Supp (1) SCC 335 pointed out certain categories of
cases and laid down certain guidelines for quashing the proceedings and the first guideline is stated as follows:
(1) Where the allegations made in the first information report or the complaint, even if they are taken at their face value and accepted in their
entirety do not prima facie constitute any offence or make out a case against the accused.
The above said principle of law laid down by the Apex Court is squarely applicable to the facts of the instant case as in this case also the complaint
is not only barred by limitation but also the allegations contained in the complaint do not attract the ingredients of the offence u/s 207 of the Act as
against the petitioner herein and as such allowing the proceedings to continue against the petitioner would amount to a clear case of abuse of
process of Court and the proceedings initiated in E.O.C.C. No. 129 of 2006 pending on the file of the learned Additional Chief Metropolitan
Magistrate, E.O.II, Egmore, Chennai, as far as the petitioner is concerned, is liable to be quashed and accordingly quashed.
This petition is ordered accordingly. Consequently, connected Miscellaneous Petition is closed.