Registrar of Companies vs Bharat Produce Co. and Others

M.K. Mukherjee, J.—This Rule is directed against the order dated June 15, 1979 passed by the learned Chni 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 u/s 269(2) read with section 629A of the Companies Act 1956. In the compiaint it was stated that Bharat Produce Company Limited, 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.

The further allegation in the complaint was that the books of account of the Company were inspected by an officer authorised by the Central Government u/s 209(4) of the Companies Act, 1956 as it stood before the Companies (Amendment) Act, 1974 came into force and during the course of the said inspection it was noticed that the accused No. 2 confined to be a whole-time Director of the Company ever since January 1959 till date. The records further reveal that he was reappointed as a 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 reappointment of a person as a whole-time Director for the first time after the commencement of the Companies (Amendment) Act, 1960 can not 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 reappointment 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 u/s 629A of the Companies Act.

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 correspondences 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. Inspite 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 u/s 269(2) read with section 629A of the Companies Act, which according to the complainant, was a continuing offence.

The learned Chief Metropolitan Magistrate took cognisance upon 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 in 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.

The first question that fails 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 u/s 629A of the Act. To answer this question it will be necessary to refer 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 Comany, the reappointment 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 provisions of this Act, for which no appointment is provided elsewhere in this Act or any conditions, 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 extent 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.

Mr. Ghose, the learned Advocate appearing for the petitioner contends that section 269(2) expressly provides that the reappointment 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. In as much as the opposite party No. 2 continued to function as whole-time Director on such reappointment by the Company, they violated the implied prohibition and thereby contravened section 269(2) for which they are liable for prosecution u/s 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 reappointment. 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 u/s 629A of the Act. In suport of his contention Mr. Dhar relies upon a Division Bench Judgment of the Allahabad High Court in the case of Raghunath Swarup Mathur Vs. Har Swarup Mathur, and a judgment of the queen''s Bench in the case of Sales-Matic Limited-vs-Hinchcliffe reported in (1959) 1 WLR 1005.

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 specific prohibition or direction thereunder. In the Act with which we are concerned there 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) 1960 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 or 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 those provisions, section 269(2) does not issue any direction or prohibition; it only declares that reappointment 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.

Mr. Ghosh contends that if a person is allowed to function as such without 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

In the case of Sales Matic Limited (Supra), a similar question corpped 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 taw. 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.

The case of Raghunath Swarup (Supra) decided the identical question which falls for determination in this case with these words :-

All that section 269(2) does is that it prevents the reappointment of a person as a Managing or whole-time Director for the 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 reapointment. 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, "Section 629A creates no offence and only provides penalty for such contravention of the Act for which no specific penalty has been provided elsewhere. Section 629A of the Act pre-supposes a contravention of the provisions of the Act and there can be a cantavention 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.

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 the section 269(2) compels me to take the above view. As section 269(2) of the Act does not creat any offence, the question whether it creates a continuing offence or the bar of limitation u/s 468 Cr. P.C. applies does not arise. The application accordingly fails and the Rule is discharged.