Registrar of Companies vs Radhika Prasad Nanda and Others

Mohanti, J.—This appeal has been preferred by the Registrar of Companies, Orissa, Cuttack, from the judgment of the learned S.D.M. Cuttack, Sadar, acquitting the accused persons (respondents here) of an offence u/s 210(5) of the Companies Act, 1956 (hereinafter referred to as "the Act").

The respondents are directors of Utkal Distributors (Private) Ltd., a company registered under the Act. They were prosecuted u/s 210(5) of the Act for failure and neglect to take all the reasonable steps in laying the balance-sheet and the profit and loss account for the financial year ending on March 31, 1971, before the annual general meeting of the company held in pursuance of Section 166 of the Act.

The plea of the respondents was that as no annual general meeting could be held due to want of quorum, the question of laying the balance-sheet and the profit and loss account did not arise. The learned S.D.M. acquitted the accused persons on the ground that the failure was not wilful and that the default was beyond the control of the accused persons. He relied on a decision in Vulcan Industries (Pvt.) Ltd. v. Registrar of Companies [1972] 42 Comp Cas 326 (Ori) for the aforesaid findings.

Mr. R. K. Mohapatra, the learned counsel appearing on behalf of the appellant, contended that the view taken by the learned magistrate is erroneous as the accused could not take advantage of their own failure to hold an annual general meeting of the company and that they are liable for the default in laying the balance-sheet and the profit and loss account before such meeting. The decision in The State of Bombay Vs. Bandhan Ram Bhandani and Others, has been cited in support of this contention.

In the Supreme Court case cited above, one of the two offences with which the accused was charged was u/s 133(3) of the Indian Companies Act, 1913, which corresponds to Section 210(5) of the Act. Their Lordships held that if the person charged with the failure to carry out the requirements of the section could have called the meeting, he cannot defeat the provisions of the section simply by not calling the meeting wilfully. It appears that the above decision of the Supreme Court was not brought to the notice of the learned S. D. M.

The ruling in Vulcan Industries (Pvt.) Ltd. and Others Vs. Registrar of Companies, relates to an offence u/s 220 of the Act and it has no bearing on a case involving an offence u/s 210 of the Act. Section 220 of the Act corresponds to Section 134 of the Indian Companies Act, 1913. It imposes a liability upon the company and its officers to file with the Registrar three copies of the balance-sheet and the profit and loss account signed by the managing director, managing agent, etc., together with three copies of all documents which are required by the Act to be annexed or attached to such balance-sheet or profit and loss account. The default in this behalf is punishable u/s 220(3) of the Act.

In Andhra Provincial Potteries Ltd., Tadepalli and Others Vs. Registrar of Companies, Andhra Pradesh, Hyderbad, , the question for consideration was whether u/s 220 of the Act the holding of an annual general meeting of a company and laying before it the balance-sheet and the profit and loss account are prerequisites for a prosecution u/s 220(3) of the Act. Their Lordships held that while it was open to the Registrar to prosecute the persons who had committed default under Sections 166, 159 to 161 and 210 by wilfully not holding a meeting and not fulfilling the requirements of these provisions, any prosecution u/s 220 would be premature without such a meeting being in fact held. Their Lordships observed as follows (page 1017):

" It is clear that the default in not holding an annual general meeting and preparing statements or returns and filing them before the Registrar, or in not laying the balance-sheet and the profit and loss account before that meeting as required under Sections 166 159 to 161 and 210 cannot be pleaded in defence of prosecution."

The aforesaid Full Bench decision of the Andhra Pradesh High Court was affirmed in State of Andhra Pradesh and Another Vs. Andhra Provincial Potteries Ltd. and Others, . It would be pertinent to extract some of the observations of their Lordships which are as follows (page 519) :

" It was urged before us that the principle accepted by this court in The State of Bombay Vs. Bandhan Ram Bhandani and Others, that a company or its directors in a prosecution u/s 32 and Section 133 of the 1913 Act could not in defence to such prosecution rely upon their own failure to call the general body meeting, applies with equal force to a prosecution u/s 134 of the Act. But it appears to us that there is a very clear distinction between Sections 32 and 133 on the one hand and Section 134 on the other.....The difference in language is very clear and pointed. The responsibility of sending three copies of the balance-sheet and profit and loss account or the income and expenditure account, as the case may be, arises only after they have been laid before the company at the general meeting. Without so laying, copies could not be sent to the Registrar and even if they are sent it would not be a compliance with the provisions of the section."

The conspectus of the decisions cited above is that the failure to hold a general meeting cannot be pleaded as a defence fur default committed in laying the balance-sheet and the profit and loss account before the company. One cannot plead one''s own default in defence. The directors of the company are primarily responsible for calling a general body meeting and having failed to call such a meeting and thereby contravened Section 166, they cannot be permitted to take advantage of their failure and neglect and then plead that they could not lay the balance-sheet or profit and loss account because no meeting was held.

Under the provisions of Section 166(1) of the Act the company has to hold in each year a general meeting as its annual general meeting not more than 15 months from the date of the previous general meeting, unless, of course, the Registrar, for any special reason, extends the time within which any annual general meeting, not being the first annual general meeting, shall be held, by a period not exceeding three months. It is apparent from these provisions that an annual general meeting, not being the first annual general meeting, is to be held within 15 months or 18 months, where it is extended, from the date of the last general meeting. According to Section 174 of the Act, if the quorum is not formed, the meeting shall stand adjourned to the same day in the next week, at the same time and place, or to such other day and at such other time and place as the board may determine and if at the adjourned meeting the quorum is not formed, the members present in the meeting shall be a quorum. Therefore, the directors cannot avoid holding of the annual general meeting on the ground of want of quorum. There is nothing on the record to show that the directors took any step to hold the annual general meeting. The plea that the duty of laying the balance-sheet and the profit and loss account could not be performed by reason of there being no annual meeting is not a valid defence.

As regards the finding of the learned S. D. M. that the default was not wilful, it is to be noted that in this respect there is a clear distinction between Section 210 of the Act and Section 133 of the Indian Companies Act, 1913. According to the provisions of Sub-section (3) of Section 133 of the old Act, an oificer of the company could be held liable for punishment only if he was " knowingly and wilfully " a party to the default. But under Sub-section (5) of Section 210 of the Act, a director of a company is made punishable with fine even if the default by him is not wilful and he merely fails to take all reasonable steps to comply with the provisions of the section. The intention of the legislature appears to be clear that the directors of a company should incur a penal liability merely on account of the default. The qualifying expression " knowingly and wilfully " appears to have been deliberately omitted. In their capacity as directors they must be deemed to be parties to the default even though some of them might have been indifferent or negligent in the due discharge of their duties. I am fortified in this view by two decisions in State v. Linkers (Pvt.) Ltd. [1970] 40 Comp Cas 17 (Pat) and Gopal Khaitan and Others Vs. The State and Others, .

In view of my above findings, the appeal is allowed and the order of acquittal passed by the learned S. D. M. is set aside. The three respondents are convicted u/s 210(5) of the Act and sentenced to a fine of Rs. 50 (fifty) each.