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Judgment
G.M. Akbar Ali, J.—By consent, the matter is taken up for final hearing.
The petition is filed seeking a direction to call for the records in E.O.C.C. No. 91/09 on the file of the learned Additional Chief Metropolitan
Magistrate''s Court (Economic Offence-1), Egmore, Chennai-600 008 and quash the same.
The 1st Petitioner is the Managing Director and the 2nd Petitioner is the Company Secretary of one M/S. California Software Company
Limited. The said Company was inspected by an authorised Officer of the Respondent. It was observed that during the year 1999-2000, the
Company had advanced an interest free loan of Rs. 2 crores to California Software Employees Trust, to enable the trust to purchase Rs.
4,00,000/- equity shares of the Company and further issued shares to selected employees of the Company under its Employees Stock Offer plan
(ESOP). The Company was asked to furnish the names and addresses of the members of the above said trust and also to furnish the complete
address of the trust and names and addresses of the trustees. Further the company was asked to state as to how much has been so far recovered
from the trust. If not, to furnish the reasons for the same. Above information called for by the Inspecting Officer was not furnished by the Company
and its Directors/Officers/employees which is a contravention u/s 209A(2) of the Companies Act, 1956 (herein after referred as Act).
Indisputably, it is the duty of Directors/Officers/employees of the Company to furnish the information relating to the affairs of the company as the
Inspecting Officer may require.
Failure to furnish information as called for by the Inspecting Officer is an offence u/s 209A(1)(2) of the Companies Act and liable for punishment
u/s 209A(8) of the Act. Therefore, the Respondent has initiated proceedings before the learned Additional. C.M.M. Economic Offences.
The learned Addl. C.M.M took cognizance of the case in EOCC No. 91 of 2009 and issued process to the Petitioners. Aggrieved by which,
the Petitioners are before this Court to quash the proceedings on the following grounds:
a) that the Company had furnished all the information relating to California Software Employees Welfare Trust vide their letter dated 30.10.2006.
b) the prosecution is barred by limitation
c) ""the books of account and other books and papers of the company"" as mentioned in Section 209A of the Act do not include the documents
under the custody of the trust.
Mr. Arvind Datar, learned senior counsel appearing for the Petitioners would submit that the inspection of records and documents of the
Company was carried out by the Regional Director, Department of Company Affairs on 25.5.2006, a letter was received from the Deputy
Director, Inspection, Ministry of Company Affairs on 10.10.2006 and a reply was sent on 30.10.2006 furnishing the particulars called for. The
learned senior counsel further submitted that after 18 months, another show cause notice was issued by the Respondent on 11.1.2008 and a reply
was sent on 12.2.2008 and the prosecution was launched only on 29.2.2008, thereby, proceedings were initiated beyond the period of one year.
The learned Senior counsel submitted that the offence u/s 209A(8) is punishable with fine and imprisonment for a term not exceeding one year and
therefore, the period of limitation is only one year and the prosecution is barred by limitation. The learned Senior counsel submitted that the
Respondent has called for information relating to loan advanced to the welfare trust and directed the Company to furnish certain particulars which
was promptly furnished by the letter dated 10.10.2006. The learned Counsel further submitted that the same information was called for by the
show cause notice dated 11.1.2008 for which a reply was sent explaining the amount recovered from the trust. Therefore, initiation of prosecution
itself is mis-conceived and liable to be quashed. The learned Counsel further submitted that the books of account and other books do not include
the books of account of the trust which is an independent body.
The learned Counsel relied on the following decisions:
1972 (42) Com Cases 596 Mad (K. Kanagasabapathy v. T.M. Shanmugham; 1986 (60) Com Cases 889 Mad (State v. S. Seshamal Pandia and
Ors.)
On the contrary, Mr. Devendran, learned Counsel for the Respondent would submit that the Company was directed to furnish not only the
names and addresses of the trustees but also the accounts relating to amount advanced and the amount recovered from the trust and the Company
has not furnished books of accounts as contemplated u/s 209-A(2) of the Act. The learned Counsel submitted that on issuance of show cause
notice dated 11.1.2008 the proceeding has been initiated on 29.2.2008. Therefore, the proceedings are not barred by limitation.
Heard both sides and perused the materials available on record.
It is not in dispute that an inspection of records and documents of the company were carried out on 25.5.2006 and on 10.10.2006 a letter was
sent by the Respondents calling for certain particulars. A query was raised in paragraph 20 of this letter which is as follows:
During the year 1999-2000, the Company had advanced an interest free loan of Rs. 2 crores to California Software Employees Welfare Trust
to enable the trust to purchase 4 lacs equity shares of the Company for further issue to selected employees of the Company under its Employee
Stock Offer Plan (ESOP). Please furnish the names and addresses of the Members of the abovesaid Trust. Please also furnish complete address
of the Trust and names and addresses of the Trustee. Please also state as to how much has been so far recovered from the Trust.
A reply was sent on 30.10.2006 furnishing the particulars and in paragraph 20 of this letter is as follows;
The Company has recovered a sum of Rs. 1,73,95,000 leaving a balance of Rs. 26,05,000. The following are the members and trustees of the
trust:
Ms. Nirmala Natraj
Ms. T. Ajantha
The address of the trust is as under
California Software Employees'' Welfare Trust
T.S.140, Block 2 & 9,
Elnet Software City
Taramani, Chennai-600 113
However, a show caused notice was issued on 11.1.2008 which reads as follows:
Whereas during the year 1999-2000 the Company had advanced an interest free loan of Rs. 2 Crores to California Software Employees Welfare
Trust to enable the trust to purchase 4 lakh equity shares of the Company for further issued to selected employees of the company under its
Employees Stock Offer Plan (ESOP). The Company was asked to furnish the names and addresses of the members of the above said trust and
also to furnish the complete address of the trust and names and addresses of the trustee. Further the company was asked to state as to how much
has been so far recovered from the trust. If not to furnish the reasons for the same. Whereas the details called for from the company as provided
u/s 209-A(2) but the Company has not given the particulars.
A reply was sent on 12.2.2008. However, in this letter an explanation was given only to the query of item No. 10 of the letter dated
10.10.2006. The subject matter of the proceeding is item No. 20 which relates to the trust. However, only on 14.3.2008 the Company has sent an
explanation for the query raised in the show cause notice dated 11.1.2008.
According to the Respondent, show cause notice was issued on 11.1.2008 stating that the company was asked to furnish certain particulars
and such particulars were not given thereby violating the provisions of the Act and the company was called for to show cause within ten days why
prosecution should not be launched for such contravention. Unfortunately, the reply dated 12.2.2008 did not reflect their explanation as called for
in the show cause notice. The prosecution was launched on 29.2.2008.
1972 (42) Com Cases 596 Mad (K. Kanagasabapathy v. T.M. Shanmughamthis Court held as follows:
It is true that while the court is entitled to look at the headings in an Act of Parliament to resolve any doubt, the law is quite clear that you cannot
use such headings to give a different effect to clear words in the section where there cannot be any doubt as to their ordinary meaning. In my view,
it would be dangerous to construe the words ""other books and papers"" to embrace every scrap of paper in the office of the company, whether it is
in the nature of a book of account or not. The sub-heading to Section 209 of the Companies Act is ""Books to be kept by Company and penalty
for not keeping proper books"". This sub-heading emphasises the fact that the words ""proper books"" have a restricted meaning and refer only to
books in the nature of accounts....
It is, therefore, clear that the object of the amendment was to cover not only books of account, strictly so-called, but also books showing such
particulars relating to utilisation of material or labour or to other items of cost as may be prescribed in the case of companies engaged in
production, processing, manufacturing or mining activities, within the meaning of Section 209(1)(d) of the Companies Act. Clause (d) of Section
209(1) itself was in served by Section 20 of the Companies (Amendment) Act, 1965 and it was to cover the records relating to the particulars
mentioned in Clause (d) that the expression, ""other books and papers"" appears to have been used.
In my considered view, the decision relied on by the learned senior counsel for the Petitioners is not relevant. The issue of ""books of accounts
and other books and papers of the Company"" need not be gone into as the prosecution is not in respect of the non production of the same, but non
furnishing of the relevant information.
In 1986 (60) Com Cases 889 Mad (State v. S. Seshamal Pandia and Ors.), this Court held as follows:
Held, that the notice calling upon the directors to rectify the omissions and submit a report was issued on August 23, 1975, and on the failure of the
directors to comply with the requirement within the period prescribed in the said notice, the offence should be taken to have been committed and
limitation would start from that date. As the complaint in the instant case was admittedly filed after the period of one year from the expiry of time
granted by the said notice dated August 23, 1975, the Magistrate was right in his view that the complaint was barred by limitation.
According to the Company, they have furnished the particulars in the reply dated 30.10.2006 and also by their letter dated 14.3.2008. There
is no dispute of non production of books of accounts or any other information. According to the Respondent, the information called for was not
furnished. The information relates to the names and addresses of the members of the trust and the amount advanced and recovered from the trust.
Obviously, paragraph-20 of the reply dated dated 30.10.2006 reflects these information.
However, for a show cause notice dated 11.1.2008, the reply dated 12.2.2008 does not reflect any explanation. The company ought to have
replied within ten days from the date of receipt of this show cause notice. Even according to them, this show cause notice was received on
22.1.2008. The reply was sent on 12.2.2008 which did not contain the explanation and a rejoinder was sent on 14.3.2008 which contains the
explanation. Therefore the question before this Court is, (i) whether the information which has already been furnished satisfies the requirement of
Section 209A(2) of the Act (ii) whether the initiation of the prosecution is barred by limitation?
As already stated, for a query raised in paragraph 20 of the letter dated 10.10.2006, information has already been furnished by reply dated
30.10.2006. The information called for was to furnish the complete address of the trust and names and addresses of the trustees and the amount
recovered from the trust. The reply clearly indicates the amount recovered from the trust and the outstanding and also the names and addresses of
the trust and trustee. That being so, this Court fails to understand why a show cause notice was issued on 11.1.2008 that too, after 18 months,
stating that the same was not furnished. The failure to reply within 10 days from the date of receipt of show cause notice itself will not constitute an
offence. Even assuming, the company has failed to furnish the information the limitation for initiation of prosecution is one year. In the complaint, it
is stated that the offence is not barred by limitation u/s 468, 469 and 470 of Cr.P.C and it is a continuing offence.
In similar circumstances, this Court in 1986 (60) Comp Cases 889 Mad (State v. S. Seshamal Pandia and Ors.) ( cited supra) held,
Under Section 162 of the Companies Act, a daily fine of Rs. 50 is prescribed for every day''s default, whereas in this case u/s 209A(2) of the
Companies Act, a minimum sentence of fine of Rs. 5,000 is provided....
Therefore, when the offence is not a continuing one, it has to be taken that the offence has taken place on the particular date on which it was
committed and not subsequent to the same and the period of lim initiation cannot be extended by the prosecution as they choose.
The facts that came up for consideration in the above said decision is also similar to the case on hand. In that case, an inspection was carried
out on 15,17 and 19.3.1975. A notice was sent to the Directors of the Company on 23.8.1975 pointing out the omissions and calling upon the
Directors to rectify the omissions and submit a report. Several letters were exchanged and final notice was issued on 29.12.1976 to submit a
report within 15 days. The Directors did not comply with the final notice. The prosecution was launched on 10.8.1977. The question before the
Court was whether the limitation starts from the final notice dated 29.12.1976 or from 23.8.1975. The court held that
Therefore, if the directors did not comply with the demand within the period prescribed in the first notice, exhibit P-1, the offence must be deemed
to have been committed and, therefore, limitation would start only from that date.
The facts and circumstances of this case squarely applies to the present case. The first notice was issued on 10.10.2006 calling upon
information u/s 209A of the Act. Though a reply was sent on 30.10.2006, the Respondent was not satisfied with the information furnished and had
chosen to issue show cause notice only on 11.1.2008 and has initiated the prosecution only on 29.2.2008. But the offence is deemed to have been
committed only on the failure to furnish the information for the first notice dated 10.10.2006. Therefore, the cognizance of the offence is barred by
limitation, which calls for an interference by exercising power u/s 482 Code of Criminal Procedure
When certain information is called for u/s 209A of the Act, the Company is bound to furnish those information and produce ""books of
accounts and other papers of the Company"" if called for. If the Registrar of the Companies is not satisfied with the information, it is the duty of the
authority to specify that the information so furnished is not in compliance with the provisions u/s 209A(2) of the Act and may provide sufficient time
to rectify the omissions. Only thereafter the failure to comply with such direction will only attract the provisions of 209A(2) of the Act.
Therefore, in the present case, the company has furnished the information as called for and the Respondent has not stated as to how the
information is not satisfactory.
Therefore, under these circumstances, I am of the considered opinion that the jurisdiction u/s 482 Cr.P.c is to be exercised to quash the
proceedings in E.O.C.C. No. 91/09 on the file of the learned Additional Chief Metropolitan Magistrate''s Court (Economic Offence-1), Egmore,
Chennai-600 008.
Accordingly, the criminal original petition is allowed and the proceedings in E.O.C.C. No. 91/09 on the file of the learned Additional Chief
Metropolitan Magistrate''s Court (Economic Offence-1), Egmore, Chennai-600 008 is hereby quashed.