S. Thiagarajan and Another vs Assistant Registrar of Companies, Madras

S.A. Kader, J.—This is a petition u/s 482 of the Code of Criminal Procedure to quash the proceedings in C.C. No. 482 of 1979 on the file

of the Judicial First Class Magistrate II, Madurai, in so far as the petitioners are concerned. Accused Nos. 3 and 4 are the petitioners.

The respondent, Assistant Registrar of Companies, Madras, has launched criminal prosecution against Sri Meenakshi Mills Ltd. and five others

on the following averments. Sri Meenakshi Mills Ltd., Madhurai , the first accused in the above case, is a public company incorporated under the

Indian Companies Act. The second accused was the managing director, accused Nos. 3 and 4, managing directors designate, the fifth accused

was a director and the sixth accused was the secretary. The returns filed by the company under rule 10 of the Companies (Acceptance of

Deposits) Rules, 1975, showed that a sum of Rs. 1,95,000 in respect of forty accounts remained unpaid to the depositors during the year ending

March 31, 1976, though claimed. The non-repayment of the deposits of Rs. 1,95,000 on maturity is in contravention of section 58A(3)(a) of the

Companies Act, 1956, punishable u/s 629A of the said Act. Hence the prosecution .

It is contended by the learned counsel for the petitioners that the acceptance of deposits by non-banking non-financial institutions was formerly

governed by the directions and regulations issued by the Reserve Bank of India under the Reserve Bank of India Act, 1934, and violation of the

directions of the Reserve Bank of India in the acceptance of deposits was punishable with imprisonment up to a period of three years only, but, u/s

58A of the Companies Act introduced by the Amendment Act XLI of 1974, the punishment has been enhanced to five years, that an offence

committed earlier cannot be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the

commission of the offence and, hence, section 58A imposing a greater punishment of five years is hit by article 20 of the Constitution . It is also

urged that prior to the Companies (Amendment) Act of 1974, the failure to repay the deposits on due dates was not punishable while section 58A

of the Companies Act introduced by the Companies (Amendment) Act, 1974, has made the failure to repay the deposits on the due dates an

offence ant it is not open to the Legislature to make the default in repayment of deposits an offence when it was not so when he deposits were

accepted. The first contention proceeds on th assumption that the prosecution in this case is with respect to the deposits accepted in violation of

the direction of the Reserve Bank of India under Chapter III-B of the Reserve Bank Of India Act and on that basis , an argument is built that the

Companies (Amendment) Act has made the penalty severer than it was when the offence was committed. This assumption is entirely erroneous ,

for the prosecution in this case, as I shall presently show , is in respect of the deposits accepted by the first accused company in accordance with

the direction of the Reserve Bank of India and not in violation thereof. The second contention that the Legislature is not competent to make the

failure to repay the deposits on the due dates an offence in respect of deposits received prior to the amendment is not also sustainable.

It may be useful to refer to section 58A of the companies Act introduced in by the Companies (Amendment) Act, XLI of 1974. Section 58A

runs thus :

Deposits not to be invited without issuing an advertisement.- (1) The Central Government may, in consultation with the Reserve Bank of India,

prescribe the limits up to which , the manner in which and the conditions subject to which deposits may be invited or accepted by a company either

from the public or from its members.

(2) No company shall invite, or allow any other person to invite or cause to be invited on its behalf, any deposit unless -

(a) such deposit is invited or is caused to be invited in accordance with the rules made under sub-section (1), and

(b) an advertisement, including therein a statement showing the financial position of the company has been issued by the company, in such form and

in such manner as may be prescribed.

(3) (a) Every deposit accepted by a company at any time before the commencement of the Companies (Amendment) Act, 1974, in accordance

with the directions made by the Reserve Bank of India under Chapter III-B of the Reserve Bank of India Act, 1934, shall unless renewed in

accordance with clause (b), be repaid in accordance with the terms of such deposit.

(b) No deposit referred to in clause (a) shall be renewed by the company after the expiry of the term thereof unless the deposit is such that it could

have been accepted if the rules made under sub-section (1) were in force at the time when the deposit was initially accepted by the company .

(c) Where before the commencement of the Companies (Amendment)Act, 1974, any deposit was received by a company in contravention of any

direction made under Chapter III-B of the Reserve Bank of India Act, 1934, repayment of such deposit shall be made in full on or before the 1st

April, 1975, and such repayment shall be without prejudice to any action that may be taken under the Reserve Bank of India Act, 1934, for the

acceptance of such deposit in contravention of such direction.

(4) Where any deposit is accepted by a company after the commencement of the Companies (Amendment) Act, 1974, in contravention of the

rules made under sub-section (1), repayment of such deposit shall be made by the company within thirty days from the date of acceptance of such

deposit or within such further time, not exceeding thirty days, as the Central Government may, on sufficient cause being shown by the company,

allow.

(5) Where a company omits or fails to make repayment of a deposit in accordance with the provisions of clause (c) of sub-section (3), or in the

case of a deposit referred to in sub-section (4), within the time specified in that sub-section,-

(a) the company shall be punishable with fine which shall not be less than twice the amount in relation to which the repayment of the deposit has not

been made, and out of the fine, if realised, an amount equal to the amount in relation to which the repayment of deposit has not been made, shall be

paid by the court , trying the offence, to the person to whom repayment of the deposit was to be made, and on such payment, the liability of the

company to make repayment of the deposit shall, to the extent of the amount paid by the court , stand discharged;

(b) every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to five years and shall also be

liable to fine.

(6) Where a company accepts or invites, or allows or causes any other person to accept or invite on its behalf, any deposit in excess of the limits

prescribed under sub-section (1) or in contravention of the manner or condition prescribed under that sub-section or in contravention of the

provisions of sub-section (2), as the case may be,-

(a) the company shall be punishable,-

(i) where such contravention relates to the acceptance of any deposit, with fine which shall not be less than an amount equal to the amount of the

deposit so accepted ,

(ii) where such contravention related to the invitation of any deposit, with fine which may extend to one lakh rupees but shall not be less than five

thousand rupees;

(b) every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to five years and shall also be

liable to fine.

(7) (a) Nothing contained in this section shall apply to, -

(i) a banking company , or

(ii) such other company as the Central Government may, after consultation with the Reserve Bank of India, specify in this behalf.

(b) Except the provisions relating to advertisement contained in clause (b) of sub-section (2), nothing in this section shall apply to such classes of

financial companies as the Central Government may, after consultation with the Reserve Bank of India, specify in this behalf.

(8) The Central Government may, if it considers it necessary for avoiding any hardship or for any other just and sufficient reason, by order, issued

either prospectively or retrospectively from a date not earlier that the commencement of the Companies (Amendment) Act, 1974 (41 of 1971),

grant extension of time to a company or class of companies to comply with, or exempt any company or class of companies from, all or any of the

provisions of this section either generally or for any specified period subject to such conditions as may be specified in the order:

Provided that no order under this sub-section shall be issued in relation to a class of companies except after consultation with the Reserve Bank of

India.

Explanation .- For the purposes of this section `deposit'' means any deposit of money with, and includes any amount borrowed by, a company but

shall not include such categories of amount as may be prescribed in consultation with the Reserve Bank of India.

The prosecution, in this case, has been launched for violation of section 58A(3)(a) of the Act and it deals with deposits accepted before the

commencement of the Companies (Amendment) Act of 1974 in accordance with directions made by the Reserve Bank of India under Chapter

III-B of the Reserve bank of India Act, of 1934. The offence complained of is that those deposits to the tune of Rs. 1,95,000 were not returned

after maturity. The complaint filed by the respondents does nowhere say that deposits of Rs. 1,95,000 had been accepted by the first accused-

company in violation of the directions of the Reserve bank of India. This prosecution is, therefore, in respect of respect of deposits accepted in

accordance with the directions of the Reserve Bank of India, but not refunded in time. The argument advanced by the learned counsel for the

petitioners on the assumption that the deposits which are the subject-matter of this prosecution had been accepted in contravention of the

directions of the Reserve Bank of India and a greater punishment is imposed therefore has no basis and must fall.

The learned counsel for the petitioners placed before me the unreported decision on this court in Sun Paper Mill Ltd. v. Assistant Registrar of

Companies (Crl. MP. Nos. 5776 of 1979 and 1445 of 1980 [1986] 59 Comp Cas 320 (Mad) where a single judge has taken the view that

section 58A(5)(a) and (b) which provides for a punishment greater than that which was in force prior to the Companies (Amendment) Act of 1974

for receiving deposits in contravention of the directions of the Reserve Bank of India is violative of article 20 of the Constitution. The learned judge

was dealing with a case of deposits received in excess of the limit prescribed by the Reserve Bank of India under Chapter III-B of the Reserve

Bank of India Act, 1934, while the case before me is concerned with deposits received in accordance with the directions of the Reserve bank of

India and not in contravention thereof. The said decision has , therefrom No application to the facts before me. It may incidentally be pointed out

that section 58A of the Companies Act does not provide for the imposition of any punishment for the acceptance of deposits in contravention of

the directions of the Reserve Bank of India under Chapter III-B of the Reserve Bank of India Act, 1934. In fact, any action in respect of such

violation is left to be taken under the Reserve Bank of India Act, 1934, as is clear form the last clause of section 58A(3)(c) of the Companies Act.

Section 58A(6), however, provides for punishment for acceptance of deposits after the Companies (Amendment) Act came into force in excess of

the limits prescribed under sub-section (1) of section 58A . The Legislature has advisedly left the contraction of the directions of the Reserve Bank

of India under Chapter III-B of the Reserve Bank of India, Act, 1934, to be dealt with only under that Act and not yet by the Amendment Act, of

1974. The assumption that acceptance of deposits before the Companies (Amendment) Act came into force in contravention of the directions of

the Reserve Bank of India is made punishable u/s 58A of the Act and with greater severity does not appear to be correct.

The next contention advanced by the learned counsel for the petitioners is that the failure to repay the pre-Companies (Amendment) Act

deposits on due dates was not an offence before the Companies (Amendment) Act of 1974 came into force and the Legislature is not competent

to make it an offence in respect of those deposit as has been done in section 58A(3)(c) of the Companies (Amendment) Act of 1974 in view of

the article 20 of the Constitution . Acceptance of deposits is one thing and repayment of those deposits is another. Similarly, contravention of the

rules of acceptance of deposits is one thing and non-repayment of deposits is another. Article 20 of the Constitution does not prohibit the creation

of a new offence. Only that it can be made to operate prospectively and not retrospectively. There is nothing in section 58A of the Act to show

that the offence of non repayment of deposits is to take effect retrospectively. The offence of non-repayment of deposits u/s 58A can be said to be

committed when the deposits remained unpaid until the date or dates specified which are subsequent to the Companies (Amendment) Act. In the

complaint on hand, the deposit of Rs. 1,95,000 has remained unpaid till March 31, 1976, though claimed by the depositors and have continued to

remain unpaid till the date of complaint which has been filed on December 17, 1976. Nor have they been renewed, as admitted by the learned

counsel, in accordance with clause (b) of sub-section (3) of section 58A of the Act. Section 58A does not provide for punishment for the non-

repayment of deposits accepted in accordance with the directions of the Reserve Bank of India. The offence is, therefore, punishable under the

residuary section 629A of the Companies Act which provides for a punishment of fine which may extend 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. The prosecution has, therefore, been rightly laid

u/s 58A(3)(a) read with section 629A of the Companies Act.

No other point was urged before me.

In the result, the petition fails and is dismissed.