Sol Pharmaceuticals Limited and Others vs The Registrar of Companies and Another

Gopalakrishna Tamada, J.—The petitioners herein who are A-1 to A-3 in S.T.C. No.21of 1998 on the file of the Court of Special Judge for Economic Offences, Hyderabad, seek quashing of the said proceedings on the ground that launching of prosecution against the petitioners herein is an abuse of the process of the court.

The case, according to the complaint filed by the Registrar of Companies, is that the 1st petitioner is a company represented by its Managing Director of which the 2nd petitioner is one of the Directors and the 3rd petitioner is the Secretary. According to the complaint, in the Annual General Meeting held on 27-9-196, the company declared dividend @ 30% but failed to pay the same to the shareholders within 42 days as mandated u/s 207 of the Companies Act.

The learned counsel for the petitioners Mr. C. Praveen Kumar contended before this court that it is true that dividend was declared by the company but the same could not be paid in time as mandated u/s 207 of the Companies Act in view of the directions issued by the Company''s Financial Institutions and in that regard, he also brought to my notice the letters addressed by (1) SICOM Limited dated 23-9-1996 and (2) EXIM Bank Limited dated 18-11-1996 addressed to the 1st petitioner company wherein the said financial institutions have categorically requested the company not to declare or pay the dividends unless the overdues under the loan are liquidated. Learned counsel for the petitioners therefore submits that the petitioners could not pay the dividends in time in view of the said letters only and that the non-payment by the company is protected under Clause (e) of the proviso to Section 207 of the Companies Act.

Heard the learned Central Government Standing Counsel.

In the light of the said submission, I have gone through the complaint filed by the Registrar of Companies as well as the provisions of Section 207 of the Companies Act. It is an undisputed fact that the company declared dividends and did not pay the same to the shareholders within the period of 42 days as mandated u/s 207 of the Act. Clause (e) of proviso to Section 207 says that it is not an offence if the failure to pay the dividend within the period stipulated was not due to any default on the part of the company and the same is for some other reason. In the light of the said provision, it cannot be said that the company has voluntarily failed to pay the dividend within the stipulated period of 42 days and the said non-payment is only in view of the categorical request of the financial institutions--SICOM Ltd. and EXIM-Bank. Therefore, I am in agreement with the contention raised by the learned counsel for the petitioners that the protection as envisaged under clause (e) of the proviso to Section 207 of the Companies Act is very much applicable to the petitioners'' company. In view of the above discussion, I have no hesitation to hold that the continuance of the proceedings against the petitioners in S.T.C. No.21 of 1998 is nothing but an abuse of the process of the court.

Accordingly, the criminal petition is allowed and the proceedings in S.T.C. No.21 of 1998 on the file of the Court of Special Judge for Economic Offences, Hyderabad, are hereby quashed.