2000-(001)-CLJ -0249 -RAJ Companies Act Judgements

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2000-(001)-CLJ -0249 -RAJ

HERDILLIA AND OTHERS v. MS. APARAJITA CHAUHAN.

S.B. Criminal Misc. Petition No. 827 of 1998, decided on May 21, 1999.

IN THE HIGH COURT OF RAJASTHAN

MAHENDRA SINGH, Advocate, for the petitioner.

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P. K. KHAITAN, Advocate, for the respondent.

JUDGMENT

P. K. TEWARI, J. – This petition under section 482 Cr PC has been filed to set aside the order, dated 2.5.1998 and to quash the criminal complaint and proceeding pending against the petitioners in the Court of Special Judicial Magistrate (Economic Offence) Rajasthan, Jaipur.

2. In short, the facts of the case are that the respondent had submitted a joint application along with her sister, Ashiya Chouhan, seeking allotment of 200-200 shares each and for that purpose, the required amount was remitted by cheque. They were allotted 100 shares each. According to respondent, the company failed to deliver the share certificates till filing of the complaint whereas the company was required to deliver the shares within three months from the date of allotment by registered post at the registered address of the applicant. Therefore, a complaint was filed in the Court of Special Judicial Magistrate (Economic Offences), Rajasthan, Jaipur against the present petitioner and others. The learned Magistrate, after recording the statement under sections 200 and 202 Cr PC, took cognizance for the offence under section 113 (2) of the Companies Act, 1956, against the present petitioners.

3. A petition under section 482 Cr PC was filed by the petitioners before this court for quashing the criminal proceedings pending before the Special Judicial Magistrate which was dismissed with the observation that the accused should approach the trial court with a proper application in view of the apex court judgment in the case K. M. Mathew v. State of Kerala AIR 1992 SC 2206. In compliance of the aforesaid direction of this court. The petitioners submitted an application under the section 203 CPC for reconsideration of the matter, but that application has been dismissed by the Special Magistrate vide, its order, dated 2.5.1998. Therefore, this petition under section 482 Cr PC has been filed in this court.

4. The learned counsel submitted that the share certificate along with the refund of the balance amount were sent to the complainant respondent by registered post; but on account of lapse on the part of Post and Telegraph Department, the complainant-respondent did not receive the aforesaid share certificate and refund amount. The complainant submitted an application in the prescribed form for issuance of duplicate certificates along with the indemnity bond on 3.8.1993. After observing procedural formalities, duplicate certificates were sent by registered post to the respondent, but just to pressurise the directors of the company, this criminal complaint has been filed concealing the true facts; no offence under section 113 (2) of the Companies Act is made out. He has also submitted on the basis of pronouncement of apex court in the case Hanuman Prasad Gupta v. Hira Lal (1970) 2 Comp LJ 195 (SC) : AIR 1971 SC 211 that as per statutory prospectus which was issued by the petitioner company for commencement of the public issue in response to which the complainant had submitted her application for the allotment of shares, the letters of allotment and share certificates for equity shares and debentures, etc., were to be despatched by registered post at the applicant’s sole risk. the registered office of the petitioner company is situated at Mumbai. Section 113 read a with section 53 of the Companies Act makes it clear that it is permissible for a company to discharge its obligation by sending the share certificates, debentures, etc., through registered post. As the registered office of the company is situated at Mumbai, the Special Judicial Magistrate, Jaipur, has no territorial jurisdiction to try the case. Only the courts located at Mumbai had jurisdiction to entertain criminal complaint for the offence under section 113 of the Companies Act. It has also been submitted that no complaint can be filed against the company and its Chairman as the company had appointed a Registrar ‘to the issue’ to handle all procedures and formalities in the, matter of processing of applications and despatching of allotment letters, share certificates, refund order, etc., will be sent at the sole risk of applicant. The complaint has been filed after a lapse of 4-5 years. Therefore, it is time barred. The learned counsel has submitted that the present proceedings in criminal court amounts to abuse of the process of the court, therefore, this petition should be allowed and the complaint and the proceedings in the court of Special Judicial Magistrate be quashed.

5. On the other hand, the learned counsel appearing for the respondent has submitted that the complainant did not receive the share certificates and the refund within the stipulated period, therefore, offence under section 113 (2) is made out against company and its Chairman. He has also contended that the aforesaid judgment of the Supreme Court is not applicable in the present case, because that was in connection with the payment of dividend under section 207 a of the Companies Act. Offence under section 113 is a continuing offence. Therefore, it cannot be said that the complaint is time barred. The learned Magistrate has jurisdiction to take cognizance for the offence under section 113 of the Companies Act at Jaipur and the learned

Magistrate has rightly taken cognizance of the offence against the present petitioners.

6. I have perused the order passed by the learned Special Judicial Magistrate and the record available. Before deciding the point raised by the petitioner, it would be proper to quote observations made by the apex court in regard to the powers under section 482 CPC. The apex court in the case Roopan D Bajaj v. Kanwar Pal Singh Gill (1995) 6 SCC 194 has observed as under :

“We also give a note of caution to the effect that the power of quashing a criminal proceeding should be exercised very sparingly and with circumspection and that too in the rarest of rare cases; that the court will not be justified in embarking upon an enquiry as to the reliability or genuineness or otherwise of the allegations made in the FIR or the complaint and that the extraordinary or inherent powers do not confer an arbitrary jurisdiction on the court to act according to its whim or caprice.”

7. It would be useful to reproduce the relevant provisions of the Companies Act which are required for the disposal of this petition. Section 113, section 53 and section 207 are reproduced are as under :

[Section 113]

“113. Limitation of time for issue of certificates. – (1) Every company, unless prohibited by any provision of law or of any order of any court, tribunal or other, authority, shall, within three months after the allotment of any of its shares, debentures or debenture stock, and with two months after the application for the registration of the transfer of any such shares, debentures or debenture stock, deliver, in accordance with the procedure laid down in section 53, the certificates of all shares, debentures and certificates of debenture stocks allotted or transferred : …

(2) If default is made in complying with sub-section (1), the company, and every officer of the company who is in default, shall be punishable with fine which way extend to five hundred rupees for every day during which the default continues.

(3) If any company on which a notice has been served requiring it to make good any default in complying with the provisions of sub-section (1), failed to make good the default within ten days after the service of the notice, the company may, on the application of the person entitled to have the certificates or the debentures delivered to him, make an order directing the company and any officer of the company to make good the default within such time as may be specified in the order; and any such order may provide that all costs of and incidental to the application shall be borne by the company or by any officer of the company responsible for the default.

[Section 53]

“53. Service of documents on members by company. – (1) A document may be served by a company on any member thereof either personally or by sending it by post to him to his registered address, or if he has no registered address in India, to the address, if any, within India supplied by him to the company for the giving of notice to him.

(2) Where a document is sent by post, –

(a) service thereof shall be deemed to be effected by properly addressing, prepaying and posting a letter containing the document, provided that where a member has intimated to the company in advance that documents should be sent to him under a certificate of posting or by registered post with or without acknowledgement due and has deposited with the company a sum sufficient to defray the expenses of doing so, service of the document shall not be deemed to be effected unless it is sent in the manner intimated by the member; and

(b) such service shall be deemed to have been effected –

(i) in the case of a notice of a meeting, at the expiration of forty eight hours after the letter containing the same is posted, and

(ii) in any other case, at the time at which the letter would be delivered in the ordinary course of post.

(3) A document advertised in a newspaper circulating in the neighbourhood of the registered office of the company shall be deemed to be duly served on the day on which the advertisement appears, on every member of the company who has no registered address in India and has not supplied to the company an address within India for the giving of notices to him.

(4) A document may be served by the company on the joint holders of a share by serving it on the joint holder named first in the register in respect of the share.

(5) A document may be served by the company on the persons entitled to a share in consequence of the death or insolvency of a member by sending it through the post in prepaid letter addressed to them by name or by the title of representatives of the deceased, or assignees of the insolvent, or by any like description, at the address, if any, in India supplied for the purpose by the persons claiming to be so entitled, or until such an address has been so supplied by serving the document in any manner in which it might have been served if the death or insolvency had not occurred.

[Section 207]

“207. Penalty for failure to distribute dividends within forty two days. Where a dividend has been declared by a company, but it has not been paid, or the warrant in respect thereof has not been posted, within forty two days from the date of the declaration, to any shareholder entitled to the payment of the dividend, every director of the company shall, if he is knowingly a party to the default, be punishable with simple imprisonment for a term which may extend to seven days and shall also be liable to fine :

Provided that no offence shall be deemed to have been committed within the meaning of the foregoing provisions in the following cases, namely :

(a) where the dividend could not be paid by reason of the operation of any law

(b) where a shareholder has given directions to the company regarding the payment of the dividend and those directions cannot be complied with;

(c) where there is dispute regarding the right to receive the dividend;

(d) Where the dividend has been lawfully adjusted by the company against any sum due to it from the shareholder; or

(e) where, for any other reason, the failure to pay the dividend or to post the warrant within the period aforesaid was not due to any default on the part of the company.

8. First of all, it would be proper to decide whether Special Judicial Magistrate is competent to take cognizance of the offence against the present petitioners for the offence under section 113 (2) of the Companies Act. As stated earlier, according to learned counsel for the petitioner, the courts located at Mumbai only has jurisdiction to entertain the complaints against the company or its officers for the offence under section 113 (2) because the registered office of the company is situated at Mumbai, on the basis of the judgment of the Supreme Court Hanuman Prasad Gupta v. Hira Lal (1970) 2 Comp LJ 195 (SC): AIR 1971 SC 211. It has been observed by Hon’ble Supreme Court as follows (at page 197 of Comp LJ)

“Section 207 casts an obligation on the company to pay the dividend which is declared to the shareholder entitled thereto within 42 days from its declaration. The offence under the section takes place when there is failure to pay or a cheque or warrant is, not posted to the registered address of the shareholder ….. The section makes the failure to post within the prescribed period and not the non-receipt of the warrant by the shareholder an offence. Therefore, the obligation to pay within the prescribed period is satisfied once the dividend is paid or a cheque or a warrant, is posted at the registered address of the shareholder.”

9. But section 113 casts obligation upon the company within three months after the allotment of any of its shares, debenture or debenture stock, and within two months after the application for, the registration of the transfer of any such shares, debentures or debenture stock, deliver in accordance with the procedure laid down in section 53, the certificates of all shares, debentures, and certificates of debenture stocks allotted or transferred.

10. Therefore, in my opinion, aforesaid judgment is not applicable in the present case, because the provisions of section 113 and section 207 of the Companies Act are rodu different.

11. The learned counsel appearing on behalf of the respondent has cited the following judgments in support of his contention that the Special Judicial Magistrate at Jaipur has jurisdiction to take cognizance for [of] the offence under section 113 (2) against the present Ac petitioners, though the head office of the company is situated at Mumbai. In the case Vatsa Industries Ltd. v. Shankerial Saraf and others (1996) 4 Comp LJ 253 (SC) : AIR 1996 SC 918, Hon’ble Supreme Court has held as under (at page 254 of Comp LJ) :

“Proceeding were filed in consumer forum, and magistrate’s courts in various States against the petitioner company in respect of forfeiture of shares, the company in a transfer petition sought transfer of all the proceedings to one single court. It was held that transfer of proceedings in various States to one single court would cause hardship and unavoidable expenses to the respondents, permitted the company to move the respective High Courts to have the cases within each State transferred to a single court within the State, to minimise the hardship.”

12. It was held by this court in the case Ranbaxy Laboratories Ltd. v. Smt. Indra Kala (1997) 2 Comp LJ 61 (Raj) : (1997) 88 Comp Cas 323 (Raj) as follows (headnote of Comp Cas) :

“The petitioner company had its registered office in Punjab and its corporate office in Delhi. The respondent filed a complaint against the company, its managing director and three others in the Special Magistrate’s court at Jaipur, alleging that she had purchased 200 shares in the company from three shareholders and had duly sent such shares to the head office of the petitioner company for registration of the transfer in its books, but despite repeated requests, reminders and efforts made by the respondents, the petitioner company did not register the transfer of the shares in her name. After examining the respondent and her witness, and looking into the documents filed along with the complaint, the Magistrate took cognizance and issued process against the company and its managing director. On a petition to have the Magistrate’s order quashed under section 482 of the Code of Criminal Procedure.

Held, dismissing the petition, (i) that the powers of the court under section 482 of the Criminal Procedure Code are quite limited and extraordinary, and should be exercised with great care and caution in the rarest of rare and exceptional cases only to prevent the abuse of the process of the court or otherwise to secure the ends of justice.

That registration of the transferred share was amongst the duties of the petitioner company in the course of conducting its business according to the provisions of law applicable to its business. Once the petitioner company and the law applicable to its functioning permitted transactions of purchase and sale of its shares throughout the breadth and length of the country for its gain, the interest of the members of the public transacting such business could not be allowed to be defeated in the plea that relief to the aggrieved persons could be granted only at the place where the office of the company was located. Such an approach would frustrate the very purpose of the relevant provisions in the Act and in other allied Acts. The objection that the Magistrate had no jurisdiction was not sustainable.”

13. This court has held in the case Herdilia Unimers Ltd. v. Smt. Renu Jain reported in (1995) 4 Comp LJ 45 (Raj) as under (para 5, 7, 8 and 11 at pages 48 and 49) :

“The designation of a person as Chairman cannot be considered as not falling within the definition of ‘officer who is in default’ in section 5 of the Companies Act, 1956. Unless it is so proved by the memorandum and articles of association of the company and/or by an agreement entered into with him as to what are his duties. Similarly, the question as to whether clauses (a), (b) or (c) of section 5 is applicable so as to exclude the other directors is also to be determined with reference to the documents which may be placed before the trial court Section 113 of the Companies Act, 1956, contemplates delivery of share certificate, etc., within three months after the allotment. Section 53 provides that a document may be served by a company or any member thereof either personally or by sending it by post to him to his registered address. A presumption has been drawn that where a document is sent by post, service thereof shall be deemed to be effected by properly addressing, preparing and posting the letter containing the document. The presumption which has been raised under section 53 is rebuttable and a shareholder may allege that he has not been delivered the share certificate or it is not properly addressed. The document here refers to bulk registered receipt with name of the addressee and post office of destination. From the above document, it is not evident as to whether it was sent to the registered address and/or on the basis of a document which is not complete in itself, it cannot be said that the proceedings are to be

quashed at the stage

…. The moment the shares are allotted and share certificate is signed, and the name is entered in the register maintained for the purpose, the person becomes the shareholder, whether the person receives the share certificate or not. Such a person can file a complaint under section 621 of the Companies Act, 1956 …. Looking to the provisions of section 113 (2) of the Companies Act, 1956, it is clear that the statutory recognition has been given to the default committee under sub-section (1) of section 113 as a continuing one. It is provided that the company and every officer of the company who is in default shall be punishable with fine which may extend to Rs. 500 for every day during which the default continues. The words ‘default continues’ make a declaration of law that it is a continuing offence by the company and, therefore, it cannot be said that the complaint is barred by limitation.”

14. It has been held in the case Mohan P. Wag and another v. State of Rajasthan and another reported in (1998) 1 Comp LJ 103 (Raj) as under (para 5 at page 107) :

“In the present case, though the registered office of the company is situated at Bombay and the accused persons are residing at Bombay and the disputed prospectus was published and printed at Bombay, but the said document was delivered at Jaipur and an offer was invited on the basis of this prospectus at Jaipur. The complainant respondent applied and paid money to the bankers of the accused at Jaipur for allotment of debentures at Jaipur on the basis of the prospectus delivered to her at Jaipur and the debentures were required to be delivered to her at Jaipur as per the terms of action in this case arose at Jaipur and, as per section 179 and 181(4) Cr PC, the trial of the offence of misrepresentation should be taken at the court of Jaipur only and in no other court.”

15. A careful perusal of the above decisions of the Supreme Court and this court show that Special Judicial Magistrate at Jaipur has territorial jurisdiction to take cognizance against the present petitioners for the offence under section 113 (2) of the Companies Act. Whether cognizance against the present petition can be taken or not are to be decided by the trial court.

16. It has also been held in the case Herdilia Unimers Ltd. (1995) 4 Comp LJ 45 (Raj), supra, that ‘offence under section 113 of the Companies Act is a continuing offence’. Whether cognizance against the present petitioner can be taken or not under the present circumstances is a matter to be decided by the trial court considering the material placed before it during trial. It would not be proper for this court to express any opinion on it, at this stage.

17. Therefore, looking to all the controversy raised before me, I am of the view that it is not a fit case in which the powers under section 482 Cr PC be exercised to quash the complaint and proceedings pending in the Court of Special Judicial Magistrate, Rajasthan, Jaipur. This petition is, accordingly, dismissed.

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