S. Santhosh v. The Assistant Registrar of Companies Shastri Bhavan Chennai-600 006

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 22 -2-2011CORAMTHE HONOURABLE MR. JUSTICE G.M. AKBAR ALICRL.O.P.No.6441 of 2010and MP.No.1 of 2010 1. S. Santhosh2. V.S. Navin Sushant ... Petitioners vsThe Assistant Registrar of CompaniesShastri BhavanChennai-600 006 ... RespondentCriminal Original Petition filed under Section 482 Cr.P.C.for the reliefs as stated therein.For petitioners : Mr.Aravind P. Datar, Senior Counsel for Mr.S.P. MuralikrishnanFor Respondent: Mr.M. Devendran Sr. Panel Counsel for Central Govt., ORDERBy consent, the matter is taken up for final hearing.2. The petition is filed seeking a direction to call forthe records in E.O.C.C.No.91/09 on the file of the learnedAdditional Chief Metropolitan Magistrate's Court (Economic Offence-1), Egmore, Chennai-600 008 and quash the same.3. The 1st petitioner is the Managing Director and the 2ndpetitioner is the Company Secretary of one M/S.California SoftwareCompany Limited. The said Company was inspected by an authorisedOfficer of the respondent. It was observed that during the year1999-2000, the Company had advanced an interest free loan of Rs.2crores to California Software Employees Trust, to enable the trustto purchase Rs.4,00,000/- equity shares of the Company and furtherissued shares to selected employees of the Company under itsEmployees Stock Offer plan (ESOP). The Company was asked to furnishthe names and addresses of the members of the above said trust andalso to furnish the complete address of the trust and names and https://hcservices.ecourts.gov.in/hcservices/ addresses of the trustees. Further the company was asked to stateas to how much has been so far recovered from the trust. If not,to furnish the reasons for the same. Above information called forby the Inspecting Officer was not furnished by the Company and itsDirectors/Officers/employees which is a contravention under Section209A (2) of the Companies Act, 1956 (herein after referred as Act).4. Indisputably, it is the duty ofDirectors/Officers/employees of the Company to furnish theinformation relating to the affairs of the company as theInspecting Officer may require. 5. Failure to furnish information as called for by theInspecting Officer is an offence under Sec.209A (1)(2) of theCompanies Act and liable for punishment under Sec.209A (8) of theAct. Therefore, the respondent has initiated proceedings before thelearned Additional.C.M.M. Economic Offences. 6. The learned Addl.C.M.M took cognizance of the case inEOCC No.91 of 2009 and issued process to the petitioners.Aggrieved by which, the petitioners are before this Court to quashthe proceedings on the following grounds:a) that the Company hadfurnished all the informationrelating to California SoftwareEmployees Welfare Trust vide theirletter dated 30.10.2006.b) the prosecution is barredby limitation c) "the books of accountand other books and papers of thecompany" as mentioned in section209A of the Act do not include thedocuments under the custody of thetrust.7. Mr.Arvind Datar, learned senior counsel appearing forthe petitioners would submit that the inspection of records anddocuments of the Company was carried out by the Regional Director,Department of Company Affairs on 25.5.2006, a letter was receivedfrom the Deputy Director, Inspection, Ministry of Company Affairson 10.10.2006 and a reply was sent on 30.10.2006 furnishing theparticulars called for. The learned senior counsel furthersubmitted that after 18 months, another show cause notice wasissued by the respondent on 11.1.2008 and a reply was sent on12.2.2008 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 underSec.209A (8) is punishable with fine and imprisonment for a termnot exceeding one year and therefore, the period of limitation isonly one year and the prosecution is barred by limitation. Thelearned Senior counsel submitted that the respondent has called for https://hcservices.ecourts.gov.in/hcservices/ information relating to loan advanced to the welfare trust anddirected the Company to furnish certain particulars which waspromptly furnished by the letter dated 10.10.2006. The learnedcounsel further submitted that the same information was called forby the show cause notice dated 11.1.2008 for which a reply was sentexplaining the amount recovered from the trust. Therefore,initiation of prosecution itself is mis-conceived and liable to bequashed. The learned counsel further submitted that the books ofaccount and other books do not include the books of account of thetrust which is an independent body.8. The learned counsel relied on the following decisions:1972 Company Cases (42)Madras 596 (K. Kanagasabapathy vsT.M. Shanmugham1986 Company Cases (60)Madras 889 (State vs S. SeshamalPandia and Others) 9. On the contrary, Mr.Devendran, learned counsel for therespondent would submit that the Company was directed to furnishnot only the names and addresses of the trustees but also theaccounts relating to amount advanced and the amount recovered fromthe trust and the Company has not furnished books of accounts ascontemplated under Sec.209-A (2) of the Act. The learned counselsubmitted that on issuance of show cause notice dated 11.1.2008 theproceeding has been initiated on 29.2.2008. Therefore, theproceedings are not barred by limitation.10. Heard both sides and perused the materials availableon record.11. It is not in dispute that an inspection of records anddocuments of the company were carried out on 25.5.2006 and on10.10.2006 a letter was sent by the respondents calling for certainparticulars. A query was raised in paragraph 20 of this letterwhich is as follows:"20. During the year 1999-2000, theCompany had advanced an interestfree loan of Rs.2 crores toCalifornia Software EmployeesWelfare Trust to enable the trust topurchase 4 lacs equity shares of theCompany for further issue toselected employees of the Companyunder its Employee Stock Offer Plan(ESOP). Please furnish the names andaddresses of the Members of theabovesaid Trust. Please also furnishcomplete address of the Trust andnames and addresses of the Trustee.Please also state as to how much has https://hcservices.ecourts.gov.in/hcservices/ been so far recovered from theTrust."12. A reply was sent on 30.10.2006 furnishing theparticulars and in paragraph 20 of this letter is as follows;"20. The Company has recovered a sumof Rs.1,73,95,000 leaving a balance ofRs.26,05,000. The following are themembers and trustees of the trust: 1.Ms.Nirmala Natraj2.Ms.T. AjanthaThe address of the trust is as underCalifornia Software Employees' WelfareTrustT.S.140, Block 2 & 9,Elnet Software CityTaramani, Chennai-600 11313. However, a show caused notice was issued on 11.1.2008which reads as follows:"Whereas during the year 1999-2000the Company had advanced aninterest free loan of Rs.2 Croresto California Software EmployeesWelfare Trust to enable the trustto purchase 4 lakh equity shares ofthe Company for further issued toselected employees of the companyunder its Employees Stock OfferPlan (ESOP). The Company was askedto furnish the names and addressesof the members of the above saidtrust and also to furnish thecomplete address of the trust andnames and addresses of the trustee.Further the company was asked tostate as to how much has been sofar recovered from the trust. Ifnot to furnish the reasons for thesame. Whereas the details calledfor from the company as providedu/s 209-A(2) but the Company hasnot given the particulars.14. A reply was sent on 12.2.2008. However, in this letteran explanation was given only to the query of item no.10 of theletter dated 10.10.2006. The subject matter of the proceeding isitem no.20 which relates to the trust. However, only on 14.3.2008the Company has sent an explanation for the query raised in theshow cause notice dated 11.1.2008. https://hcservices.ecourts.gov.in/hcservices/

15. According to the respondent, show cause notice wasissued on 11.1.2008 stating that the company was asked to furnishcertain particulars and such particulars were not given therebyviolating the provisions of the Act and the company was called forto show cause within ten days why prosecution should not belaunched for such contravention. Unfortunately, the reply dated12.2.2008 did not reflect their explanation as called for in theshow cause notice. The prosecution was launched on 29.2.2008.16. 1972 Company Cases (42) Madras 596 (K. Kanagasabapathyvs T.M. Shanmugham this court held as follows:"It is true that while the court isentitled to look at the headings in anAct of Parliament to resolve any doubt,the law is quite clear that you cannotuse such headings to give a differenteffect to clear words in the sectionwhere there cannot be any doubt as totheir ordinary meaning. In my view, itwould be dangerous to construe thewords "other books and papers" toembrace every scrap of paper in theoffice of the company, whether it is inthe nature of a book of account or not.The sub-heading to Section 209 of theCompanies Act is "Books to be kept byCompany and penalty for not keepingproper books". This sub-headingemphasises the fact that the words"proper books" have a restrictedmeaning and refer only to books in thenature of accounts...."It is, therefore, clear thatthe object of the amendment was tocover not only books of account,strictly so-called, but also booksshowing such particulars relating toutilisation of material or labour or toother items of cost as may beprescribed in the case of companiesengaged in production, processing,manufacturing or mining activities,within the meaning of section 209(1)(d)of the Companies Act. Clause (d) ofSection 209(1) itself was inserved bySection 20 of the Companies (Amendment)Act, 1965 and it was to cover therecords relating to the particularsmentioned in clause (d) that theexpression, "other books and papers"appears to have been used". https://hcservices.ecourts.gov.in/hcservices/

17. In my considered view, the decision relied on bythe learned senior counsel for the petitioners is not relevant. Theissue of "books of accounts and other books and papers of theCompany" need not be gone into as the prosecution is not in respectof the non production of the same, but non furnishing of therelevant information.18. In 1986 Company Cases (60) Madras 889 (State vs S.Seshamal Pandia and Others) , this Court held as follows:"Held, that the notice callingupon the directors to rectifythe omissions and submit areport was issued on August 23,1975, and on the failure of thedirectors to comply with therequirement within the periodprescribed in the said notice,the offence should be taken tohave been committed andlimitation would start from thatdate. As the complaint in theinstant case was admittedlyfiled after the period of oneyear from the expiry of timegranted by the said notice datedAugust 23, 1975, the Magistratewas right in his view that thecomplaint was barred bylimitation."19. According to the Company, they have furnished theparticulars in the reply dated 30.10.2006 and also by their letterdated 14.3.2008. There is no dispute of non production of books ofaccounts or any other information. According to the respondent,the information called for was not furnished. The informationrelates to the names and addresses of the members of the trust andthe amount advanced and recovered from the trust. Obviously,paragraph-20 of the reply dated dated 30.10.2006 reflects theseinformation.20. However, for a show cause notice dated 11.1.2008, thereply dated 12.2.2008 does not reflect any explanation. The companyought to have replied within ten days from the date of receipt ofthis show cause notice. Even according to them, this show causenotice was received on 22.1.2008. The reply was sent on 12.2.2008which did not contain the explanation and a re-joinder was sent on14.3.2008 which contains the explanation. Therefore the questionbefore this Court is, (i) whether the information which hasalready been furnished satisfies the requirement of section 209A(2)of the Act (ii) whether the initiation of the prosecution is barredby limitation? https://hcservices.ecourts.gov.in/hcservices/

21. As already stated, for a query raised in paragraph 20of the letter dated 10.10.2006, information has already beenfurnished by reply dated 30.10.2006. The information called for wasto furnish the complete address of the trust and names andaddresses of the trustees and the amount recovered from the trust.The reply clearly indicates the amount recovered from the trust andthe outstanding and also the names and addresses of the trust andtrustee. That being so, this Court fails to understand why a showcause notice was issued on 11.1.2008 that too, after 18 months,stating that the same was not furnished. The failure to replywithin 10 days from the date of receipt of show cause notice itselfwill not constitute an offence. Even assuming, the company hasfailed to furnish the information the limitation for initiation ofprosecution is one year. In the complaint, it is stated that theoffence is not barred by limitation under Sec.468, 469 and 470 ofCr.P.C and it is a continuing offence. 22. In similar circumstances, this Court in 1986 CompanyCases (60) Madras 889 (State vs S. Seshamal Pandia and Others)( cited supra) held, "Under Section 162of the Companies Act, a daily fine ofRs.50 is prescribed for every day'sdefault, whereas in this case underSection 209A(2) of the CompaniesAct, a minimum sentence of fine ofRs.5,000 is provided....."Therefore, when the offence is not acontinuing one, it has to be taken that theoffence has taken place on the particulardate on which it was committed and notsubsequent to the same and the period oflim initiation cannot be extended by theprosecution as they choose".23. The facts that came up for consideration in the abovesaid decision is also similar to the case on hand. In that case, aninspection was carried out on 15,17 and 19.3.1975. A notice wassent to the Directors of the Company on 23.8.1975 pointing out theomissions and calling upon the Directors to rectify the omissionsand submit a report. Several letters were exchanged and finalnotice was issued on 29.12.1976 to submit a report within 15 days.The Directors did not comply with the final notice. The prosecutionwas launched on 10.8.1977. The question before the Court waswhether the limitation starts from the final notice dated29.12.1976 or from 23.8.1975. The court held that "Therefore, if the directors did not comply with the demand withinthe period prescribed in the first notice, exhibit P-1, the offencemust be deemed to have been committed and, therefore, limitationwould start only from that date". https://hcservices.ecourts.gov.in/hcservices/

24. The facts and circumstances of this case squarelyapplies to the present case. The first notice was issued on10.10.2006 calling upon information under Sec.209A of the Act.Though a reply was sent on 30.10.2006, the respondent was notsatisfied with the information furnished and had chosen to issueshow cause notice only on 11.1.2008 and has initiated theprosecution only on 29.2.2008. But the offence is deemed to havebeen committed only on the failure to furnish the information forthe first notice dated 10.10.2006. Therefore, the cognizance ofthe offence is barred by limitation, which calls for aninterference by exercising power under Sec.482 Cr.P.C.25. When certain information is called for under Sec.209Aof the Act, the Company is bound to furnish those information andproduce "books of accounts and other papers of the Company" ifcalled for. If the Registrar of the Companies is not satisfiedwith the information, it is the duty of the authority to specifythat the information so furnished is not in compliance with theprovisions under Sec.209A(2) of the Act and may provide sufficienttime to rectify the omissions. Only thereafter the failure tocomply with such direction will only attract the provisions of 209A(2) of the Act.26. Therefore, in the present case, the company hasfurnished the information as called for and the respondent has notstated as to how the information is not satisfactory.27. Therefore, under these circumstances, I am of theconsidered opinion that the jurisdiction under Sec.482 Cr.P.c is tobe exercised to quash the proceedings in E.O.C.C.No.91/09 on thefile of the learned Additional Chief Metropolitan Magistrate'sCourt (Economic Offence-1), Egmore, Chennai-600 008. 28. Accordingly, the criminal original petition is allowedand the proceedings in E.O.C.C.No.91/09 on the file of the learnedAdditional Chief Metropolitan Magistrate's Court (Economic Offence-1), Egmore, Chennai-600 008 is hereby quashed.Sd/Asst.Registrar/true copy/Sub Asst.RegistrarsrTo1. The Additional Chief Metropolitan Magistrate's Court (Economic Offence-1), Egmore, Chennai-600 008 https://hcservices.ecourts.gov.in/hcservices/

2. -Do- Through The Chief Metropolitan Magistrate, Egmore, Chennai-600 0083. The Assistant Registrar of Companies, Shastri Bhavan, Chennai-600 0062 ccs To Mr.S.P.Muralikrishnan, Advocate, SR.126751 cc To Mr.M.Devendran, Advocate, SR.12885 Order in Crl.O.P.No.6441 of 2010JRG (CO)RH (14.3.11)