CHANDY MATHEW v. NONE

CRL.M.C.349/05-:3:-had received letters from the above shareholdersintimating their decision for not taking the dividend andtherefore the company had claimed that it had notdisbursed the amount under Section 207(b) of the Act. So,According to the complainant, the accused havecommitted the offence alleged against them. It is thecase of the petitioners that no offence under section 207will lie against them in the facts and circumstancesinvolved in the case. It is contended that prior to theamendment to the Companies Act, section 207 was notapplicable for any violation with respect to the interimdividend. It is also contended that, at any rate, thecomplaint is filed out of time and the court below has nojurisdiction to take cognizance upon such belatedcomplaint. Therefore, the petitioners/accused pray thatthe case instituted against them in the court below bequashed.3. I have heard Mr. Joseph Markose, Senior Counselappearing for the petitioners, and the learned Public CRL.M.C.349/05-:4:-Prosecutor.4. Going by the materials available on record,especially as per Annexure A complaint, and Annexure Cdated 12.9.2001, which is a show cause notice relied onby the prosecution, it is evident that the inspectionwas conducted by the Assistant Registrar of companies,Karnataka on 24-8-2001 and the show cause notice wasissued i.e. Annexure C dated 12-9-2001. According to thelearned counsel for the petitioners, Annexure C show causenotice is dated 12-9-2001, hence, the complaint ought tohave been filed on or before 12-9-2002, otherwise, thesame will be barred by limitation under section 468 of theCr.P.C. The learned counsel for the petitioner furthersubmitted that now Annexure A complaint is filed in a courtin the State of Kerala after shifting of the head quarters ofthe company from Karnataka to Kerala and, even if acontention is taken by the authorities in Kerala that theycame to know only subsequently, still then, the complaintis barred by limitation. In this respect, the learned CRL.M.C.349/05-:5:-counsel invited my attention to Annexure-G show causenotice dated 28.2.2003. Since Annexure-G is dated 28-2-2003, according to the counsel, Annexure A complaintought to have been filed on or before 28-2-2004.Admittedly, Annexure A complaint dated 7-7-2004 wasfiled only on 9-7-2004. In this connection the learnedcounsel invited my attention to sections 468 and 469 ofCr.P.C. Section 468(2)(b) is relevant in this case. Nowthe petitioner is called upon to face charge under section207 of the Companies Act as it stood prior to theamendment Act 2000 which came into force with effectfrom 13-12-2000 and thus Section 207 prior toamendment stood as follows:“207. Penalty for failure to distributedividends within forty-two days.- Where adividend has been declared by a companybut has not been paid, or the warrant inrespect thereof has not been posted, within(forty-two days) from the date of thedeclaration, to any shareholders entitled tothe payment of the dividend, every director ofthe company shall, if he is knowingly a partyto the default, be punishable with simpleimprisonment for a term which may extend toseven days and shall also be liable to fine:Provided that no offence shall be CRL.M.C.349/05-:6:-deemed to have been committed within themeaning of the foregoing provision in thefollowing cases, namely:-(a)where the dividend could not bepaid by reason of the operation of any law;(b) where a shareholder has givendirections to the company regarding thepayment of the dividend and those directionscannot be complied with;(c) where there is a dispute regardingthe right to receive the dividend;(d) where the dividend has beenlawfully adjusted by the company against anysum due to it from the shareholder; or(e) where, for any other reason, thefailure to pay the dividend or to post thewarrant within the period aforesaid was notdue to any default on the part of thecompany”.So, on a reading of Sec.207, it can be seen that incontravention of the punishment which can be imposedis simple imprisonment for a term which may extend to 7days and also fine. Therefore, if that be so, as undersection 468(2)(b), one year is the period of limitation forinitiating criminal proceedings. Section 469 Cr.P.C. dealswith the commencement of period of limitation whichsays: CRL.M.C.349/05-:7:-“Sec.469. Commencement of the periodof limitation.(1) The period of limitation, in relationto an offence, shall commence - (a) on the date of the offence; or(b) where the commission ofthe offence was not known to theperson aggrieved by the offence or toany police officer, the first day on whichsuch offence comes to the knowledge ofsuch person or to any police officer,whichever is earlier; or(c ) where it is not known bywhom the offence was committed, thefirst day on which the identity of theoffender is known to the personaggrieved by the offence or to the policeofficer making investigation into theoffence, whichever is earlier.2. In computing the said period, the dayfrom which such period is to be computedshall be excluded”.Under Section 469(1)(a), the limitation period starts fromthe date of the offence. As per section 469(1)(b),limitation period starts from the first day on which the CRL.M.C.349/05-:8:-offence comes to knowledge of such person or policeofficer whichever is earlier. In the present case,admittedly, the offence came into the knowledge of theKarnataka authority on 24-8-2001, the date on which theinspection was conducted. Therefore, if Sec.469(1) ispressed into service, the complaint ought to have beenfiled on or before 24-8-2002. If the period is to bereckoned from the date of Annexure C dated 12-9-2001,the complaint ought to have been filed on or before 12-9-2002. Admittedly, no complaint was lodged by theKarnataka authority. Now Annexure A complaint ispreferred by the Kerala authority and the same was filedonly on 9-7-2004. Annexure G is the show cause noticeissued by the Kerala authority on 28-2-2003. Thereforeeven if a contention is taken that they were not aware ofthe actual date of inspection or the date of issuing firstshow cause notice Annexure-C, by issuing Annexure-Gnotice it is made clear that they also aware of thealleged contravention at least with effect from 28-2- CRL.M.C.349/05-:9:-2003. In such situation, the complaint ought to have beenfiled on 27-2-2004. Annexure A is the certified copy of thecomplaint and on a perusal of the same, nothing isdiscernible as to whether the learned Magistrate hadcondoned the delay occurred in filing the complaint.Going by Annexure A complaint, it is also clear thatnothing stated to explain the delay in filing the complaint. 5. Learned counsel for the petitioner invited myattention to a decision in NEPC India Ltd. v. Registrarof Companies (Mad.) (1999 Company Cases (Vol.97)500). In the above case, one of the issues was whetherthe prosecution was barred by limitation as also, theallegation was the failure to distribute dividend within 42days. In the above decision, the Madras High court hasheld that “ in view of section 468 of the Criminal ProcedureCode, 1973, the complaint under section 207 of the Act ought tobe filed within a period of one year. In one of the cases thecomplaint had been filed more than a year after the date ofissue of the show-cause notice”. So according to Madras CRL.M.C.349/05-:10:-High Court, “prima facie it was clear that the complaint wasbarred by time”. 6. On a further consideration of the matter, it canbe seen that after the amendment to Sec.207 broughtunder the Companies (Amendment) Act 2000 with effectfrom 13-12-2000, it is made clear that the accused onconviction is liable to pay a fine of Rs.1000/- for everyday during which such default continues and thecompany shall be liable to pay simple interest at the rateof 18% per annum during the period for which suchdefaults continues. In this respect it is pertinent to notethat prior to the amendment there was no such provisionsunder section 207. Under the unamended provisions, theonly punishment was simple imprisonment for a termwhich may extend to seven days and also fine. The abovestatutory change assume importance that, though offencewas detected on 24-8-2001 and the first show causenotice, Annexure C was issued on 12-9-2001, Annexure Acomplaint filed only on 9-7-2004. On a reading of the CRL.M.C.349/05-:11:-amended provision of section 207 as well as unamendedprovisions, the Legislature made it as a continuing offencefor the default only after the amendment. Therefore, theprosecution cannot be heard to say that it is a continuingoffence. In the light of the above discussions, I am of theview that Annexure A complaint is barred by limitation byvirtue of Section 468 Cr.P.C. and also when there is noexplanation for the delay, so as to enable the court totake cognizance even on a belated stage.7. It is also pointed out by the learned counselafter inviting my attention to the proviso (1C) to Sec.205(1) of the Companies Act that prior to the amendment,this penal provision was not applicable with respect to theinterim dividend. Sec.205 (1) says:“205. Dividend to be paid only out ofprofits- (1) No dividend shall be declared orpaid by a company for any financial yearexcept out of the profits of the company forthat year arrived at after providing fordepreciation in accordance with theprovisions of sub-section (2) or out of theprofits of the company for any previousfinancial year or years arrived at afterproviding for depreciation in accordancewith those provisions and remaining CRL.M.C.349/05-:12:-undistributed or out of both or out ofmoneys provided by the CentralGovernment or a State Government for thepayment of dividend in pursuance of aguarantee given by that Government”.From a reading of the above provision, it is clear that thesaid provision does not mention about interim dividend. Asthe above provision was applicable during the relevantperiod, no offence will lie against the petitioners. 8. The above position is more clear in the light ofthe new proviso brought to Section 205(1). It is beneficialto quote the new proviso brought to the above section asper the amendment by section 92 of Act 53/2000 whichcame into effect with effect from 13-12-2000 which runsas follows:“(1C) The provisions contained in sections205, 205A, 205C, 206, 206A and 207 shall, asfar as may be, also apply to any interim dividend”.In the present case, as evidenced by Annexure-C showcause notice, what was declared to the shareholders wasinterim dividend for the year 1999. If that be so, the CRL.M.C.349/05-:13:-non disbursement of interim dividend during the year 1999will not be attracted for prosecution in contravention ofSection 207. So also, no prosecution will lie against thepetitioners. 9. However, I am not satisfied with the stand takenby the statutory authorities sticking on the hyper technicalaspect and the lodging of the complaint against thepetitioners. It is an undisputed fact that the petitioners/accused were Directors who were in possession of twoshares each. On a reading of Section 207 itself, it iscrystal clear that those provisions are incorporated with aview to safeguard the interest of the shareholders andthereby to ensure the proper and timely disbursement ofdividends. As borne out from paragraph 4 of thecomplaint, the company has replied that it had receivedletters from the shareholders intimating their decision fornot taking the dividend and therefore the company hadclaimed that it had not disbursed the amount undersection 207(b) of the Act. The statutory authorities, while CRL.M.C.349/05-:14:-discharging their duties, have to apply their mindespecially in the particular facts and circumstancesinvolved in each case before lodging the complaint. Theparticular facts and circumstances involved in the casepersuading me to hold that the first respondent oughtnot have preferred the complaint and as such Annexure Acompliant, even otherwise, will amount to abuse of theprocess of the court.10. In the result, Annexure A complaint andC.C.No.34/2004 instituted and pending and all proceedingsthereon before the Additional Chief Judicial Magistrate'sCourt (Economic Offences), Ernakulam are quashed. TheCrl.M.C. is allowed. No order as to costs.V.K.MOHANAN, JUDGEkvm/- CRL.M.C.349/05-:15:-V.K.MOHANAN, J. No.... Judgment/OrderDated: CRL.M.C.349/05-:16:-