IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 06.04.2010 CORAM THE HONOURABLE MR. JUSTICE C.T.SELVAM CRL.O.P. No.12264 of 2007 and M.P.No.1 of 2007 1.M/s.Oriental Hotels Ltd. represented by its Director Parthasarathy Reddy (died) 2.Ajit Baburao Kerkar 3.Dodla Subbarama Reddy 4.S.B.P.V.Rama Mohana Rao 5.Ranjit Singh Rajput 6.Thiagarajan Natarajan ...Petitioners -Vs- The Registrar of Companies Sastri Bhavan, Haddows Road, Chennai – 600 006. ...Respondent Criminal Original Petition filed under Section 482 of Criminal Procedure Code to call for the records of the complaint dated 23.03.1998 filed by the respondent pending before the learned Additional Chief Metropolitan Magistrate, (E.O.) Egmore, Chennai in E.O.C.C. No.105 of 2001 under Section 204 of the Companies Act read with Section 629 A of the Companies Act and quash the same. For Petitioners : Mrs.Nalini Chidambaram Senior counsel for M/s.Gladys Daniel For Respondent : Mr.M.Dhamotharan O R D E R The petitioners who are accused 1, 2, 4, 9, 11 and 12 in case pending in E.O.C.C.No.105 of 2001 on the file of the learned Additional Chief Metropolitan Magistrate, (E.O.) Egmore, Chennai seek to quash proceedings as against them. https://hcservices.ecourts.gov.in/hcservices/ 2.The substance of the complaint against the petitioners is as follows: "3.Sec.204 prohibits a Company from appointing or employing any Firm or body corporate to or in any office or place of profit under the Company other than the office of a Trustee for the holders of debentures of the Company for a term exceeding 5 years at a time. The same section further provides that the initial appointment or employment may be made for a term not exceeding 10 years with the approval of the Central Government. 4.M/s.Oriental Hotels Limited was incorporated as a Company on 18.9.1970 and the Company was being managed by the Board of Directors constituted from time to time. The books and records of the Company was inspected in the year 1986 and in the course of inspection it was found that the Company was carrying on business of hotelering, catering and such other activities has been and stated in the Memorandum of Association. The inspection also revealed that an agreement dated 22.12.1988 was entered into between the Company and M/s.India Hotels Company Limited to advise on overall matters of policy, supervision and direction as consultants and advisers to the operation of the above named Company for a period of 20 years with effect from 1.7.1988. 5.The Agreement further provided that for performing various services Indian Hotels will be paid 5% of the gross income earned from the operation of the Company (Hotel) as less. 6.The agreement also provided that besides the fees, the above company will also reimburse all reasonable travelling Telephone, Telegraph, Telex and Facsimile subsistence and postal and all other out of pocket expenses incurred by Indian Hotels, by the accused Company. 7.From the various clauses of the said agreement it is seen that Indian Hotels is rendering services not expected to be rendered by consultant and hence Indian Hotels is holding an office or place of profit under the accused company within the meaning of sub-sec.5 of Sec.204 of the Act." 3.Mrs.Nalini Chidambaram, learned Senior counsel appearing for the petitioners would submit as follows: The 1st petitioner, M/s.Oriental Hotels Ltd., now under the management of the Taj Group of Hotels, had executed an agreement with Indian Hotels on 02.02.1971 for operation of hotel to be constructed by it for a period of 15 years commencing from the date of actual occupancy of the hotel by the first paying guest. https://hcservices.ecourts.gov.in/hcservices/ The purpose of the agreement was to help the 1st petitioner in operating the hotel in conformity with standards comparable with those in leading hotels throughout the world and to offer advice and render services related to development and operation of hotels and to supervise and direct the operation of the same. By subsequent agreement dated 16.08.1973, the agreement terms are modified. The Department of Company Affairs (hereinafter referred as DCA) had conducted an inspection under Section 209 A of the Companies Act, 1956 (hereinafter referred as Act) on 31.07.1987 and consequentially had issued notice of such date alleging that Indian hotels had been appointed to an office or place of profit under the 1st petitioner for a term exceeding 5 years without the approval of the Central Government and in violation of Section 204 of the Act. As the notice called for clarification, a clarification was provided informing that the agreement was for providing certain specified services of advisory and consultancy nature which would not attract the provisions of Section 204 of the Act. For over a period of two years, the DCA had not acted or informed the contemplation of any further action. On 22.12.1988, the 1st petitioner entered into a fresh agreement with effect from 01.07.1988 for period of 20 years with Indian hotels under which Indian hotels was required to render all kinds of services and advise in over all matters of policy, supervise and direct as consultants and advisors of the operation of Taj Coromandel Hotel at Chennai. The fees payable to Indian hotels was fixed at 5% of the gross income earned from the operation of hotel, besides reimbursement of reasonable expenses. 4.On 02.03.1990, after a gap of more than two years, the DCA had sought clarification on whether earlier agreement, meaning the agreement pursuant to which the DCA issued notice on 31.07.1987, had been extended or whether a fresh agreement had been entered into between the two hotels. Upon the 1st petitioner informing that a fresh agreement for consultancy and advisory services had been entered into with Indian hotels for a period of 20 years with effect from 01.07.1988, the DCA had issued show cause notice as to why prosecution under Section 204(1) r/w.629-A of the Act should not be launched. The DCA placed a reading upon the agreement dated 22.12.1988 to the effect that the various clauses in the agreement shows Indian hotels are rendering services not expected of a consultant, but that Indian hotels are holding an office or place of profit. The petitioners have then contended as follows: " i.On expiry of the earlier agreement dated 02.02.1971, in keeping with the view taken by DCA in 1987, a fresh agreement was entered into to ensure the scope is within technical consultancy and advisory services. ii.A comparison of the earlier agreement with the present one reveals that the nature of the specialized technical https://hcservices.ecourts.gov.in/hcservices/ and consultation services do not attract S.204. The 1st Petitioner was led to believe that the earlier agreement did not contravene the provisions of S.204(1) and it is only therefore that the agreement dated 22.12.198 was entered into. iii.Since DCA had carefully examined the same issue in 1987 and had come to the conclusion that S.204 is not attracted, any criminal proceedings will not be a bona fide exercise of power. iv.S.204(2) lays downs a clear exception in the case of employment as technicians or consultants from the application of S.204(5). v.Since 'technicians' and 'consultants' are not defined in the Companies Act, a reading of S.10(6)(vii)(b) of the Income Tax Act, 1961 along with the definition of 'consultant' in Cf. Pocock v. A.D.A.C. Ltd 1952 1 All ER 294 (KBD) and the clarification issued vide. SO 803 (E) by the CBDT to S.10(6)(vii)(a) it is apparent that personnel employed in the field of culinary art are deemed to be technicians. vi.The 1988 agreement is purely for receiving technical services, advice and consultation for running hotel in line with other international deluxe hotels in the world and the same involves intricate technical aspects which requires technical advice on matters of detail such as the design of room lobbies, function areas like modern kitchen, banqueting kitchens, health club fitness centre, etc. Since Indian Hotels has acquired highly sophisticated skills and expertise over a period of 90 years, their personnel are trained in various countries, fields and are most qualified in providing technical know-how, services and consultation for running the hotel efficiently and profitably. vii.Article VII of the 1981 agreement states that remuneration payable for the services rendered by the consultants and advisors is termed as consultation fee. 5.The petitioners moved C.P.No.72 of 1990 on 19.09.1990 before this Court for relief under Section 633 of the Act against proceedings apprehended in respect of liability arising out of alleged contravention of Section 204(1) of the Act. Interim stay was granted therein and was in force till 09.12.1996 on which date C.P.No.72 of 1990 was dismissed as withdrawn. The complainant had then preferred the complaint presently under challenge on 23.03.1998. 6.The petitioners have challenged the condonation of delay of 16 months which had been sought under Section 473 Cr.P.C while filing the complaint and on their objections being brushed aside, https://hcservices.ecourts.gov.in/hcservices/ the petitioners moved Crl.R.C.No.551 of 2001 before this Court which also came to be dismissed. After seeking relief under Sections 203 and 204(1) Cr.P.C and also by way of criminal revision, the present petition is now before this Court for consideration. 7.Towards canvassing the position that the agreement dated 22.12.1988 did not create any office or place of profit in Indian hotels but was merely a consultancy agreement for services, learned Senior counsel referred the Court to the relevant clauses in the agreement and submitted: "A cursory glance at Article II of the Agreement dated 22.12.1988 clarifies the intention of the parties to the contract, the nature of obligation created and the scope of services to be rendered by Indian Hotels to the 1st Petitioner. Article II of the Agreement dated 22.12.1988 at Page 7 of the Agreement reads as follows: " CONSULTANCY SERVICES Nothing herein contained shall constitute or be deemed to constitute the Consultants and Advisors, (as) Managing Agents or Managers of the Company or to authorize or entitle them to manage or to permit them to assume management of the whole or substantially the whole of the business and affairs of the Company, it being distinctly understood that the Consultants and Advisors, shall in consideration of payments hereinafter provided for, render consultancy and advisory services to the company only in regard to the matters hereinafter set out" Similarly Article III at Page 8 of the Agreement lays down that the 1st Petitioner appoints and engages as Consultants and Advisors to advise, and subject to the approval of the Board of Directors, to supervise and direct as consultants in overall matters of policy. Article V of the Agreement at Page 10 makes it all the more evident that the role of Indian Hotels is not to run the hotel, but to assist and advise the 1st Petitioner in all matters relating to the successful operation of the hotel. Article VI which lays down the overall scope of the Consultancy and Advisory Agreement lists the various departments/activities/ matters pertaining to the operation of the 1st Petitioner hotel for which the consultation and advice of Indian Hotels is required. Article VII contemplates the payment of consultation fees for the services rendered under the Agreement. When the Agreement does not fall within the meaning of 'office of profit' in S.204, the appointment of Indian https://hcservices.ecourts.gov.in/hcservices/ Hotels for Consultancy and Advisory Services in Agreement dated 22.12.1988 cannot be deemed to constitute an 'office or place of profit' merely because the Agreement contemplates the payment of consultation fees. Moreover, it is stated that Section 6 under Article XVI of the Agreement contemplates the right of Indian Hotels to terminate the Consultancy and Advisory Services Agreement. If the 1st Petitioner enters into any agreement which will affect the operation of the hotel without prior written approval of Indian Hotels, Indian Hotels shall have the right to terminate the agreement. Therefore in the present agreement, Indian Hotels who is alleged to be holding an office of profit, has the right to restrict the 1st Petitioner from entering into third party agreements. It is submitted that it is totally uncharacteristic of any known form of employment contract or contract to occupy an office of profit to give the employee or office- holder the right to restrict the rights of the employers from entering into third party contracts. On the contrary, it is the employee's right to enter into third party agreements that is curbed by a contract of employment." 8.Thus, having impressed upon this Court that what was contemplated under the agreement dated 22.12.1988 was only an agreement for consultancy services and could not by any stretch of imagination be read as one of office of profit held by Indian hotels, the learned Senior counsel referred to Section 204(2) of the Act which was in force till 12.12.2000. Sub-clause 2 of Section 204 of the Act has been deleted only from 13.12.2000. The same reads as follows: "(2) Sub-section (1) shall not apply to the appointment or employment of a firm or body corporate as a technician or a consultant, - (i)unless the firm or body corporate aforesaid is already the managing agent or secretaries and treasurers of the company; or (ii)unless a partner in the firm aforesaid, or a director or member of the body corporate aforesaid being a private company, or a director of the body corporate aforesaid not being a private company, is - already the managing agent of the company; or a member of the firm, a director or member of the private company, or a director of the body corporate not being a private company, which firm, private company or body corporate is already the managing agent or the secretaries and treasurers of the company." Thus, as on the date of the agreement i.e., 22.12.1988, it was open to the 1st petitioner to enter upon an agreement for https://hcservices.ecourts.gov.in/hcservices/ consultancy services and that is what had been done by the 1st petitioner. The disqualifications mentioned in provision to Section 204(2) of the Act are not so much as alleged in the complaint. Urging the above, the learned Senior counsel would state that this is a fit case where this Court would exercise its inherent power to quash a criminal proceeding which wrongly had been launched. 9.Mr.M.Dhamotharan, learned counsel appearing for the respondent would submit that requisite permission has not been obtained by the 1st petitioner from the Central Government in entering upon the agreement dated 22.12.1988. The prosecution duly has been launched and the lower Court had taken cognizance. The contentions raised on behalf of the petitioners would have to be raised at the trial. In the given circumstances, this Court would not interfere with the proceedings of the lower Court. 10.Written submissions have been made on either side in support of their respective contentions. 11.I have considered the rival submissions and also perused the materials available on record. 12.It is seen that the earlier explanation offered by the 1st petitioner in answer to the show cause notice dated 31.07.1987 had not been controverted by the DCA nor had any action by way of complaint been filed at that stage. The learned Senior counsel informed that under an inter-department letter dated 04.10.1988 the Deputy Director (Inspection) had informed the Regional Director that no case for offence under Section 204 stood made out under the earlier agreement dated 16.08.1973. Though no proof of such communication is to be found, still, in circumstances where the department had not done anything whatsoever over a long period of time after receipt of the explanations by the 1st petitioner dated 13.08.1987 and 25.08.1987, the contention does merit consideration. Again on a careful reading of the various clauses in the agreement dated 22.12.1988, it is apparent that the same is an agreement for consultancy services. As rightly pointed out, the contract of one holding an office of profit would be terminable at the instance of the employer and not the other way around. The agreement has been entered into on 22.12.1988. On such date, Section 204(2) of the Act was in force and there was no necessity to obtain any permission in respect of such an agreement. Once held so, no offence under Section 204(1) of the Act would stand attracted. 13.Accordingly, the Criminal Original Petition shall stand allowed and the proceedings in E.O.C.C.No.105 of 2001 on the learned Additional Chief Metropolitan Magistrate, (E.O.) Egmore, https://hcservices.ecourts.gov.in/hcservices/ Chennai shall stand quashed. Though, the other accused are not before this Court, this court would extend the benefit of this Order to the other accused. The Honourable Apex Court in several decisions has held that the benefit gained by an accused who has preferred an appeal also may be extended to a non-appearing accused (refer Dandu Lakshmi Reddy v. State of A.P. (1999) Supreme Court Cases (Cri) 1176 and Pyare Singh v. State of Madhya Pradesh (1992) Supreme Court Cases (Cri) 977). There is no reason why the principle should not be extended to other accused not parties to a quash petition before this Court, when this Court finds that such accused stand on the same footing as those before this Court. 14.The Criminal Original Petition is ordered accordingly. Consequently, the connected miscellaneous petition is closed. Sd/- Asst.Registrar. /true copy/ Sub Asst.Registrar. gm To The Additional Chief Metropolitan Magistrate, (E.O.) Egmore, Chennai. 1 cc to Mr.M. Dhamodharan, Advocate, SR. 22749 1 cc to Mr.C. Uma, Advocate, SR. 22496 CRL.O.P. No.12264 of 2007 and M.P.No.1 of 2007 TRM (CO) kk 22/4 https://hcservices.ecourts.gov.in/hcservices/