IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE V.K.MOHANAN FRIDAY, THE 20TH JUNE 2008 / 30TH JYAISHTA 1930 Crl.MC.No. 349 of 2005() ------------------------ C.C..34/2004 of ADDL.CHIEF JUDICIAL MAGISTRATE (E & O),ERNAKULAM .................... PETITIONER: ------------ 1. CHANDY MATHEW, 74, BENSON CROSS ROAD, BENSON TOWN, BANGALORE. 2. SRI.GEORGE L.MATHEW, PALLIVATHUCKAL HOUSE, CHUNGOM, MULLACKAL POST, ALLEPPEY-688011. BY ADV. SRI.JOSEPH MARKOSE (SR.) SRI.MITHUN MARKOS RESPONDENTS: ------------- 1. ASST.REGISTRAR OF COMPANIES, KERALA, ERNAKULAM. 2. STATE OF KERALA REP. BY THE PUBLIC PROSECUTOR, HIGH COURT OF KERALA. R1 BY ADV. SRI.P.PARAMESWARAN NAIR,ASST.SOLICITOR FOR R1 R2 BY PUBLIC PROSECUOTR SRI C.M. KAMMAPPU. THIS CRIMINAL MISC. CASE HAVING BEEN FINALLY HEARD ON 20/06/2008, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: ORDER ON CRL.M.A.NO.912/2005 IN CRL.M.C. NO.349 OF 2005. DISMISSED. 20-6-2008. SD/- V.K.MOHANAN, JUDGE. //TRUE COPY// V.K.MOHANAN, J. ---------------------------------------------- CRL.M.C. No.349 OF 2005 ---------------------------------------------- Dated, 20th June, 2008. ORDER The petitioners are the accused in C.C.No.34/2004, pending before the Additional Chief Judicial Magistrate's (Economic Offences) Court, Ernakulam, which is a case instituted upon a private complaint filed under Section 207 of the Companies Act on the allegation that the petitioners who were Directors of the company, namely, Duroflex Exports Private Limited, failed to disburse interim dividend to two shareholders and thereby committed the said offence. According to the petitioners, no offence will lie against them and hence, seek an order from this court quashing Annenxre A complaint and the case instituted thereon against them. 2. The averments of the petitioners can be summarized as follows: The petitioners herein were Directors of Duroflex Exports Pvt. Limited, a company incorporated under the CRL.M.C.349/05 -:2:- provisions of the companies Act and initially its registered office was in the State of Karnataka and subsequently shifted to Kerala. The Ist respondent herein preferred a complaint on 9-7-2004 alleging offence against the petitioners under section 207 of the Companies Act, 1956. Annexure A is the certified copy of the complaint. The allegation in the complainant is that on 24-8-2001 an inspection was conducted by the Registrar of Companies, Karnataka and on inspection, it is revealed that the company had declared an interim dividend of 25% in 1999, but had not paid the same to two shareholders namely, the Ist accused and his brother Tomy Mathew, both former Directors of the Company and thus according to the complainant, the accused have contravened Section 207 of the Act. It is also stated in paragraph 4 of Annexure A complaint that when the above violation was brought to the notice of the company and the accused herein by the Registrar of companies, Karnataka, who had inspected the company, the company had replied that it CRL.M.C.349/05 -:3:- had received letters from the above shareholders intimating their decision for not taking the dividend and therefore the company had claimed that it had not disbursed the amount under Section 207(b) of the Act. So, According to the complainant, the accused have committed the offence alleged against them. It is the case of the petitioners that no offence under section 207 will lie against them in the facts and circumstances involved in the case. It is contended that prior to the amendment to the Companies Act, section 207 was not applicable for any violation with respect to the interim dividend. It is also contended that, at any rate, the complaint is filed out of time and the court below has no jurisdiction to take cognizance upon such belated complaint. Therefore, the petitioners/accused pray that the case instituted against them in the court below be quashed. 3. I have heard Mr. Joseph Markose, Senior Counsel appearing 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 C dated 12.9.2001, which is a show cause notice relied on by the prosecution, it is evident that the inspection was conducted by the Assistant Registrar of companies, Karnataka on 24-8-2001 and the show cause notice was issued i.e. Annexure C dated 12-9-2001. According to the learned counsel for the petitioners, Annexure C show cause notice is dated 12-9-2001, hence, the complaint ought to have been filed on or before 12-9-2002, otherwise, the same will be barred by limitation under section 468 of the Cr.P.C. The learned counsel for the petitioner further submitted that now Annexure A complaint is filed in a court in the State of Kerala after shifting of the head quarters of the company from Karnataka to Kerala and, even if a contention is taken by the authorities in Kerala that they came to know only subsequently, still then, the complaint is barred by limitation. In this respect, the learned CRL.M.C.349/05 -:5:- counsel invited my attention to Annexure-G show cause notice dated 28.2.2003. Since Annexure-G is dated 28-2- 2003, according to the counsel, Annexure A complaint ought to have been filed on or before 28-2-2004. Admittedly, Annexure A complaint dated 7-7-2004 was filed only on 9-7-2004. In this connection the learned counsel invited my attention to sections 468 and 469 of Cr.P.C. Section 468(2)(b) is relevant in this case. Now the petitioner is called upon to face charge under section 207 of the Companies Act as it stood prior to the amendment Act 2000 which came into force with effect from 13-12-2000 and thus Section 207 prior to amendment stood as follows: “207. Penalty for failure to distribute dividends within forty-two days.- Where a dividend has been declared by a company but 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 shareholders 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 CRL.M.C.349/05 -:6:- deemed to have been committed within the meaning of the foregoing provision 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 a 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”. So, on a reading of Sec.207, it can be seen that in contravention of the punishment which can be imposed is simple imprisonment for a term which may extend to 7 days and also fine. Therefore, if that be so, as under section 468(2)(b), one year is the period of limitation for initiating criminal proceedings. Section 469 Cr.P.C. deals with the commencement of period of limitation which says: CRL.M.C.349/05 -:7:- “Sec.469. Commencement of the period of limitation. (1) The period of limitation, in relation to an offence, shall commence - (a) on the date of the offence; or (b) where the commission of the offence was not known to the person aggrieved by the offence or to any police officer, the first day on which such offence comes to the knowledge of such person or to any police officer, whichever is earlier; or (c ) where it is not known by whom the offence was committed, the first day on which the identity of the offender is known to the person aggrieved by the offence or to the police officer making investigation into the offence, whichever is earlier. 2. In computing the said period, the day from which such period is to be computed shall be excluded”. Under Section 469(1)(a), the limitation period starts from the 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 police officer whichever is earlier. In the present case, admittedly, the offence came into the knowledge of the Karnataka authority on 24-8-2001, the date on which the inspection was conducted. Therefore, if Sec.469(1) is pressed into service, the complaint ought to have been filed on or before 24-8-2002. If the period is to be reckoned 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 the Karnataka authority. Now Annexure A complaint is preferred by the Kerala authority and the same was filed only on 9-7-2004. Annexure G is the show cause notice issued by the Kerala authority on 28-2-2003. Therefore even if a contention is taken that they were not aware of the actual date of inspection or the date of issuing first show cause notice Annexure-C, by issuing Annexure-G notice it is made clear that they also aware of the alleged contravention at least with effect from 28-2- CRL.M.C.349/05 -:9:- 2003. In such situation, the complaint ought to have been filed on 27-2-2004. Annexure A is the certified copy of the complaint and on a perusal of the same, nothing is discernible as to whether the learned Magistrate had condoned the delay occurred in filing the complaint. Going by Annexure A complaint, it is also clear that nothing stated to explain the delay in filing the complaint. 5. Learned counsel for the petitioner invited my attention to a decision in NEPC India Ltd. v. Registrar of Companies (Mad.) (1999 Company Cases (Vol.97) 500). In the above case, one of the issues was whether the prosecution was barred by limitation as also, the allegation was the failure to distribute dividend within 42 days. In the above decision, the Madras High court has held that “ in view of section 468 of the Criminal Procedure Code, 1973, the complaint under section 207 of the Act ought to be filed within a period of one year. In one of the cases the complaint had been filed more than a year after the date of issue 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 was barred by time”. 6. On a further consideration of the matter, it can be seen that after the amendment to Sec.207 brought under the Companies (Amendment) Act 2000 with effect from 13-12-2000, it is made clear that the accused on conviction is liable to pay a fine of Rs.1000/- for every day during which such default continues and the company shall be liable to pay simple interest at the rate of 18% per annum during the period for which such defaults continues. In this respect it is pertinent to note that prior to the amendment there was no such provisions under section 207. Under the unamended provisions, the only punishment was simple imprisonment for a term which may extend to seven days and also fine. The above statutory change assume importance that, though offence was detected on 24-8-2001 and the first show cause notice, Annexure C was issued on 12-9-2001, Annexure A complaint 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 unamended provisions, the Legislature made it as a continuing offence for the default only after the amendment. Therefore, the prosecution cannot be heard to say that it is a continuing offence. In the light of the above discussions, I am of the view that Annexure A complaint is barred by limitation by virtue of Section 468 Cr.P.C. and also when there is no explanation for the delay, so as to enable the court to take cognizance even on a belated stage. 7. It is also pointed out by the learned counsel after 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 the interim dividend. Sec.205 (1) says: “205. Dividend to be paid only out of profits- (1) No dividend shall be declared or paid by a company for any financial year except out of the profits of the company for that year arrived at after providing for depreciation in accordance with the provisions of sub-section (2) or out of the profits of the company for any previous financial year or years arrived at after providing for depreciation in accordance with those provisions and remaining CRL.M.C.349/05 -:12:- undistributed or out of both or out of moneys provided by the Central Government or a State Government for the payment of dividend in pursuance of a guarantee given by that Government”. From a reading of the above provision, it is clear that the said provision does not mention about interim dividend. As the above provision was applicable during the relevant period, no offence will lie against the petitioners. 8. The above position is more clear in the light of the new proviso brought to Section 205(1). It is beneficial to quote the new proviso brought to the above section as per the amendment by section 92 of Act 53/2000 which came into effect with effect from 13-12-2000 which runs as follows: “(1C) The provisions contained in sections 205, 205A, 205C, 206, 206A and 207 shall, as far as may be, also apply to any interim dividend”. In the present case, as evidenced by Annexure-C show cause notice, what was declared to the shareholders was interim dividend for the year 1999. If that be so, the CRL.M.C.349/05 -:13:- non disbursement of interim dividend during the year 1999 will not be attracted for prosecution in contravention of Section 207. So also, no prosecution will lie against the petitioners. 9. However, I am not satisfied with the stand taken by the statutory authorities sticking on the hyper technical aspect and the lodging of the complaint against the petitioners. It is an undisputed fact that the petitioners/ accused were Directors who were in possession of two shares each. On a reading of Section 207 itself, it is crystal clear that those provisions are incorporated with a view to safeguard the interest of the shareholders and thereby to ensure the proper and timely disbursement of dividends. As borne out from paragraph 4 of the complaint, the company has replied that it had received letters from the shareholders intimating their decision for not taking the dividend and therefore the company had claimed that it had not disbursed the amount under section 207(b) of the Act. The statutory authorities, while CRL.M.C.349/05 -:14:- discharging their duties, have to apply their mind especially in the particular facts and circumstances involved in each case before lodging the complaint. The particular facts and circumstances involved in the case persuading me to hold that the first respondent ought not have preferred the complaint and as such Annexure A compliant, even otherwise, will amount to abuse of the process of the court. 10. In the result, Annexure A complaint and C.C.No.34/2004 instituted and pending and all proceedings thereon before the Additional Chief Judicial Magistrate's Court (Economic Offences), Ernakulam are quashed. The Crl.M.C. is allowed. No order as to costs. V.K.MOHANAN, JUDGE kvm/- CRL.M.C.349/05 -:15:- V.K.MOHANAN, J. No.... Judgment/Order Dated: CRL.M.C.349/05 -:16:-