IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 20.04.2007 CORAM THE HONOURABLE MR. JUSTICE K.N. BASHA Crl.O.P.No.27813 of 2006 N.Kumar ... Petitioner/Accused 2 Vs M.O.Roy, Assistant Director, Serious Fraud Investigation Office, Ministry of Company Affairs, Government of India, Having address at 2nd Floor, Paryavaran Bhawan, CGO Complex, Lodhi Road, New Delhi 110 003. ... Respondent/Complainant Criminal Original Petition filed under Section 482 Cr.P.C. to call for the records and quash the proceedings pending in E.O.C.C.No.129 of 2006 on the file of the learned Additional Chief Metropolitan Magistrate E.O.II, Egmore, Chennai. For Petitioner : Mr.Habibullah Basha, Senior Counsel for M/s.C.Manishankhar For Respondent : Mr.M.Dhamodharan, ACGSC O R D E R The petitioner, who has been arrayed as A-2 out of 13 accused in E.O.C.C.No.129 of 2006 on the file of the learned Additional Chief Metropolitan Magistrate, E.O.II, Egmore, Chennai, has come forward with this petition seeking for the relief of quashing the above said proceedings for the alleged offence under Section 207 of the Companies Act, 1956 (hereinafter referred to as "the Act") for the alleged non-payment of dividend or non-posting of warrant for financial years 1995-1996 to 1999-2000 within the stipulated time. 2. In this case, the petitioner has been implicated as A-2 on a private complaint filed by the respondent herein. The petitioner https://hcservices.ecourts.gov.in/hcservices/ was one of the Directors of a company known as M/s.Square D Software Limited. The name of the company was changed into M/s.DSQ Software Limited with effect from 01.04.1997. 3. The sum and substance of the allegation, as per the complaint, is that the Company delayed in funding the dividend accounts of the company and failed to distribute the dividend within the stipulated time, viz., within a period of 42 days for the financial years 1995-1996 to 1998-1999 and within a period of 30 days for the financial year 1999-2000 and therefore, it is alleged that the Company and its Directors have contravened the procedure contemplated under Section 207 of the Act and committed the offence under that Section. 4. Mr.Habibullah Basha, learned senior counsel put forward the following contentions : (i) The complaint filed in this case is barred by limitation. Under Section 207 of the Companies Act, prior to amendment, within 42 days time from the date of declaration, dividend should be distributed and the failure of the same would attract the offence under this Section and after the amendment the time limit is 30 days from the date of declaration. In this case, the dividend was declared by the company on 19.09.1996 and forty two days for posting the dividend warrant expired on 31.10.1996 and therefore, the complaint ought to have been filed within a period of one year from that date i.e. on or before 01.11.1997 as the punishment for the offence under Section 207 of the Companies Act, 1956, during the relevant period, i.e. 1995-1996 is punishable with simple imprisonment for a term which may extend to seven days and shall also liable to be fine. Under Section 468 (2) (b) of Cr.P.C., the period of limitation shall be one year, if the offence was punishable with imprisonment for a term not exceeding one year. Therefore, the complaint is liable to be dismissed as the same is barred by limitation. (ii) The petitioner resigned from the Directorship of the company as early as on 10.06.1996 and his resignation was accepted by the Company and also a resolution was passed on 19.09.1996 and the dividends were also declared on 19.09.1996. Therefore, the petitioner cannot be held liable as he has resigned even prior to the date of declaration of dividend. The fact that the petitioner resigned as early as on 10.06.1996 is also admitted in the counter filed by the respondent. It is also not disputed by the respondent that the dividend was declared only on 19.09.1996 and under such circumstances, the petitioner is not at all liable to be prosecuted for the contravention of Section 207 of the Act. https://hcservices.ecourts.gov.in/hcservices/ (iii) Even assuming that the petitioner was the Director during the relevant period of commission of offence, the complaint does not contain any allegation to the effect that the petitioner was in charge and responsible for the conduct of the business of the company and there is also no allegation or averment in the complaint to the effect that the petitioner was having knowledge about the default committed by the company for the contravention of provision under Section 207 of the Companies Act. Therefore, the petitioner cannot be fastened with the vicarious liability of the offence said to have been committed by the company. 5. Per contra, Mr.M.Damodharan, learned Additional Central Government Standing Counsel made the following submissions : (i) The complaint is not barred by limitation. Only on the receipt of the report of the Inspector dated 01.12.2005, the respondent got the knowledge about the commission of the offence and thereafter the respondent was authorised through the letter dated 01.05.2006 to file the complaint against the petitioner and others and the respondent accordingly filed the complaint on 23.08.2006 and therefore the complaint was filed well within the stipulated period of one year. Under Section 469 (1)(b) of the Code, the limitation starts from the date of knowledge of the commission of the offence by the aggrieved person. Under Section 470(b) of the Code, the period required for obtaining sanction of the Government shall be excluded for computing the limitation. Therefore, in this case the complaint was filed within the stipulated period of one year from the date of knowledge of the commission of the offence and after obtaining the sanction and as such the complaint is not barred by limitation. (ii) The petitioner resigned as a Director as per his letter dated 10.06.1996 and his resignation was accepted by the Board of Directors on 19.09.1996 and the dividend was declared on the same day, i.e. on 19.09.1996. The contravention of the provision of Section 207 of the Act was committed even during the financial year 1995-1996, apart from the financial years 1997-98, 1998-99 and 1999- 2000 and therefore, the offence was committed even during the period the petitioner was working as Director till 19.09.1996 and as such he cannot escape from the liability of the offence. The learned ACGSC also placed reliance on the following decisions : 1.R.S.Nayak V. A.R.Antulay and another reported in AIR 1986 SC 2045 ; 2.Thomas Philip Vs. Asst. Registrar (2006) 131 Comp.Cases 842 (Ker) ; https://hcservices.ecourts.gov.in/hcservices/ 3.The Registrar of Companies Vs. Fair Growth Agencies Limited (2006) 133 Comp.cas314 (Kar) ; 4.Registrar of Companies Vs. Rajshree Sugar & Chemicals Ltd (2000) 101 Comp. Case 271 (SC); 6. I have carefully considered the rival contentions put forward by either side and also perused the impugned complaint, petition, counter and other materials available on record. 7. The following important questions arise in this case for the consideration of this Court, viz., (i) Whether the offence under Section 207 of the Act has been validly taken cognizance before the expiry of the period of limitation ? (ii) Whether the petitioner, who has resigned from the Directorship of the Company as per his resignation letter dated 10.06.1996, could be fastened with the vicarious liability of the alleged contravention of the provision under Section 207 of the Act by the company for the non-payment of dividend or non-posting of warrant by the company for the financial years 1995-1996 to 1999- 2000 ? (iii) Whether the allegation contained in the complaint constitutes the offence under Section 207 of the Act as against the petitioner ? 8. Let me now have a bird's eye view in respect of the relevant provisions : (i) Section 621 of the Companies Act reads as follows : “621. Offences against Act to be cognizable only on complaint by Registrar, shareholder or Government - (1) No Court shall take cognizance of any offence against this Act, thereof, except on the complaint in writing of the Registrar, or of a shareholder of the company, or of a person authorised by the Central Government in that behalf ;" (ii) Section 207 of the Act, during the relevant period of the commission of offence (before amendment) reads hereunder : “207. Where a dividend has been declared by a company but has not been paid, or the warrant in respect https://hcservices.ecourts.gov.in/hcservices/ 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 (its managing agency or secretaries and treasurers ; and where the managing agency is a firm or body corporate, every partner in the firm and every director of the body corporate ; and where the secretaries and treasurers are a firm, every partner in the firm and where they are a body corporate, every director thereof ;) 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 :" (iii) Section 207 of the Act (After amendment) reads hereunder: “207. 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 thirty 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 three years and shall also be liable to a fine of one thousand rupees for every day during which such default continues and the company shall be liable to pay simple interest at the rate of eighteen percent per annum during the period for which such default continues :" (iv) Section 468 (2)(b) of Code of Criminal Procedure reads as follows : “468. Bar to taking cognizance after lapse of the period of limitation - (1) Except as otherwise provided elsewhere in this Code, no court shall take cognizance of an offence of the category specified in sub-section (2), after the expiry of the period of limitation. (2) The period of limitation shall be - (b) one year, if the offence is punishable with imprisonment for a term not exceeding one year ” 9. Let me now consider the first question whether the offence under Section 207 of Companies Act has been validly taken cognizance within the period of limitation ? https://hcservices.ecourts.gov.in/hcservices/ 9.1. There is no dispute that limitation for initiation of proceedings for offence under the Companies Act had not been prescribed under the Act itself and hence, the general law under the Code of Criminal Procedure will stand attracted. 9.2. Since the offence alleged under Section 207 of the Act is punishable with simple imprisonment for a term which may extend to 7 days and shall also be liable to fine, the period of limitation for taking cognizance of the offence will be one year. Under Section 468(2)(b) of Cr.P.C., the period of limitation for taking cognizance of the offence is one year if the offence is punishable with imprisonment for a term not exceeding one year. 9.3. It is relevant to note under Section 469 of the Code of Criminal Procedure, the period of limitation would commence only from the date on which the offence comes to the knowledge of the persons aggrieved by the offence. 9.4. In this case, the respondent filed the complaint as he was authorised by the communication dated 01.05.2006 to file a complaint against the petitioner and others. Therefore, it is very clear that the respondent is the authorized person as contemplated under Section 621 (1) of the Companies Act to prefer the private complaint against the petitioner herein. 9.5. It is pertinent to note that in this case the complaint was filed on 23.08.2006 before the learned Additional Chief Metropolitan Magistrate, Economic Offences, E.O.I, Egmore, Chennai. The learned Magistrate has taken cognizance by his order dated 29.08.2006. The order of the Magistrate reads as follows : "Perused. The complainant has filed a complaint against the accused for the violation of offence under Section 621 and 207 of Companies Act. On a perusal of the records reveals prima facie case to take the complaint on file against the accused for the said violation. Accordingly, the complaint is taken on file against the accused and forwarded to A.C.M.M. (E.O.II), for disposal according to law." 9.6. It is evident from the perusal of the complaint that there is absolutely no averment as to how the period of limitation is calculated. It is also not disclosed in the complaint in respect of the date of the knowledge of the commission of the offence by the said company. In paragraph 10 of the complaint, it is merely stated in respect of the period of limitation as follows : "10. That the Ministry of Company Affairs vide its letter No.5/10/2005-CL.II dated 1st May 2006 (Annexure E) https://hcservices.ecourts.gov.in/hcservices/ has accorded its sanction and instruction of filing prosecution against the accused above named and hence the present complaint is well within the period of limitation as contemplated under Section 468 of Criminal Procedure Code." 9.7. The respondent/complainant has come forward with the details of computing the period of limitation only for the first time while filing the counter before this Court. In paragraph 5 of the counter, it is stated by the respondent/complainant that after investigation was completed by the respondent office, a report was submitted to the Central Government (Ministry of Company Affairs) on 01.12.2005 and thereafter the Central Government granted sanction to prosecute the Board of Directors of the company through its letter dated 01.05.2006 and the complaint was filed on 23.08.2006. It is also stated in the same paragraph that the complaint was filed within the period of one year from the date of the knowledge of the commission of the offence in respect of the financial year 1995-1996 on the basis of the results of the investigation. Therefore, the counter filed by the respondent reveals that the limitation was computed on the basis of the alleged knowledge of the commission of the offence on the basis of the investigation report dated 01.12.2005 and ultimately, the complaint was filed on 23.08.2006 after obtaining sanction order dated 01.05.2006 from the Ministry of Company Affairs. 9.8. At this juncture, it is relevant to note that there is absolutely no provision available under the Companies Act contemplating prior sanction for initiating prosecution for the offence under Section 207 of the Act. The contention of the learned ACGSC to the effect that the Central Government had the knowledge about the commission of the offence only on the basis of the report of investigation dated 01.12.2005 and thereafter, the complaint was filed after obtaining sanction order from the Ministry of Company Affairs dated 01.05.2006 is unacceptable. It is relevant to note that as early as on 23.10.2003 itself the Government passed an order to investigate into the affairs of the company by appointing Mr.Sharad Krishan Sharma as Inspector to investigate into the affairs of the company, viz., DSQ Software Limited. Therefore, the Government could have had the knowledge even as early as in the year 2003 itself about the alleged commission of the offence by the said company under Section 207 of the Act as per the document dated 23.10.2003 produced by the learned ACGSC. As already pointed out, there is no provision available under the Companies Act contemplating the prior sanction for initiating prosecution for the offence under Section 207 of the Act. It is also rightly contended by the learned senior counsel for the petitioner that the knowledge of the alleged commission of the offence under the Companies Act https://hcservices.ecourts.gov.in/hcservices/ must have come to the notice of the Central Government on 19.09.1996, viz., the date of declaration of dividend. 9.9. This Court in NEPC INDIA LTD. V. REGISTRAR OF COMPANIES reported in 1999 (Vol.97) Comp. Cases 500 held as follows : "C.C.No.167 of 1998 also relates to an offence under Section 207 of the said Act. It is seen from the complaint itself, the respondent came to know about the default on September 8, 1997. However, para.3 of the complaint indicated that the inspection has been done and the same was completed on January 20, 1997. Under the circumstances, even at the time of the inspection itself, the respondent could have been well aware of the commission of the offence by the said company. They have caused a delay of nearly eight months in sending the show-cause notice. The delay caused by the respondent cannot be made use of to save their complaint. The complaint was filed in the court on August 31, 1998. Taking into consideration the fact that even according to the averments in the complaint, the respondent had completed the inspection on January 20, 1997, naturally the complaint ought to have been filed within a period of one year, but according to the complaint itself, it was filed on August 31, 1998, and, as such, it is beyond the time." In the above cited decision, this Court ultimately quashed the complaint on the ground that the complaint is barred by limitation. The principle laid down in the decision cited supra is squarely applicable to the facts of the instant case as in this case also the Inspector commenced his investigation as per the order dated 23.10.2003 and ultimately, submitted the report only on 01.12.2005 and therefore, it is crystal clear that the respondent/complainant must have had the knowledge of the commission of the offence as early as in the year 2003 itself and therefore, the complaint is clearly barred by limitation. 9.10. As already pointed out, Section 468 (2)(b) of Cr.P.C. contemplates that the period of limitation is one year if the offence is punishable with imprisonment for a term not exceeding one year. Under Section 207 of the Act, prior to amendment, contravention of Section 207 is punishable with simple imprisonment for a term which may extend to seven days. As far as the petitioner is concerned, relevant period is only in respect of the financial year 1995-1996 for the alleged commission of offence under Section 207 is 1995-96 as it is admitted by the respondent/complainant that the petitioner resigned on 10.06.1996 and his resignation was accepted by the Board of Directors on 19.09.1996. Therefore, this https://hcservices.ecourts.gov.in/hcservices/ Court is of the considered view that the complaint preferred by the respondent is barred by limitation on the following grounds: (1)The complainant or the Central Government must have had the knowledge about the alleged commission of the offence under Section 207 of the Act from the date of the declaration of dividend, i.e. 19.09.1996 and therefore, the complaint ought to have been filed within a period of one year from that date i.e. on or before 01.11.1997 as the punishment for the offence under Section 207 of the Act, during the relevant period, i.e. 1995-1996, is punishable with simple imprisonment for a term which may extend to seven days and under Section 468 (2)(b) of Cr.P.C., the period of limitation shall be one year, if the offence was punishable with imprisonment for a term not exceeding one year. (2)Even assuming that the complainant or the Central Government not had the knowledge about the alleged commission of offence under Section 207 of the Act, on the date of declaration of dividend, i.e. On 19.09.1996, the documents relied on by the respondent/complainant, viz., order of the Government of India (Ministry of Company Affairs) dated 23.10.2003 appointing the Inspector to investigate into the affairs of the accused company clearly shows that the respondent could have had the knowledge of the commission of offence as early as in the year 2003 and therefore, the complaint filed only in the year 2006 is certainly barred by limitation as the complaint is not filed within a period of a year from the date of knowledge of the commission of the offence as the complaint was admittedly filed only on 23.8.2006 and the learned Magistrate has taken cognizance on 29.08.2006. (3)No averments or explanations given in the complaint in respect of computing the period of limitation and further there is no whisper about the date of knowledge of the alleged offence by the complainant. (4)There is no provision under the Act contemplating prior sanction for prosecution of the companies under Section 207 of the Act and as such the complainant cannot take shelter under the guise of obtaining sanction for the purpose of computing the period of limitation. It is also pertinent to note that the complainant neither filed any application under Section 470 (3) Cr.P.C. explanation for excluding the period of obtaining consent or sanction nor filed any petition under Section 473 Cr.P.C. for extension of period of limitation for filing the complaint and taking cognizance of the offence by the trial Court. https://hcservices.ecourts.gov.in/hcservices/ (5)The order of the learned Additional Chief Metropolitan Magistrate, Economic Offences, E.O.I, Egmore, Chennai, dated 29.08.2006 for taking cognizance of the offence is also bereft of details about the limitation and there is no mention to the effect that the complaint was filed within the period of limitation by the learned Magistrate and as such the learned Magistrate has committed a serious error of law in taking cognizance of the offence beyond the period of limitation in this case. Therefore, this Court is of the considered view that the complainant filed the complaint beyond the period of limitation and the cognizance was taken by the trial Court only after the expiry of the period of limitation and as such the entire proceedings is liable to be quashed in respect of the petitioner herein. 9.11.This Court has taken a similar view in V.Karthikeyan v. Registrar of Companies reported in 2001 (106) Comp. Cases 685 10.1. Now let me consider the second question viz., Whether the petitioner, who has resigned from the Directorship of the Company as per his resignation letter dated 10.06.1996, could be fastened with the vicarious liability of the alleged contravention of the provision under Section 207 of the Act by the company for the non-payment of dividend or non-posting of warrant by the company for the financial years 1995-1996 to 1999-2000 with the stipulated time ? 10.2. It is not disputed even in the counter filed by the respondent/complainant that the petitioner has resigned from the Directorship as early as on 10.06.1996 and the same was accepted by the Board of Directors of the company on 19.09.1996. It is pertinent to note that as far as the petitioner is concerned, the respondent/complainant implicated the petitioner in respect of the contravention of Section 207 of the Act during the period 1995-1996. Even in the counter filed by the respondent/complainant it is specifically stated in paragraph 6 as follows : “This Respondent states that the petitioner was a Director in this company upto 31.12.1996 that is the date of recording of his resignation in the record of the Office of the ROC, Chennai, and in the report of the Inspector, offences committed from the financial year 1995-1996 onwards were found.” Therefore, it is clear that the respondent/complainant implicates the petitioner herein only for the offence said to have been committed during the financial year 1995-1996. At this juncture, it https://hcservices.ecourts.gov.in/hcservices/ is relevant to point out that in the earlier para it is admitted by the respondent/complainant that the resignation of the petitioner was accepted by the Board of Directors on 19.09.1996 and as such it cannot be stated that the petitioner continued as a Director upto 31.12.1996, which is the date of Registration of the resignation of the petitioner by the Registrar of Companies. It is relevant to note that as per the complaint, as narrated in para 6 of the complaint, the delay in respect of declaration of dividend for the financial year 1995-96 is only two days, such delay is very negligible. As it is already pointed out that the dividend was declared by the company,