Case: H. P. Gupta Vs. Hiralal

1. All these appeals, founded on a certificate granted by the High Court of Allahabad, raise a common question as to jurisdiction. The appeals arise from complaints filed by the respondent in the Court of First Class Magistrate at Meerut under section 207 of the Companies Act, 1956 on an allegation of failure on the part of the appellant, the director-in-charge of M/s Iron Traders (Private) Ltd., to pay to him dividends on shares held by him, although the dividends were declared by the company for the respective years: The question being common, all these appeals are disposed of by a common judgment.        2. The appellant contended that the Magistrate at Meerut had no jurisdiction to try the complaints and that the Magistrate at Delhi, where the companys registered office is situate, who would have the jurisdiction. The Magistrate rejected the contention and held that as the dividend had to be paid at the registered address of the respondent, which was at Meerut, it was the Meerut Court which had the jurisdiction. The Sessions Judge, on appeal, upheld the order of the Magistrate and in revision the High Court, rejecting the appellants contention, confirmed the view taken by the Magistrate and upheld by the Sessions Judge. The High Court in taking the aforesaid view observed :"The object behind the statute is to ensure prompt payment of dividend to a shareholder. That payment may be made to him directly or it may be made by sending a cheque or warrant to his registered address. If a shareholder complains that he has not received payment he is entitled to proceed against the company and its Directors by filing a complaint at the place where he resides because the law demands that payment should have been made to him there."

Court's reasoning:
The High Courts reasoning was clearly based on the premise that payment of dividend has to be made at the place where the shareholder resides and therefore, it is the Magistrate within whose jurisdiction the shareholders registered address is situate who has the jurisdiction. The contention in these appeals is that such a view is not in accord with section 207. The question is of some importance, for, if the view taken by the High Court is correct, it would mean that directors of companies would be liable to be prosecuted at hundreds of places where the registered addresses of their shareholders are on allegations that dividends are not paid to them9. It is clear from section 205 (5) that the company could pay dividend either in cash or by posting a cheque or a warrant at the registered address of the respondent. Article 132 of the Articles of Association also authorises the company to pay dividend either in cash or by posting a cheque or a warrant to the shareholder at his registered address. The effect of Article 132 is that when a dividend warrant is posted at the registered address of the shareholder that would be equivalent to payment. Once a warrant is so posted the company is deemed to have paid and discharged its obligation. As aforesaid, the Articles of Association constitute an agreement between the company and the shareholders, and the latter was entitled to the payment of dividend in the manner laid down in the Articles and in that manner alone. Article 132 thus not only authorises the company to make the payment in the manner laid down therein but amounts to a request by the shareholders to be paid in the manner so laid down. When, therefore, the company posts the dividend warrant at the registered address of a shareholder, that being done at the shareholders request, the post office becomes the agent of the shareholder, and the loss of a dividend warrant during transit thereafter is the risk of the shareholder. In Indore Malwa United Mills Ltd. v. Commr of Income-Tax, (1966) 59 ITR 738   = (AIR 1966 SC 1466  ) this Court, on a question arising whether on the facts there, payment was made in taxable territory, held that if by an agreement, express or implied, between the creditor and the debtor, or by a request, express or implied, by the creditor, the debtor is authorised to pay the debt by a cheque and to send the cheque to the creditor by post, the post office is the agent of the creditor to receive the cheque and the creditor receives payment as soon as the cheque is posted to him. That being the position, the place where a dividend warrant would be posted, the post office being the agent of the shareholder, is the place where the obligation to pay the debt is discharged-in the present case at Delhi where the company has its registered office. It follows that the offence under section 207 of the Act would also occur at the place where the failure to discharge that obligation arises, namely, the failure to post the dividend warrant within 42 days. The venue of the offence, therefore, would be Delhi and not Meerut, and the court competent to try the offence would be that court within whose jurisdiction the offence takes place i.e., Delhi. This should be so both in law and common sense, for, if held otherwise, the directors of companies can be prosecuted at hundreds of places on an allegation by shareholders that they have not received the warrant. That cannot be the intention of the legislature when it enacted Section 207 and made failure to pay or post a dividend warrant within 42 days from the declaration of the dividend an offence10. This view is also in accord with the principle laid down by Maule J. inRagina v. James Milner, (1846) 175 ER, that the felony of no, surrendering at a district court to a fiat in bankruptcy, under Stat. 5 and 6 Vict. c. 122, Section 32, is committed at the place where the district court is situate; and an indictment for the offence cannot be sustained in a different country from that in which the person was a trader or in which he committed an act of bankruptcy. On the same principle the High Court of Calcutta has also held in Gunananda Dhone v. Santi Prokash Nanley, 29 Cal WN 432 = (AIR 1925 Cal 613  ) that it is the court within the local limits of whose jurisdiction the accused is liable to render accounts and fails to do so by reason of having committed a breach of trust alleged against him that has the jurisdiction11. The offence under S. 207 is the failure to pay dividend or to post a cheque or a warrant for the dividend amount. Since the obligation to post the warrant arose at the registered office of the company, failure to discharge that obligation also arose al the registered office of the company Therefore, the alleged offence must be held to have taken place at the place where the companys registered office is situate and not where the dividend warrant, when posted, would be received12. In that view, the High Court was in error in holding that the Magistrate at Meerut had the jurisdiction to try the said complaints.