Dismissed

The Assistant Registrar of Companies v. Thomas P.Koshy & Another

Kerala HC4 Dec 2014CRL.A/1152/2012

Case brief

AI extract

What is this about?

The High Court of Kerala dismissed criminal appeals by the Assistant Registrar of Companies seeking review of an acquittal. The Court held the lower court deserves no interference as the prosecution failed to prove a Board resolution sanctioning loans without Central Government approval, and full repayment immunized accused from imprisonment.

What did the court decide?

Criminal appeals dismissed; acquittal of accused under Section 255(1) Cr.P.C. affirmed.

The Assistant Registrar of Companies Vs Thomas P.Koshy… — Company and Corporate | Kerala HC (2014)

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT:

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THE HONOURABLE MR. JUSTICE ALEXANDER THOMAS

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THURSDAY, THE 4TH DAY OF DECEMBER 2014/13TH AGRAHAYANA, 1936

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CRL.A.No. 1152 of 2012 ( )

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--------------------------ST 584/1997 of ADDL.CHIEF JUDICIAL MAGISTRATE (E&O),ERNAKULAM

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APPELLANT/COMPLAINANT :

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----------------------------------------

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THE ASSISTANT REGISTRAR OF COMPANIES, KERALA, B.M.C.ROAD, THRIKKAKARA ERNAKULAM, COCHIN-21.

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BY ADV. SRI.P.M.M.NAJEEB KHAN, ADDL.CGSC

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RESPONDENTS/ACCUSED :

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*** 1. OOMMEN P.KOSHY (DIED) POLACHIRAKKAL HOUSE, NEAR POWER HOUSE, MAVELIKKARA ALLEPPEY.**

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R1 DIED HENCE APPEAL AGAINST R1 ABATED AS PER ORDER DTD 10/8/2012 IN ZCRA 6087/2010 (CRL.A 1152/12)

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2. ACCAMMA CHACKO, ILLAMPILLIL, THIRUVALLA-1

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3. K.K.VAIDYANATHAN, F-3,PRS COURT, AMBUJA VILASAM ROAD, TRIVANDRUM-1.

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4. STATE OF KERALA, REPRESENTED BY THE PUBLIC PROSECUTOR, HIGH COURT OF KERALA, ERNAKULAM.

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R2 BY ADV. SRI.SHAJI P.CHALY

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SRI.R.SANJITH

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SMT.LIJITTA G.MATHEW

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R3 BY ADV. SRI. K.C. ELDO R4 BY PUBLIC PROSECUTOR SMT.R. REMA

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THIS CRIMINAL APPEAL HAVING BEEN FINALLY HEARD ON 04-12-2014 ALONG WITH CRL.A. NO. 2167/2008 & CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

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“C.R”

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ALEXANDER THOMAS, J.

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Crl.A.Nos.1151/2012, 1152/12, 1153/12, 1154/12, 1148/12, 1149/12, 1150/12, 9/2009, 2452/08, 2453/08, 2171/08, 2891/08, 2538/08, 2421/08, 2630/08, 2889/08, 2168/08, 2722/08, 2167/08, 2170/08, 2394/08 and 2719/08

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Dated this the 4^th day of December, 2014.

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J U D G M E N T

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These appeals arise out of the common judgment rendered by the Court of Additional Chief Judicial Magistrate (Economic Offences), Ernakulam on 26.2.2007 in the summary trial cases concerned. The summary trial cases arise out of a complaint preferred by the Assistant Registrar of Companies, Kerala, alleging commission of offence under Section 295(4) of the Companies Act, 1956. It was alleged in the complaint that the accused Nos.1 to 3 are the members of the Board of Directors of the company involved in this case, viz, M/s.Koshy's Electronics Limited which is a public limited company registered under the Companies Act and 4^th accused is the Company Secretary of the company and that they have

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committed the offence under the Companies Act, in so far as the accused No.1 (Managing Director of the Company) has

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Crl.A.No.1151/2012 and connected cases

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unauthorisedly drawn various amount totalling to Rs.34.22 Lakhs from the funds of the company without the prior permission of Government of India as envisaged under Sec.295(1) of the Companies Act and thereby all the accused have committed the offence as aforementioned.

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The court below found that though the 1^st accused has unauthorisedly withdrawn an amount totalling to Rs.34.22 Lakhs on various occasions from the company, but as the 1^st accused had re-paid the entire amounts due to the company as evident from Ext.D2, the accused who are facing trial need not be penalised and accordingly held that the accused in these cases are found not guilty under Sec.295(4) of the Companies Act and thus they were acquitted under Sec.255(1) Cr.P.C. It is this judgment of the court below that is under challenge in this appeal. It is brought to the notice of this Court that one of the respondents (viz, Accused No.2-Oommen P.Koshy), has died after the pronouncement of the trial court judgment and this is not disputed by the learned counsel for the appellants and that these appeals as regards the said accused has already been abated.

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Crl.A.No.1151/2012 and connected cases

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3. Sub-section (1), (2) and (4) of Sec.295 reads as

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follows:

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' 295. Loans to directors, etc . (1) Save as otherwise provided in sub-section (2), no company (hereinafter in this section referred to as “the lending company”) without obtaining the previous approval of the Central Government in that behalf shall directly or indirectly, make any loan to, or give any guarantee or provide any security in connection with a loan made by any other person to, or to any other person by,

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“(a) any director of the lending company or of a company which is its holding company or an partner or relative of any such director;

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(b) any firm in which any such director or relative is a partner;

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(c) any private company of which any such director is a director or member;

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(d) any body corporate at a general meeting of which not less than twenty-five per cent of the total voting power may be exercised or controlled by any such director or by two or more such directors together; or (e) any body corporate, the Board of Directors, managing director, or manager whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company.”

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(2) Sub-section (1) shall not apply to-

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(a) any loan made, guarantee given or security provided-

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(i) by a private company unless it is a subsidiary of a public company, or (ii) by a banking company; (b) any loan made by a holding company to its subsidiary company;

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(c) any guarantee given or security provided by a holding company in respect of any loan made to its subsidiary company.

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- - - - - - - - (3).

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(4) Every person who is knowingly a party to any contravention of sub-section (1) or (3) including in particular any person to whom the loan is made or who has taken the loan in respect of which the guarantee is given or the security is provided, shall be punishable either with fine which may

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Crl.A.No.1151/2012 and connected cases

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extend to fifty thousand rupees or with simple imprisonment for a term which may extend to six months;

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Provided that where any such loan, or any loan in connection with which any such guarantee or security has been given or provided by the lending company, has been repaid in full, no punishment by way of imprisonment shall be imposed under this sub-section; and where the loan has been repaid in part, the maximum punishment which may be imposed under this sub-section by way of imprisonment shall be proportionately reduced.'

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4. On a perusal of the above said provision engrafted

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in Sec.295(1) of the Companies Act, it is clear that the said provision covers the situation where the “company” itself advances a loan to a person giving rise to the contravention as

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envisaged in that Section. In this context, it should be noted

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that Sec.292(1) of the companies Act, provides as follows:

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“ 292. Certain powers to be exercised by Board only at meeting :

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(1) The Board of directors of a company shall exercise the following powers on behalf of the company, and it shall do so only by means of resolutions passed at meetings of the Board:-

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(a) the power to make calls on shareholders in respect of money unpaid on their shares;

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(aa) the power to authorise the buy-back referred to in the first proviso to clause (b) of sub-section (2) of section77A; (b) the power to issue debentures; (c) the power to borrow moneys otherwise than on debentures; (d) the power to invest the funds of the company; and (e) the power to make loans .” (emphasis supplied).

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Crl.A.No.1151/2012 and connected cases

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Therefore, it is quite clear on a mere reading of Sec. 292(1)(e) that it is mandatory that the power to make loans can only be exercised for and on behalf of the company through a resolution passed by the meeting of the Board of Directors of the company. Hence, to attract the basic ingredients of the offence conceived under Sec. 295(4) of the Companies Act, the complainant should have a specific case that the Board of Directors of the Company has passed a resolution to grant or sanction the loans in question to the beneficiary concerned, without the due permission of Government of India as envisaged in that Section.

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A perusal of the complaint in this case would make it clear that even according to the averments in the complaint itself the complainant does not have any case that the company through its Board of Directors had passed appropriate resolution to grant or sanction the loan in question to the beneficiary concerned (A1). On the other hand it is the specific case of the complainant as evident from paragraph 1 in page 2 of the complaint that there was unauthorised withdrawal of funds by the 1^st accused, who was the Managing

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Crl.A.No.1151/2012 and connected cases

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Director of the company. The exact averments in that regard in paragraph 2 of in page 2 of the complaint reads as follows:

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“It is alleged in the complaint that there was unauthorised withdrawal of funds by the 1^st accused who was the Managing Director of the Company”.

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Therefore, the mere fact that accused No.1 in his capacity as Managing Director of the company had withdrawn the money from the Company's Account without the permission of the Central Government will not rope in any offence conceived in Sec. 295(1) of the Companies Act so as to pin point criminal culpability on the incumbents who are the members of the Board of Directors of the said Company of the offence conceived in that Section. It is to be noted that PW-1 who was examined on behalf of the Registrar of Companies during cross-examination has stated categorically that the grant of loan by the Company alone is restricted under Sec. 295(1) and that he has not seen any document relating to the sanction of loan by the Company and he has not produced any such document to substantiate his case. He has further stated in cross-examination by accused No.2 that he was not a party of the inspection team who has verified the minutes. PW1 has

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Crl.A.No.1151/2012 and connected cases

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stated that he does not know whether the Board of Directors of the Company has taken any decision regarding sanction of loan. It is clear as day light that the prosecution has not even a whisper in the complaint in question that the Company through Board of Directors has passed a resolution sanctioning loan to the 1^st accused, who was the Managing Director of the Company at the relevant time, and hence basic element of criminal culpability on the accused as conceived under Sec. 295(1)of the Companies Act is totally absent in the instant case.

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Sri.S.P.Chaly, learned counsel appearing for some of the respondents in this case, has also urged that Sec. 295 (1) of the Act, 1956 contemplates the prohibition of a loan by the Company to outsider and that if the loan in question is alleged to be granted or sanctioned to one of the Directors or Managing Director of the Company, the offence under Sec. 295 (4) cannot be said to be attracted. It is not necessary to deal with these aspects of the matter in the light of the view already taken by this Court that the complaint in question does not disclose the offence for the reason stated earlier herein

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Crl.A.No.1151/2012 and connected cases

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above. Further, learned counsel for the respondents would also submit that it is the admitted case of the accused that the accused No.1 had withdrawn money from the Company in his capacity as Managing Director of the Company after executing necessary vouchers and he has withdrawn the money for travelling and other expenses like entertainment for promoting the business of the Company and therefore it was not a question of grant or sanction of loan to accused No.1 but withdrawal of the monies of the Company by accused No.1 for running the business of the Company as stated above. It is also not necessary to adjudicate on this issue in view of the reasons stated herein above.

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Sri.P.M.M.Najeeb Khan, learned Central Government

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counsel appearing for the appellants in all these cases would urge that on the basis of the petitions received from some of the other Directors of the Company, officials in the office of the Registrar of Companies had issued a show cause notice to the Company as well as to the Directors as in the matter of the alleged contravention under Sec. 295(1) of the Companies Act and that in reply to show cause notice, Sri.V.M.Joseph, the

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Crl.A.No.1151/2012 and connected cases

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then Company Secretary/Financial Manager of the Company had issued a reply stating that the Company has contravened under Sec. 295 of the Act for the loans received by accused No.1. Sri.V.M.Joseph, the then Company Secretary, was not made as an accused in this case. His predecessor, who was the Company Secretary at the earlier point of time, was made as accused in this complaint. Mere admission of a plea based on a mixed question of fact and law cannot tie down the accused in this case as to the guilt or otherwise of the offence alleged against them. The Company Secretary, who had given the said reply, is an officer who had taken charge subsequently and his admission cannot in any way tie down the accused to the criminal culpability. For bringing in a successful prosecution for the offence alleged in this case, it is incumbent on the complainant to specifically and cogently plead and prove that the Company through its Board of directors had passed a resolution in the matter of alleged sanction and grant of loan to the beneficiary concerned and give material particulars as to the details of the resolution taken by the Board of Directors and as to how the said factual details would

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Crl.A.No.1151/2012 and connected cases

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make out a contravention under Sec. 295(1) of the Companies Act pointing out the commission of offence under Sec. 295(4) of the Act. Therefore, the mere statement made by the successor-in- office of the Company Secretary cannot be of any avail to the prosecution to rope in criminal culpability to the accused in this case. More importantly, it is to be noted the proviso to Sec. 295(4) of the companies Act which reads as follows:

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“ 295. Loans to directors, etc . (1) .................... (2) .................... (3) .................... (4) ...................

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provided that where any such loan, or any loan in connection with which any such guarantee or security has been given or provided by the lending company, has been repaid in full, no punishment by way of imprisonment shall be imposed under this sub-section; and where the loan has been repaid in part, the maximum punishment which may be imposed under this sub-section by way of imprisonment shall be proportionately reduced.”

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8. It is common ground and it is in no way disputed by

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the appellants (complainant) that the entire amounts owed by accused No.1 to the Company has fully repaid by the accused No.1 as evident from D2. Therefore, even if the accused were to be found guilty of the offence, no sentence by way of term of imprisonment could have been imposed on them and at the

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Crl.A.No.1151/2012 and connected cases

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most a maximum fine amount of Rs.5,000/- could have been imposed and that too depending proportionately on the amount involved in each of the cases. Therefore, Sri.P.M.M.Najeeb Khan, would also urge that in some of the connected earlier matters the accused have pleaded guilty and this matter should be taken into consideration by this Court. Sri.S.P.Chaly, learned counsel for some of the respondents in this case would submit that merely because the accused had pleaded guilty in some of the cases and imposed fine amount concerned in the cases would not be a ground for this Court to decide the case on merits and hold that the accused have actually contravened the provisions of Sec. 295(1) of the Companies Act. After considering the rival contentions in this regard, this Court is of the considered opinion that merely because the accused have pleaded guilty in some of the earlier matters may not be really relevant to decide as to whether there has been any contravention of provisions of Sec. 295(1) of the Act in the facts and circumstances of the case. May be that, since the maximum penalty that could have been imposed by way of fine is not exceeding Rs.5,000/-, the

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Crl.A.No.1151/2012 and connected cases

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accused would have been advised to plead guilty and close the cases by paying the fine. The accused in those cases could have been advised to pay off the fine and salvage themselves from the long drawn process of prosecution instead bearing burden of facing the prosecution and also expending much monies towards such litigative expenses. Therefore, this plea of the appellants could be of no avail in the facts and circumstances of this case. For these reasons, the conclusion reached by the court below that the accused are not guilty of the offence alleged and that they are acquitted under Sec. 255 (1) Cr.P.C deserves no interference in these appeals at the hands of this Court.

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The Criminal appeals stand dismissed.

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ALEXANDER THOMAS, Judge.

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bkn/-

The Assistant Registrar of Companies v. Thomas P.Koshy & Another

Case brief

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The Assistant Registrar of Companies v. Thomas P.Koshy & Another

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