Partly allowed

Narendra Singh and Anr. v. State and Anr.

Rajasthan HC4 Aug 2016CRLR/168/1994

Case brief

AI extract

What is this about?

In a criminal revision, the High Court affirmed the conviction of accused directors for contravening RBI Directions regarding non-banking companies. The Court modified substantial imprisonment sentences to time already served but enhanced the fines imposed on them.

What did the court decide?

Conviction upheld; substantive sentences of imprisonment reduced to time already served; fines enhanced and directed to be paid within 90 days.

Narendra Singh and Anr. Vs State and Anr. — Banking and Recovery | Rajasthan HC (2016)

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IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR

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CRIMINAL REVISION(CRLR) No. 166 of 1994

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PETITIONERS

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RAM CHANDER (DEAD) , AGED 52 YEARS, S/O SRI INDER LAL, BY CASTE KABRA R/O 79 SUBHASH MARG

NARENDRA SINGH, AGED 46 YEARS S/O SRI LAXMAN SINGH, BY CASTE BOLIA, R/O 44 SRI NATH MARG

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PURSHOTTAM DEEDWANIA (DEAD) , AGED 60 YEARS, S/O SRI BHANWER LAL, BY CASTE DEEDWANIA, R/O 7 SHIVAJI NAGAR

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SHANTI LAL, AGED 42 YEARS, S/O SRI PURSHOTTAM, BY CASTE DEEDWANIA R/O RAOJI KA BADA

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ALL RESIDENT OF UDAIPUR.

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VERSUS

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RESPONDENTS

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THE STATE OF RAJASTHAN

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THE DEPUTY CHIEF OFFICER, RESERVE BANK OF INDIA, DEPARTMENT OF NON-BANKING COMPANIES, NORTHERN REGION, 6- PARLIAMENT STREET, NEW DELHI.

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CRIMINAL REVISION(CRLR) No. 168 of 1994

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PETITIONERS

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NARENDRA SINGH S/O SRI LAXMAN SINGH, BY CASTE BOLIA, RESIDENT OF SRINATH MARG, UDAIPUR

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SHANTI LAL S/O SRI PURSHOTTAM, BY CASTE DEEDWANIA RESIDENT OF UDAIPUR

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VERSUS

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RESPONDENTS

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THE STATE OF RAJASTHAN 2. THE DEPUTY CHIEF OFFICER, RESERVE BANK OF INDIA, DEPARTMENT OF NON-BANKING COMPANIES, NORTHERN REGION, 6- PARLIAMENT STREET, NEW DELHI.

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CRIMINAL REVISION(CRLR) No. 169 of 1994

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PETITIONERS

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NARENDRA SINGH S/O SRI LAXMAN SINGH, BY CASTE BOLIA, RESIDENT OF SRINATH MARG, UDAIPUR

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SHANTI LAL S/O SRI PURSHOTTAM, BY CASTE DEEDWANIA RESIDENT OF UDAIPUR

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VERSUS

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RESPONDENTS

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THE STATE OF RAJASTHAN 2. THE DEPUTY CHIEF OFFICER, RESERVE BANK OF INDIA, DEPARTMENT OF NON-BANKING COMPANIES, NORTHERN REGION, 6- PARLIAMENT STREET, NEW DELHI.

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Date of Judgement : 4.8.2016

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HON'BLE MR. GOVERDHAN BARDHAR,J.

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Mr. VINEET JAIN, for the Petitioners

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Mr. LR UPADHYAYA, for the Respondent

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JUDGEMENT --------------

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All the revision petitions have been filed against the judgment dated 19.04.1994 passed by the Special Judge, Scheduled Castes & Scheduled Tribes Cases Court, Udaipur (hereinafter “the appellate court”) in Criminal Appeal Nos.52/1992, 57/1002, 58/1992 & 61/1992 whereby the learned appellate court dismissed the criminal appeals filed by the accused-petitioners separately and affirmed the conviction and sentence of the accused-petitioners recorded by the learned Chief Judicial Magistrate, Udaipur (hereinafter “the trial court”) vide his judgment dated

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24/26.08.1983 in Criminal Original Case Nos.21/1979, 22/1979 & 23/1979. By the said judgment, the learned trial court convicted the accused-petitioners for contravention of the Misc. Non-Banking Reserve Bank of India Directions under the Reserve Bank of India Act. The sentence awarded

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by the courts below is as under :

For contravention of Directions 4(B)(ii) under Section 58(b)(v)(a)(i) sentenced to two years’ simple imprisonment and a fine of Rs.25,000/-. In default simple imprisonment for three months. For contravention of Directions 5(1)(a)(B) under Section 58(B)(vi) fine of Rs.2,000/-. In default simple imprisonment for fifteen months.

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For contravention of Directions 6 under Section 58(B)(v)(b)(ii) fine of Rs. 25,000/-. In default three months simple imprisonment.

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For contravention of Directions 10 under Section 58(B)(ii) fine of Rs.2,000/-. In default fifteen days’ simple imprisonment.

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(5) For contravention of Directions 11 read with Direction 12 under Section 58(B)(ii) fine of Rs.2,000/-. In default fifteen days’ simple imprisonment.

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(Substantive sentences are to run concurrently)

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Brief facts of the case are that on 30.03.1974, Mr. R.C. Raijada, the then Deputy Chief Officer, Reserve Bank of India, Department of Non-Banking Companies, Northern Region, New Delhi, filed three complaints pertaining to different periods against Upkar Saving and Trading Company (P) Ltd., Udaipur, the present petitioners and one Shri Ram Chander Gotwal (who died during the pendency of the proceedings in the court of the Munsiff and Judicial Magistrate, (South) Udaipur, which was transferred to the

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Court of the Chief Judicial Magistrate, Udaipur vide order dated 18.01.1979 for contravention of the various provisions of Section 4(2)(b) of the Reserve Bank of India Act (hereinafter “the Act”).

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According to the contents of the complaint, Upkar Savings and Trading Company (P) Ltd., Udaipur (hereinafter “the Company”) was registered under the Companies Act, 1956 on 30.03.1974 and its registered office was situated at 50, Panch Sheel Marg, Delhi Gate, Udaipur and that the aforesaid Company was a Company within the meaning of Clasue 1 para 31 of the Miscellaneous Non-Banking Reserve Bank Directions (hereinafter “the Directions”). It was alleged that the accused Nos.3 to 5 namely Shri Ram Chander, Shri PUrshottam Deedwania and Shri Narendra Singh Bolia were Directions of the Company at the time of its constitution and Shri Ram Chander Gotwal, accused No.6, joined as a Director on 06.09.1974 and that the accused No.3 Shri Purshottam Deedwania was the Managing Director upto 30.12.1976 and thereafter Shri Ram Chander Kabra became the Managing Director and thus they were all liable by virtue of Section 58(C) of the Act. The Company was also impleaded as accused No.1.

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It has been further alleged that as per Reserve Bank’s Directions, 1973 dated 23.08.1973 which became effective on 01.09.1973, the Company was under an obligation to send returns in respect of the period upto 31^st March as well

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as 30^th September but the same were not sent. Again fresh Directions of 1977 became effective from 01.07.1977 but still the obligations under the old Directions of 1973 continued.

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It has also been alleged that the Bank came to know on 22.12.1975 that the Company was a Miscellaneous nonBanking Company and despite communications the returns were not sent by the Company. Hence a Notice was given on 09.07.1976 whereupon the return was sent which revealed that the accused-persons are taking deposits from the public and the same were in excess of the 25% of the capital. As per balance-sheet of 1976 deposits to the tune of Rs.12,15,310/- were received but the capital was only Rs.6,100/- that too was extinguished as a result of loss of Rs.9,94,002.45/- only, hence it was prayed that since the accused-persons have contravened the Direction, they may be properly punished.

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Initially PW-1 Shri R.S. Chopra was examined and thereafter charges were framed on 26.03.1981 under various counts of the Act referred to above and after PW-1 Shri R.S. Chopra, two more witnesses namely Shri Bhonri Lal and Shri Sampat Lal Bohra were examined. The accused in their statements denied to have committed the offences and pleaded not guilty. However, they submitted a copy of the Company Petition dated 30.03.1981 filed by the Registrar of Companies in the Rajasthan High Court.

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The learned Chief Judicial Magistrate Udaipur vide its judgment dated 24/26.08.1983 convicted and sentenced the accused petitioners as aforesaid. Aggrieved by the said conviction and sentence, the petitioners preferred appeals before the appellate court, which were dismissed on 19.04.1994. Hence, these revisions petitions.

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Accused-petitioners Purshottam Deedwania and Ram Chander have already expired and revision petition filed by them has already been abated vide order dated

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15.09.2014.

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Mr. Vineet Jain, appearing for the petitioners has argued that the conviction of the petitioners recorded by the trial court and affirmed by the appellate court is contrary to law. Counsel submits that in view of nature of the schemes undertaken and operated by the Company, the subscription received from the subscribers cannot by any stretch of imagination be classified as deposits. Therefore the Company was under no obligation to treat them as deposits. Further, the subscription raised by the Company did not amount to deposit as per Section 3(1)(d) of the Direction. It is further argued that from the various communications addressed by the Company, it is evident that it was for the first time in the year 1978 that the Company was prohibited from accepting the subscription which according to Bank amounted to deposit. The Company has not received any subscription thereafter, therefore, no offence is committed.

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That apart the prosecution has not proved that the petitioners at the time of the alleged contravention or default were in-charge of and responsible to the Company for the conduct of the business of the Company, hence no liability can be fastened on the petitioners. It is further submitted that the appellate court did not notice outstanding features and contentions based on various communications of the Bank and the Company particularly Ex-P/27 whereby the Company had informed that the Directions of 1973 were not applicable to the Company. Counsel further argued that subscription received by the Company in respect of saving schemes/group should be treated as deposit against Code 5A under the relevant time. It is further submitted that not a single subscriber was examined as witness. It is further argued that for criminally prosecuting a person, the element of mens rea must be present and where the company or the Directors have not acted dishonestly and with deliberate intentions to cause wrongful gain and wrongful loss not with the allegation constituted any other for cheating or forgery in such a case neither the company nor the Directors can be prosecuted for criminal offence. Counsel further argued that so far as the present accused-petitioners are concerned, there is no overt act alleged in the complaint personally against them and there are no allegations that they knowingly and willfully committed breaches of the said Directions given by

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the Reserve Bank. They are, therefore, not liable to any conviction.

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Learned Public Prosecutor has submitted that the courts below have rightly convicted the accused-petitioners for the offences aforesaid for violation of Directions and the impugned orders do not warrant any interference at the hands of this Court.

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Heard the learned counsel for the parties, perused the impugned orders and gone through the material available on record.

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It is pertinent to note that in para 2 of the complaint, it has been specifically alleged that the accused Upkar Savings and Trading Company Private Limited was incorporated as a Private Limited Company under the Companies Act, 1956 on the 30^th March 1974 and is having its Registered Office at Panch Sheel Marg, Delhi Gate (P.S. Dhan Mandi), Udaipur. The accused-Company is a Miscellaneous Non-Banking Company within the meaning of Clause (i) of paragraph 3(1) of the Miscellaneous NonBanking Companies (Reserve Bank) Directions, 1973. The Accused Nos.3 to 5 are the directors since the formation of the company. Subsequently, accused No.6 joined the company as the director on the 6^th September 1974. The accused No.3 was also the Managing Director of the company upto 31^st December 1976 and thereafter accused No.2 became the Managing Director of the Company. As

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such all the 6 accused persons are liable vide Section 58C of

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the said Act which reads as under :

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“Where a person committing a contravention or default referred to in Section 58B is a company, every person who, at the time the contravention or default was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the contravention or default and shall be liable to be proceeded against and punished accordingly.”

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Vide order dated 26.03.1981 charges were framed by the trial court against the accused-petitioners for offences under Sections 58B and 58C of the Act. The charges were framed in clear terms and all the accused-persons were responsible for the business of the accused-Company and therefore all the accused committed offence under Section 58C of the Act.

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According to the allegations made in the complaint every director or member of any committee or other body for the time being vested with the management of the affairs fo the non-banking institution, unless he proves that the contravention took place without his knowledge or that he exercised all due diligence to prevent it, shall be punishable with penalties provided in the Act. There is no doubt that the accused persons in their personal capacity as Directors, vested with the management of the affairs of the company, would be liable unless they proved that the contravention took place without their knowledge or that they exercised all due diligence to prevent it. The appellate

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court has relied on the documentary evidence Ex-P/14 Memorandum of Associations and Articles of Associations, Ex-P/34 certificate of incorporation, Ex-P/35, Ex-P/38, ExP/39, Ex-P/41, Ex-P/44, Ex-P/48, Ex-P/53, Ex-P/42 notice of meeting to the share holders of the company on 25.09.1975 and Ex-P/40 to Ex-P/53. There is ample material on record to justify in order to finding arrived at by the courts below that accused may be held responsible.

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The case of the complainant is that the accusedCompany was incorporated as a Private Limited Company, under the Companies Act, 1956 on the 30^th March, 1974 and the complaint was lodged for violation of the directions on 23^rd day of Oct., 1978. And the definition of 'deposit' as inserted by the Act 51 of 1974 was in force at the relevant time the subsequent substitution by Banking Laws (Amendment) Act 1983 has no relevancy for the purpose of these complaints arising in the year 1975, 1976 and 1977.

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It is important to note that these directions were issued on 23.08.1973 that is prior to 30.03.1974 the date of incorporation of the appellant No.1 and came in force on 1.9.1973.

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Moreso the facts do reveal, proved and admitted that the accused-company is a “miscellaneous non-banking company” within the meaning of Clause (i) of para 3 of the Miscellaneous Non-Banking Companies (Reserve Bank) Directions, 1973 (the Directions) and it is promoting and

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running schemes in the nature of prizes, gifts, in the form of cash and kinds.

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Ex.P4/5 reveal the Rules & Regulations published and advertised were meant to attract the deposits from the public at large. Rule 5, 6, 7 of Ex P 4/5 were meant to allure the public to get Motor Cycle, Bungalows, Fiat Car, etc., as gifts.

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Ex P.10 specifically in para 5 narrates that the accused company was conducting business of the type referred to in paragraph 2(1) of the notification to above, the amount received from the subscribers would be treated as “deposits for the purposes of “directions”.

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It is observed from the balance sheet of the accused company as at the 31^st March 1975 that the entire amount of monthly deposits aggregating Rs.2.03 lakhs received from the subscribers have been rendering excessive as no ceiling limit was available to the accused company.

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Ex P 15 is the document published by the accused company soliciting deposits and to provide to the persons gifts like Refrigerator, Scooter, Motor Cycle, etc.

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Ex P 16 dated 5.10.70 is the direction sent by the R.B.I. to the accused company asking to send the returns in particulars way according to rules but the accused company did not comply.

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Ex P 18 is the reply direction sent by the accused wherein they have admitted that they were giving prizes to the subscribers through 17 groups. Mostly the groups were

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started in the year 1974, 1975-76. They have also admitted that they received deposits of Rs.12,14,320/- upto 31.3.1976 under its different schemes. They have also admitted that they did not minimize the deposits by repayments to the parties as required by statutory directions of 1973.

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The Audit Report Exp 24 clearly reveals in (1) that “the company has not followed the directions of the Reserve Bank of India.”

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Exp 29 and Exp 30 are the documents narrating the directions by RBI to the accused “violations of the directions”. But the accused company did not pay any attention to the Statutory Directions.

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Exp 35 is the letter of Ex-Chairman of the accused company wherein he informed that due to uncontrollable irregularity committed by the Managing Director with the majority powers of other Directors, he expressed his inability to control them and thus peacefully quit from the way.

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Both the courts below have rightly held that the deposits collected by the accused-company under various schemes floated by it are not deposits collected by floating conventional schemes of the description as are referred to in sub-para (2) of para 2 of the Directions, but they are schemes answering the description of prize chit fund schemes covered by the provisions contained in sub-para

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(1) of para 2 of the Directions.

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An offence means any act or omission made punishable by law. In the matter in hand, as per documentary evidence on record, it is not a case of inadvertence or mistake. Therefore violation of the Directions creates criminal liability.

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In view of above, no interference is required in concurrent findings recorded by the courts below. Accordingly the conviction of the accused-petitioners ordered by the courts below is confirmed and upheld.

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However, taking into account the fact that the incident is of the year 1979 and the petitioners had remained in custody for a substantial period, this Court is of the opinion that the ends of justice would be met if the substantive sentence of imprisonment imposed by the courts below is modified and reduced to the period of imprisonment already undergone by the accused-petitioners.

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In the result, the revision petitions are partly allowed. While maintaining the conviction of accused-petitioners for the aforesaid offences, their substantive sentence is modified and reduced to the period already undergone. However, the fine of Rs.25,000/- imposed by the trial court for offence under Directions 4(B)(ii) under Section 58(b)(v) (a)(i) of the Act shall stand increased to Rs.50,000/-; fine of Rs.2,000/- imposed by the trial court for offence under Directions 5(1)(a)(B) under Section 58(B)(vi) of the Act

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shall stand increased to Rs.5,000/-; fine of Rs.25,000/imposed by the trial court for offence under Directions 6 under Section 58(B)(v)(b)(ii) of the Act shall stand increased to Rs.50,000/-; fine of Rs.2,000/- imposed by the trial court for offence under Directions 10 under Section 58 (B)(ii) of the Act shall stand increased to Rs.5,000/-; and fine of Rs.2,000/- imposed by the trial court for offence under Directions 11 read with Direction 12 under Section 58 (B)(ii) of the Act shall stand increased to Rs.5,000/- upon same condition imposed by the trial court. The said amount of fine shall be deposited in the trial Court within a period of 90 days.

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A copy of this order be placed in each of the files.

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MS/1 to 3

Narendra Singh and Anr. v. State and Anr.

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Narendra Singh and Anr. v. State and Anr.

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