Neptune Studios Limited, and Others v. State — 1963 DIGILAW 318 (MAD)

Judgment :- P S KAILASAM J. The appellants were found guilty of offenses under section 220(3) read with section I62(I) of the Companies Act, 1956, by the Sixth Presidency Magistrate, Saidpet, and each of them was sentenced to pay a fine of Rs. 500 in each of the two cases. The appellants were accused Nos. I to 7 in the lower court. Accused No. I is the Neptune Studios Ltd., accused No. 2 is the managing director, accused Nos. 3 to 6 are the directors and accused No. 7 is the general manager of the company A clerk in the office of the Registrar of Companies examined as P.W. I stated that the accused company did not file copies of balance-sheet and profit and loss accounts as on December 31, 1958, and the statement was due in the office of the Registrar by the middle of October, 1959. As the balance-sheet was not received, the office sent a letter, exhibit P-IO, dated December 6, 1960, calling upon the company to furnish the balance- sheet. In spite of correspondence, the balance-sheet was not submitted till the complaint was field. It is admitted that the balance-sheets for the years 1958 and 1959 were submitted only on August 14, 1961. Learned counsel for the appellants submitted that the conviction of the appellants under section 220(3) of the Companies Act is unsustainable. He submitted that under section 220(3), the filing of the profit and loss account with the Registrar is contemplated only after the balance-sheet and profit and loss account have been laid before the company at the annual general meeting. It was contended that due to various difficulties in the working of the company, no general body meeting was convened, and, as the section contemplates filing of the balance-sheet and profit and loss account with the Registrar after those documents have been laid before the company in its general meeting, the appellants cannot be found guilty of the offense under section 220(3), as no general meeting was held. In support of his contention learned counsel relied on Emperor v. Pioneer Clay and Industrial Works Ltd. Referring to section I34(I) of the Indian Companies Act, 1913, which corresponds to section 220 of the 1956 Act, Chagla, Ag. In support of his contention learned counsel relied on Emperor v. Pioneer Clay and Industrial Works Ltd. Referring to section I34(I) of the Indian Companies Act, 1913, which corresponds to section 220 of the 1956 Act, Chagla, Ag. C. J. (as he then was), observed as follows "Is is to be noted that what is made penal is default in complying with the requirements of the section and the requirements of section I34(I) are that there is an obligation cast upon the company to file three copies of the balance-sheet and the profit and loss account after they have been laid before the company at the general meeting. There is no obligation cast upon the company to file any such copies, if no general meeting has been called. As I started by saying, it is common ground that no general meeting of the company has been convened at which the balance-sheet and the profit and loss account for 1944 has been laid. Apart from authority, it would seem clear on the terms of this section that the company and its four directors have not made any default in complying with the requirements of this sub- section of section I34." * In a recent decision in State of Bombay v. Bhandhan Ram Bhandani the Supreme Court took a different view. Referring to the view taken in England, the Supreme Court observed ". . .a person charged with an offense could not rely on his own default as an answer to the charge, and so, if the person charged was responsible for not calling the general meeting, he cannot be heard to say in defence to the charge that the general meeting had not been called . . . If the person charged with the failure to carry out the requirements of the section could have called the meeting, he cannot defeat the provision of the section simply by not calling the meeting wilfully." * Dealing with sections 32 and 76 of the Indian Companies Act, 1913, it was observed by the Supreme Court "That, however, is, in our opinion, no reason for saying that a person charged with a failure to file list and summary as requires by section 32 where a meeting had not been held, could only be prosecuted under section 76 and not under section 32. Section 76 imposes an obligation to hold a meeting and attaches a penalty to a failure to perform that coligation. In the case of section 32 it is necessary that the meeting should be held in order that the requirements of that section may be carried out. It is no less necessary to call a meeting for performing the obligations imposed by section 32, because under section 76 there is an obligation to call a meeting the breach of which entails an independent penalty." * The Supreme Court, referring to the decision in Emperor v. Pioneer Clay & Industrial Works Ltd., pointed out the difference in language and held "If the language of section I34(I) makes any difference as to the principle to be applied in ascertaining whether a breach of it has occurred or not-as to which we say nothing in this case-then that case can be of no assistance to the respondents. If, however, no such difference can be made, then we think that it was not correctly decided." In conclusion, the Supreme Court observed " If the principle that a person charged with an offense cannot rely on his own default as an answer to the charge is correct, as we think it is, and which we do not find Chagla C.J. saying it is not, then that principle would clearly apply when a person is charged with a breach of section 32 of our Act." * Though the Supreme Court has not, in terms, overruled the decision in Emperor v. Pioneer Clay & Industrial Works Ltd., it has to be held that the Bombay decision cannot be of much guidance. The effect of the Supreme Court's decision is that a person charged with failure to carry out the requirements of the section cannot take advantage of his own default. Applying the principle laid down by the decision of the Supreme Court, I hold that the appellants cannot be heard to plead their own default in not convening the general meeting, for the submission that they are not guilty of an offense under section 220(3) of the Companies Act, 1956 The convening of a meeting at the prescribed time is a statutory duty and the appellants cannot be heard to plead that their failure to convene the meeting or failure to submit the balance-sheet and profit and loss account was not willful. Section 220, clause (3), provides that if there is default in complying with the requirements of the section, the company, and every officer of the company who is in default, shall be liable to punishment. Therefore, there can be no doubt that the appellants are guilty of the offense under section 220(3) of the Companies Act, 1956Learned counsel for the appellant submitted that on the question of sentence, the inability of the accused to convene the general meeting and submit the balance-sheet and profit and loss account may be considered. Due to disputes in the company there was a litigation in the High Court. On October 23, 1956, a committee of management was appointed. On December 4, 1957, some of the appellants were elected as directors. on the same day a receiver was appointed to take charge and be in management of the affairs of the company. An appeal against that decision was preferred in O.S.A. No. I of 1958 and the taking of charge by the directors was stayed. Ultimately, the appeal was dismissed on March 22, 1958. The directors were elected on March 31, 1958 and they started functioning. Learned counsel submitted that when they took charge in March, 1958, the affairs of the company were in utter chaos and that the accounts for the years 1954 and 1955 were not passed and the accounts for the subsequent years 1955, 1956, 1957 and 1958 were not audited. As a meeting held on September 27, 1958, the accounts for 1954 and 1955 were passed. Two sets of auditors were appointed for auditing the accounts for the years 1956, 1957 and 1958. Due to some controversy between the auditors, the accounts were not audited till August 14, 1961. In these circumstances, the learned counsel for the appellants submitted that it was not possible for the appellants to submit their accounts and comply with the requirements of section 220 of the Companies Act during the years 1958 and 1959. C.A. No. 576 of 1961 relates to failure to comply with the requirements of section 220 regarding the year 1958. As already stated, the managing directors took charge on March 31, 1958, and found that the accounts for 1954 and 1955 have not been passed and got them passed only in September, 1958. C.A. No. 576 of 1961 relates to failure to comply with the requirements of section 220 regarding the year 1958. As already stated, the managing directors took charge on March 31, 1958, and found that the accounts for 1954 and 1955 have not been passed and got them passed only in September, 1958. The balance-sheet and the profit and loss account for 1958 should have been laid before the general meeting in November, 1959. Though there was nearly a year left for complying with the requirements of the section, the appellants are guilty under section 220(3) of the Act. But taking into consideration the fact that the accounts were not passed for 1954 and 1955 and that they had to get the subsequent accounts audited, a lenient view of the matter can be taken. Accused No. 1 is the company, accused No.2 is the managing director and accused No. 7 is the general manager. Their responsibility is greater than the other directors. I reduce the fine imposed on accused Nos. 1, 2 and 7 to Rs. 100 each and that on the other accused to Rs. 50 eachC.A. No. 577 of 1961 relates to the year 1959. The accounts for the period 1959 should have been prepared and submitted by November, 1960. There is no excuse whatever for the appellants for not complying with the requirements of section 220 before November, 1960. The convictions of the appellants are confirmed. There is no reason to reduce the sentences passed on accused Nos. 1, 2 and 7. Regarding the other accused, the fine is reduced to Rs. 100 each Time for payment of fine is two months from this date.