HRUSHIKESH PANDA v. STATE OF ORISSA — 1996 DIGILAW 60 (ORI)

DEEPAK MISRA, J. ( 1 ) BEING aggrieved by order dt. 5-3-1993 passed by the learned Additional Chief Judicial Magistrate (Special), Cuttack in Criminal Misc. Case No. 130 of 1983 refusing to recall the non-bailable warrant of arrest and distress warrant and further fixing the liability to pay fine for the Company, namely, Utkal Equipment and Chemicals Limited on the Ex-Managing Director, the petitioner has preferred this Criminal Revision impugning the same. ( 2 ) THE facts in a nutshell may be stated as follows :the petitioner along with two others stood charged under Section 9 (1) (b) and 9 (1) (bb) of the Central Excise and Salt Act in 2 (c) CC No. 541 of 1976 in the Court of the Additional Chief Judicial Magistrate (Special), Cuttack. The petitioner was prayed in the said case as Managing Director of the Company. The Company was described as accused No. 1, and accused No. 3 was the Accounts Officer. The learned Chief Judicial Magistrate came to hold that the accused persons were guilty and sentenced each of them to pay a fine of Rs. 200/-, in default, to undergo simple imprisonment for two months. Appeal was carried from the said order of conviction by the petitioner, but the same was not fruitful. Being unsuccessful in appeal, Criminal Revision No. 51/1985 was preferred before this Court and the same was dismissed being devoid of merit. The petitioner deposited the fine before the trial Court. The Accounts Officer who was arrayed as accused No. 3 also deposited the fine. As the fine imposed on the company was not deposited, non-bailable warrant of arrest as well as distress warrant was issued against the petitioner to realise the fine. This exercise was done in Criminal Misc. Case No. 130/93. The petitioner after coming to know about this proceeding filed a petition on 29-2-93 to recall the said non-bailable warrant of arrest and distress warrant. The grounds for recall were that the petitioner has ceased to be the Managing Director and the Company has already been wound up in Company Act Case No. 4/1977 as per judgment dt. 23-4-1982 and, therefore, the official liquidator has to pay the fine, and in any case the petitioner was not personally liable to pay the fine for the Company and, therefore, non-bailable warrant of arrest and distress warrant cannot be issued against him for realisation of the same. 23-4-1982 and, therefore, the official liquidator has to pay the fine, and in any case the petitioner was not personally liable to pay the fine for the Company and, therefore, non-bailable warrant of arrest and distress warrant cannot be issued against him for realisation of the same. ( 3 ) THE contentions urged did not find favour with the Chief Judicial Magistrate as he was of the view that the official liquidator has taken over the assets but not the liabilities and the petitioner being the Managing Director was liable to pay fine for the Company. ( 4 ) ASSAILING the aforesaid order Mr. B. Bhuyan appearing for the petitioner raises the following contentions :- (I) The petitioner, as Managing Director was arrayed as accused No. 2 and he was not representing the company. Accused No. 1, the company, was also not represented by the Managing Director and, therefore, he is not liable to pay the fine for the company; (II) Assuming the petitioner was initially liable for the Company, the Company having been wound up and official liquidator having been appointed, the petitioner can no more be held liable and the conclusion of the Court below that the official liquidator has only taken over assets is an apparent error of law; and (III) in any case, issuance of NBW and DW against the petitioner to realise the fine in respect of the company is not permissible as the company has separate legal personality from that of the Directors, and the Directors cannot be made liable for the liability of the Company. ( 5 ) JUSTIFYING the order passed by the Court below Mr. A. B. Misra, the learned Senior Standing Counsel (Central), has submitted that the liability having accrued at the time when the petitioner was the Managing Director, he is bound to pay the same. Furthermore, the company is presumed to have been represented by the Managing Director and the technical defect in the complaint cannot be capitalised by the petitioner. His further submission is that the Managing Director being liable to pay the fine for the Company, there is no illegality in issuance of Non-bailable warrant of arrest and distress warrant against him to realise the same. ( 6 ) ON perusal of the records it is apparent that the petitioner was not representing the company. The Company was styled as accused No. 1. ( 6 ) ON perusal of the records it is apparent that the petitioner was not representing the company. The Company was styled as accused No. 1. The petitioner was held liable in the personal capacity of the Managing Director and he was arrayed as accused No. 2. He was not held liable for the Company. The liability of the Company is distinct from the liability of its Managing Director. Fine has been imposed on the Company and it is the liability of the company to pay the same. Company has its own legal identity and personality, in contradistinction to its Directors or shareholders. The Directors or the shareholders cannot be equated with the Company. The Company has its separate corporate existence. In this connection reference may be made to the famous case of Saloman v. Saloman and Co. Ltd. , wherein it was held that companies are treated as separate legal entities from their Directors and shareholders. Relying on the said decision in case of M. P. Agarwal v. Union of India, 1989 BLJR 127 it was held :-"it is well established that a limited company has separate legal personality from that of its Directors who cannot therefore, be made liable for the legal liability incurred by the limited company. The principle of the independent corporate existence of a company has been explained and emphasised by the House of Lords in the case of Saloman v. Saloman and Co. Ltd. "with regard to the corporate status or entity of a company, there never has been any dispute. It is worthwhile to quote a passage from Lindley on Companies, 6th Edition at page 1299 as extracted at page 323 in Harihar Prasad v. Bansi Missir, (FB) AIR 1931 Patna 321 :"the Society (speaking of an Industrial Provident Society spoken of as the co-operative societies in England, See Halsbury Laws of England Vol. 17 p. 3) being incorporated, must sue and be sued by its corporate name, and its members are individually liable for its debts and engagements only so far as the statute allows. As in the case of companies registered under the Companies Act, 1962, so in the case of societies registered under the Act now in question, the members are not liable to have executions issued against them in respect of judgments obtained against the society. As in the case of companies registered under the Companies Act, 1962, so in the case of societies registered under the Act now in question, the members are not liable to have executions issued against them in respect of judgments obtained against the society. "in this connection reference may be made to the decision rendered in Biswanath Modi v. Purna Chandra Misra reported in Vol. 34 (1992) CJD 39 (Criminal), wherein while dealing with Section 16 (1) (a) (ii) of the Prevention of Food Adulteration Act, 1954, A. Pasayat, J. held as follows :-". . . The word 'person' in Section 16 of the Act includes a Company in view of the definition of person given in Section 3 (42) of the General Clauses Act. Section 16 of the Act applies both to juristic and natural persons. A custodial sentence in case of a juristic person cannot be awarded, even though both imprisonment and fine are mandated in terms of S. 16. In such cases fine alone can be imposed. . . . "in the aforesaid decision, a distinction was drawn with regard to the liability of the Company. Entities being different, liabilities are to be different. The indubitable conclusion is that the Company stands in a distinctive footing in corporation to its Directors. ( 7 ) IT is well known that the Company cannot act by itself but that does not necessarily mean in absence of any finding that someone is liable for the Company the fine imposed in a proceeding is to be realised from him. There may be cases where a Company is represented by its Chairman or the Managing Directors as they are the persons who normally represent the Company but in actuality, the offences has been committed by someone else who is incharge of the affairs of the Company and is directly involved in the alleged offence. It is relevant to State here that earlier under S. 9 of the Central Excise and Salt Act, 1944, offence was relatable to one who avoided the payment of duty or removed any excisable goods in contravention of the provision of the Act. It is relevant to State here that earlier under S. 9 of the Central Excise and Salt Act, 1944, offence was relatable to one who avoided the payment of duty or removed any excisable goods in contravention of the provision of the Act. Lateron, Section 9 (AA) was brought in by way of amendment by Central Excise and Salt (Amendment) Act, (79 of 1985), wherein it was provided that where an offence under the aforesaid Act has been committed by the Company, every person who at the time of commission of offence was incharge and was responsible is deemed to be guilty as well as the company, and is liable to be proceeded against and punished accordingly. This provision has made it clear that the person incharge as well as the Company are liable. The person incharge suffers the punishment if found guilty. The Company also suffers. There may be cases when the prosecuting agency may not choose to proceed against the company and may proceed against the person incharge. It is not necessary that in all cases, Company should be made an accused. It is imperative that a finding is necessary that the offence has been committed by the company but it is not a prerequisite that the company should be made an accused. A prosecution against a person who is incharge or responsible at the time of commission of offence is maintainable without company being made a party to the proceeding. This view gains support from the decision rendered in the case of Sheoratan Agarwal v. State of Madhya Pradesh, reported in AIR 1984 SC 1824 . The ratio of this decision is of assistance to come to the conclusion that there are two categories of liabilities viz. , liability of the company and liability of the person incharge and one can exist without the other. In view of the aforesaid principle, it is quite clear that the company has to suffer its own liability. ( 8 ) ONCE it is concluded the company has its own liability, the realisation of fine has to be made from the company. In view of the aforesaid principle, it is quite clear that the company has to suffer its own liability. ( 8 ) ONCE it is concluded the company has its own liability, the realisation of fine has to be made from the company. Mode for realisation is provided under S. 421 of the Criminal P. C. wherein it has been stipulated that the Court has the authority to issue a warrant for the levy of the amount by attachment and sale of any movable property belonging to the offender and further can issue a warrant to the Collector of the District authorising him to realise the amount as arrears of land revenue or movable or immovable property or both of the defaulter. Legal dues of a company can be realised only by attaching the assets of the Company and not by putting the Managing Director or any of the Director in person. It is to be kept in mind that the company is the offender or the defaulter. It is the company as a person from whom the fine is realisable. There may be cases where under the Company law a Managing Director or Director may be liable for the Company. But in the absence of any fixation of liability on any particular person on behalf of the Company, it is the liability of the company and company alone, and company having a separate legal personality, having independent corporate existence, issuance of non-bailable warrant or distress warrant against the Managing Director or Director to realise the same is not permissible. ( 9 ) THE other submission of Sri Bhuyan that after company has already been wound up and an Official Liquidator has been appointed, the petitioner as the Managing Director should not be proceeded against, has substantial force. It is the admitted position that the company in question has already been wound-up. The finding of the Court below that the official liquidator has only taken over the assets of the company but not the liability is on absolute legal mis-conception. It is settled in law that the official liquidator not only takes over the assets of the company but has obligations, if determined in accordance with law, to meet the liabilities from the assets of the company. Once it is held that the payment of fine by the company is its exclusive. It is settled in law that the official liquidator not only takes over the assets of the company but has obligations, if determined in accordance with law, to meet the liabilities from the assets of the company. Once it is held that the payment of fine by the company is its exclusive. liability, steps are to be taken for realisation of the same in accordance with the provisions of the Companies Act, keeping in view that the company is now in liquidation. Under this changed circumstance, Non-bailable warrant or Distress warrant cannot be issued against the Ex-Managing Director in his individual capacity. ( 10 ) IN view of the above analysis, I unhesitatingly conclude and held that the petitioner is not to be proceeded against and there was no justification on the part of the Court below to issue non-bailable warrant of arrest and distress warrant against him. The application for recall of the same was justified in law. As the petitioner is not liable, I set aside the orders issuing non-bailable warrant of arrest and distress warrant and further set aside the order dated 5-3-1993 refusing to recall the same. The non-bailable warrant of arrest and distress warrant issued against the petitioner are hereby recalled. However, the Criminal Misc. Case No. 130 of 1993 should proceed against the Company in accordance with law for realisation of the fine amount. The criminal misc. case is accordingly allowed. Petition allowed.