Judgment.- T.S.R. Murthy filed a private complaint against nine accused in the Court of the Additional Munsif-Magistrate, Vijayanagaram, alleging that they all committed offences under section 628 of the Indian Companies Act, 1956 (I of 1956). A-1 to A-8 were charged with having done the alleged act in their capacity as Directors and A.-9 as Secretary of a company called the “Rainbow Soap and Chemical Company Ltd., Vizianagaram.” The accused pleaded ‘not guilty.‘The learned Magistrate, after full trial, acquitted the accused 1 to 8. He convicted the ninth accused and sentenced him to simple imprisonment for two weeks and a fine of Rs. 100 in default S.I. for one week. The complainant has filed this appeal against that judgment so far as it related to the acquittal of A-1 to A-8. The prosecution case, supported by seven witnesses, is to the following effect. P.Ws. 1 to 4 are equity shareholders of the company. In addition, P.W. 1’s wife is also an equity shareholder. P.W. 3 was also Secretary-cum-stenographer of the company, having been appointed to that post for a period from 2nd May, 1958 to 2nd May, 1963. Exhibit P-2 is the register of equity shareholders of the company. Exhibit P-3 is another register of the company. A-1, A-2, A-3 were originally directors of the company. Accused 1 to 8 issued a notice (Exhibit P-1) as follows: “An extraordinary general meeting of the Rainbow Soap and Chemical Co., Ltd., will be held at the registered office of the company at Vizianagaram on 3rd October, 1962, at 2 p.m. to transact the following business.” To consider and if thought fit, to pass the following resolutions, with or without modifications: 1. Resolved that the company do hereby approve the terms of compromise entered into between the Board of Directors and Shri....................(5) T.S.R. Murthy (complainant and P.W.1) and further resolved to approve the action taken or intended to be taken pursuant thereto. 2. Resolved that the company do hereby approve the termination of service of Sri D. Satyanarayana (P.W. 3), ex-Secretary of the company. ****** 5. Resolved that the company do hereby approve the issue of Rs. 2,52,000 worth shares and the allotments made on the application received and further authorise the issue of shares for a sum of Rs. 2. Resolved that the company do hereby approve the termination of service of Sri D. Satyanarayana (P.W. 3), ex-Secretary of the company. ****** 5. Resolved that the company do hereby approve the issue of Rs. 2,52,000 worth shares and the allotments made on the application received and further authorise the issue of shares for a sum of Rs. 10,00,000." The notice called for was a special meeting for the purpose of section 173 (2) of the Indian Companies Act (Central Act I of 1956) (hereinafter referred to for convenience as the ‘Act’). Consequently, this was accompanied by a statement as required by section 81 of the Act. This statement was signed by A-9 alone as Secretary and mentioned as follows: " ........On the intervention of Sri R. Jagannadha Rao, new Union Deputy Minister for Works, Housing and Supply, a compromise was brought about in the litigation concerning the right to manage the affairs of the company and a compromise was filed in the Hon’ble Court of the District Munsif at Vizianagaram in O.S. No. 458 of 1961 and other ancillary matters which were pending. Shri S.P. Mishra was requested to set the house in order and take up the various steps necessary to regularise the affairs of the company.......... Resolution No. 5: The company was not having a cash balance worth counting at the time the factory was handed over to Shri S.P. Mishra on 5th June, 1962 by an order of the Court of the Hon’ble Munsif-Magistrate, Vizianagaram, in M.C. No. 5 of 1961. The funds for implementing the terms (of the) compromise and for carrying on other works such as renovation of the factory, repair of machinery etc., were advanced by Shri S.P. Mishra as a loan to the company and with the aid of those funds considerable repair and maintenance work was done. As the company needed funds to implement the reconstruction programme and as Rs. 2,52,000 worth shares were not subscribed at the inception, with a view to regularise the finances of the company, the shares were issued after offering them to the existing shareholders under section 81 of the Indian Companies Act. As no shareholder except two came forward to subscribe, the subscription to the issue was arranged by Shri S. P. Mishra in the Calcutta Share Market through Messrs. Bhalotia and Sons.............. As no shareholder except two came forward to subscribe, the subscription to the issue was arranged by Shri S. P. Mishra in the Calcutta Share Market through Messrs. Bhalotia and Sons.............. The directors are not personally interested in the proposal of the resolution." The above statement (attached to the notice Exhibit P-1) that notices were issued to the shareholders under section 81 of the Indian Companies Act is false to the knowledge of accused 1 to 9. In fact, P.Ws. 1 to 4 and P.W. 1’s wife, who are the equity shareholders, did not receive any notice under section 81 of the Act. P.W.1, the complainant, stated in his deposition in chief-examination as follows: "On page 6 of the explanatory statement the accused stated that the shares were issued after offering them to the existing shareholders under section 81 of the Companies Act. I did not receive any such offer. Not merely that. At the material time, the accused persons were incapable of making any such offer. The reason was that from December, 1961 to 15th of August, 1962, there was a postal deadlock in the sense, that the postal authorities were not delivering to the company postal articles addressed to it." In cross-examination, he stated as follows: "Between December, 1961 to 15th August, 1962 all postal communications addressed to the company at its registered office were withheld and not delivered by the postal authorities." P.W. 3 deposed that he has continued to be a Secretary all along and produced Exhibit P-2 and Exhibit P-3 in the Court. He also deposed as follows: "Majority of the statutory records of the company are with me at 4-2-5, Kotha Agraharam Vizianagaram, which is the registered office of the company, and from which he Registrar took up winding up proceedings........Exhibits P-2 and P-3 have been till now in my exclusive possession and custody. I am not in possession of the index for Exhibits P-2 and P-3." P.W. 5 was the Legal Adviser of the company and deposed that A-1 to A-3 were directors of the company and that, without seeing the books, he could not say whether A-4 to A-8 were also directors. P.W. 6 was the Postmaster of Vizianagaram Cantonment Post Office and P.W. 7 was the Postmaster of the Head Post Office at Vizianagaram. P.W. 6 was the Postmaster of Vizianagaram Cantonment Post Office and P.W. 7 was the Postmaster of the Head Post Office at Vizianagaram. They filed some documents into Court and deposed to the effect that from January, 1962 to 18th August, 1962 all postal communications addressed to the company were not delivered at the office of the company but were kept ins deposit in post office. All the accused were represented by Shri D. Ganapathi who was their Advocate-When examined, on behalf of the accused, he said that notices were issued to all equity shareholders as required by law. Accused examined one defence witness. (D.W. 1). He deposed that he was in charge of the factory of the company at Vijayanagaram and that Exhibit D-11 to Exhibit D-41 were notices under section 81 of the Act issued by the company. He deposed as follows: “I do not know English or Telugu. In this company, I will be doing all odd jobs as a clerk. I have been appointed to look after this office. I was appointed in March, 1963. Before that, I had no knowledge of the affairs of this company. I do not know all the directors of the company by their names”. The learned Magistrate observed regarding P.W. 2 as follows: “In cross-examination, however, P.W. 2 stated that he has been receiving some papers from the company, but he never cared to study them as he lost all interest in the affairs of the company. The evidence of P.W. 2 is not therefore much helpful to the complainant.” Regarding P.W.3 he observed as follows: “Under these circumstances, much weight cannot be given to the testimony of P.W. 3 though; he happens to hold equity shares in the company.” Regarding P.W.4, he observed as follows: “He denies in emphatic terms that the company ever served on him a notice under section 81 of the Act. P.W. 4 no doubt stated that even if such a notice was sent he is not desirous or willing to purchase any new shares. P.W. 4 no doubt stated that even if such a notice was sent he is not desirous or willing to purchase any new shares. This attitude of disgust towards the affairs of the company by the existing shareholders is proved to be widely prevalent as can be seen from several documents exhibited on the side of the accused.” Regarding P.W. 5, he stated thus: “The evidence of P.W. 5 Sri G.B. Narayanamurthy is of no material use either for the complainant or for the accused.” Exhibits D-1 to D-10 were held by the learned Magistrate to be validly proved by P.W. 6 who was the Postmaster. Regarding Exhibits D-11 to D-41, the learned Magistrate observed as follows: “Exhibits D-11 to D-41 were attempted to be proved through the only defence witness, but I do not think that D.W. 1 validly proved these documents. This is because D.W. 1 was not in the service of the company when these letters and communications were either issued by the company or received by it. What is more important D.W. 1 does not know either Telugu or English. Under the circumstances, I am inclined to uphold the contention of the complainant that Exhibits D-11 to D-41 are not validly proved.” Exhibits D-11 to D-41 contain postal seals. Exhibit D-11 is a post card which purports to be a reply dated 1st September, 1962 referring to Rev. T. Mercier. In this post card, it is mentioned that the said T. Mercier died some years back. This post card bears postal seals. Exhibit D-15 is a post card bearing date seals addressed to the managing director of the company in which the writer refers to a notice dated 1st June, ‘72 (obviously a mistake for 1st July, 1962) of the company and then says: “to enable me to decide whether I should apply for the right shares which you are now issuing, please send me the latest balance-sheet publications.” This is written by one A.M. Jacob, Executive Engineer, Public Health. This purports to have been written on 13th July, 1962 and bears date seal of the post office. The learned Magistrate observed as follows: “On a consideration of the entire evidence on record, I accept the testimony of P.Ws. 1 to 4 and find that the accused failed to send them notices under section 81 of the Act. This purports to have been written on 13th July, 1962 and bears date seal of the post office. The learned Magistrate observed as follows: “On a consideration of the entire evidence on record, I accept the testimony of P.Ws. 1 to 4 and find that the accused failed to send them notices under section 81 of the Act. It appears that with a view to create some evidence in their favour the accused despatched some such notices to-shareholders living in distant and far off lands, in the certain knowledge that those persons might not receive those notices or even if they received them, they would not care to respond to such notices................ On a consideration of all these aspects of the matter, I find that the company failed to issue section 81 notices to P.Ws. 1 to 4 and possibly to several other shareholders.” The learned Magistrate held like that regarding P.Ws. 1 to 4 though, earlier in his judgment, he held that the evidence of P.W. 2 was not much helpful to the complainant and much weight cannot be attached to the testimony of P.W. 3. As regards P.W.1, he is admittedly an interested witness who is not on good terms with at least some of the accused. But, in any case, P.W. 4 appears to be a respectable witness against whom nothing has been found by the learned Magistrate. The learned Magistrate considered the law on the point and held as follows: “Accused 1 to 9 are therefore collectively responsible for the veracity of every statement of fact found recorded in Exhibit P-1. Even so, relying on the decisions mentioned above, I find that there is no proof in this case that accused 1 to 8 had knowledge about the falsity of the statement made by the Secretary of the company that section 81 notices were sent to all the shareholders of the company. In the result, I find accused 1 to 8 not guilty and accordingly acquit them under section 258 (1), Criminal Procedure Code.” If notice was not sent even to P.W. 4 alone, it would mean that the statement attached to Exhibit P-1, that the shares had been issued after offering them to the existing shareholders under section 81 of the Act, is not true. Section 628 of the Act runs as follows: “If in any return, report, certificate, balance-sheet, prospectus, statement, or other document required by or for the purposes of any of the provisions of this Act, any person makes a statement- (a) which is false in any material particular knowing it to be false; or (b) which omits any material fact knowing it to be material; he shall, save as otherwise expressly provided in this Act, be punishable with imprisonment for a term which may extend to two years, and shall also be liable to fine.” The corresponding section (section 282) in the earlier Indian Companies Act (Central Act VII of 1913) was as follows: “Whoever in any return, report, certificate, balance-sheet or other document, required by or for the purposes of any of the provisions of this Act, wilfully makes a statement fa se in any particular, knowing it to be false shall be punishable with imprisonment of either description for a term which may extend to three years, and shall also be liable to fine.” It will be observed that, in the original Act of 1913, there was the word ‘wilfully ‘and that it has been omitted in section 628 of the Act I of 1956. In Natesan, In re1, the question arose as to whether an auditor and several directors were liable to be punished in respect of statements which were false in material particulars and which were found in balance-sheets of the company. Govinda Menon, J., held as follows (at page 444): “In discussing the general liability of the directors for the so-called false statements referred to in the charge, it is necessary to consider what exactly the legal position of the directors is, vis-a-vis the company with regard to the criminal liability for their actions. In a recent case reported in Pullin Chandra Das v. Emperor2, Chakravarthi, J., referred to the decision of the Privy Council reported in Srinivas Mall v. Emperor3, where their Lordships quoted with approval the proposition laid down in an earlier case that ‘unless the statute, either clearly or by necessary implication, rules out mens rea as a constituent part of crime, a person should not be found guilty of an offence against the criminal law unless he has got a guilty mind’. The learned Judge, after quoting this passage, observes as follows: "Be that as it may, it appears to us that the language used by section 282 itself does import an element of mens rea when it speaks of the relevant statement being known to be false............. In adverting to the question whether a director is justified in trusting the officials of the company this Court referred to the observations of Lindley, M.R., in In re National Bank of Wales, Ltd.4, in the following terms: ‘Business cannot be carried on upon principles of distrust. Men in responsible positions must be trusted by those above them, as well as those below them, until there is reason to distrust them. We agree that care and prudence do not involve distrust; but for a director acting honestly himself to be held legally liable for negligence, in trusting the officers under him not to conceal from him what they ought to report to him, appears to us to be levying too heavy a burden on honest businessmen.‘They have also relied upon the observations of Lord Davey in Dovey v. Cory.5 ‘I think the respondent was bound to give his attention to and exercise his judgment as a man of business on the matters which were brought before the Board at the meeting of which he attended and it is not proved that he did not do so.‘ It seems to me that these dicta are applicable to the actions of the petitioners herein. The accused in this case are men of position and responsibility, and some of them are, I am given to understand, members of the bar enjoying fairly good practice. One cannot attribute any wilful negligence or dishonesty tomen in such positions if they depend upon and trust the permanent officials and the managing director of the company so far as the working of the company is concerned. The prosecution has not been able to show any mala fides or want of good faith on the part of any of these accused. All that might be laid at their door is perhaps the blame-if that could be called a blame at all-that they placed trust upon the permanent servants of the company. The prosecution has not been able to show any mala fides or want of good faith on the part of any of these accused. All that might be laid at their door is perhaps the blame-if that could be called a blame at all-that they placed trust upon the permanent servants of the company. It seems to me that they are not guilty of any false statement of any material particular wilfully made and knowing the same to be false..............This is a case of entire absence of evidence.“ The learned Advocate for the appellant relies on the fact that in section 628 of the Act the term ‘wilfully’ is not found. But, the application of the principle of the above decision is not restricted to cases in which accused are not proved to have made false statement wilfully. It is applicable also to cases in which it is not proved that accused made the false statement knowing the same to be false. The learned Advocate for the appellant relies on the decision in Emperor v. S.M. Bose1. In that case, one Bose sent to the Registrar, Joint Stock Companies, a prospectus and Articles of Association of a certain company from which it appeared that five persons had consented to be directors of the company and as such had undertaken to subscribe 500 shares of Rs. 10 each. Three of those persons subsequently discharged their obligation but two of them never paid any sums due from them. Nearly a year after, the applicant made a declaration to the said Registrar for permission to allow the company to commence business. In that declaration, he stated that: "every director of the company has paid to the company on each of the shares taken or contracted to be taken by him, and for which he is liable to pay in cash, a proportion equal to. In that declaration, he stated that: "every director of the company has paid to the company on each of the shares taken or contracted to be taken by him, and for which he is liable to pay in cash, a proportion equal to. the proportion payable on application and allotment on the shares offered for public subscription." It was held that the Registrar was entitled to assume that the five directors originally named by the applicant were intended to be and were in fact included in the words ‘every director’ entered in the declaration and that if anything had happened in the interval to reduce their number, it was the duty of the applicant to tell that to the Registrar as one of the material facts to be taken into consideration by him in deciding whether the company should be allowed to commence business and that the applicant’s omission to make this clear to the Registrar brought him within section 282 of the Indian Companies Act, 1913. In effect, they held that the petitioner knew a certain material fact and still failed to bring it to notice of Registrar of Joint Stock Companies. In considering the question of sentence which has been already awarded by the lower Court, the learned Judge observed as follows (at page 219): "It is of the utmost importance that in a country such as this, where everybody hopes that there will be a very great extension of industrial prosperity, and that industrial prosperity probably conducted along the lines of limited companies, that the persons who embark on company flotation, and who assume offices of responsibility, should understand that they have got to carry out their duties not only carefully but honestly." The question as to whether Bose knew that the statement which he gave was in effect false was not considered in that case. The learned Advocate for the appellant also relies on Baidya Nath v. Emperor2. In that case, certain current expenditure which ought to have been debited in revenue accounts were actually debited to organisation expenses in the balance-sheet and it was held that thereby the balance-sheet contained a wilful false statement and that a technical offence under section 282 of the Companies Act, 1913, was committed. In that case, certain current expenditure which ought to have been debited in revenue accounts were actually debited to organisation expenses in the balance-sheet and it was held that thereby the balance-sheet contained a wilful false statement and that a technical offence under section 282 of the Companies Act, 1913, was committed. Therein the learned Judge found that the false statement was wilful as-seen from the following sentence in the judgment (at page 741): "It is not alleged that the appellant misappropriated any funds, that all the items of his expenditure were not shown in some form in his account, but there is no doubt that the balance-sheet of the revenue account has not been correctly shown and there was therefore a technical offence under the Act inasmuch as in the balance-sheet there is a wilful false statement as regards expenditure. It is not necessary that the statement should be such as to deceive any one or that it should even be dishonestly made." On the facts of this case, as found in evidence, I do not find sufficient reason, to disagree with the finding of the learned Magistrate that there is no proof that A-1 to A-8 had knowledge about the falsity of the statement made by the Secretary of the company, that section 81 notices were sent to all the shareholders of the company as required by the section and with the finding that the accused were not guilty. The learned Magistrate has observed in his judgment as follows: "There is no dispute about the following facts: Accused 1 to 3 have been for a long time acting as directors of the company: Accused 4 to 8 have become directors of the company somewhere about middle of the year 1962." In fact in the complaint itself, the complainant cautiously stated as follows: "Accused persons 1 to 8 style themselves as directors of the company......even though they (accused 1 to 3) ceased to be directors of the company, they co-opted in last June five persons, namely, accused 4 to 8 as additional directors of the company knowing full well that the power of co-option under section 260 of the Companies Act is vested only in persons who are legally the directors of the company. The accused 1 to 8 constituting themselves as a Board of Directors together with accused No. 9 issued to this complainant a notice dated 6th August, 1962 (Exhibit P-1)." In his deposition, P.W.1 said in cross-examination as follows: "I will neither admit nor deny that the accused are the directors of the company. They are calling themselves as directors. I do not know how they became directors." I do not find any need to go into the question or decide whether accused 1 to 8 were lawfully holding position as directors. Even assuming for argument’s sake that they were directors, no offence has been proved beyond reasonable doubt against them. I see no reason to disagree with the finding of the lower Court. I dismiss the appeal. A.B.K. ----- Appeal dismissed.