Ashim Kumar Banerjee, J.@mdashRegistrar of Companies issued several show cause notices, firstly to inspect the records of the Company, Narbheram and Company Limited. After causing inspection he issued several show cause notices in May 2008 contemplating proceedings to be initiated against the directors of the Company u/s 209(3)(b), 217(3), 297, 209(1) and 292(1)(e) of the Companies Act 1956 (hereinafter referred to as the said Act of 1956) alleging various irregularities in maintaining the records of the Company. The directors applied for quashing of the said notices in C.P. No. 214 of 2008 that the learned Company Judge disposed of vide order dated June 16, 2008 appearing at page-93-94 of the paper book. His Lordship extended the time to reply to the show cause notices coupled with a direction upon the respondent authority to consider such reply in accordance with law. Accordingly, the directors replied to the show cause notices and claimed exemption. The authorities issued notices on February 2, 2009 u/s 295 and 209A of the said Act of 1956 appearing at pages 136-142. The authority issued a notice on February 13, 2009 appearing at pages-147-148 inter-alia asking them to appear and give evidence and produce record relating to the books of accounts and other records specified in the said notice. Ultimately, five notices were issued being dated February 2, 2009, February 13, 2009 and February 20, 2009 under the aforesaid provisions of the said Act of 1956. Being aggrieved, five directors applied for quashing of the said notice and/or for being excused for the alleged default as referred to in those five show cause notices that would appear at pages-62-74 and repeated in pages-80-92. The petitioner No. 1 claimed, he was a director of the company for the period on September 20, 2004 to August 6, 2007 whereas other four directors were still on the Board of the Company on the date of making of the application. According to the petitioners, one R.P. Kamani made a complain to the Registrar of Companies on April 12, 2006 as a retaliation for the dispute that the third petitioner had with one Rajen Kamani, the brother of the said R.P. Kamani. If we read the notices as a whole we would find, the allegations would center around irregularity committed by the Company and/or the directors, as the case may be, in maintaining the books of accounts pertaining to leave encashment as well as various loans and/or inter-corporate deposits being made by the Company inter-alia, in other sister concerns without taking any step for realization thereof as a result, the Company suffered. The learned company Judge heard the application and disposed of the said application vide judgment and order dated June 20, 2014 whereby His Lordship granted relief to the petitioners with regard to the first two batches of notices dated February 2, 2009 and February 13, 2009 mainly on the ground of limitation in accordance with the provisions of Section 468 of the Code of Criminal procedure. According to His Lordship, the Central Government was entitled to proceed with the show cause notices issued u/s 295 of the Companies Act within the time specified in law. Since the notices were issued beyond the prescribed period of limitation of one year even taking into account the order of injunction subsisting in between the notices u/s 295 and 299 would be barred by the laws of limitation. His Lordship excused the petitioners u/s 633(2) of the said Act of 1956 for the show cause notices issued on February 2, 2009 and February 13, 2009.
PRESENT LIS:
2. The Registrar accepted the said decision and did not prefer any appeal whereas the petitioners filed the instant appeal with regard to the notice dated February 20, 2009 that His Lordship declined to interfere with. The relevant paragraph of His Lordship''s judgment and order is quoted below:
"By the letter dated 20th February, 2009 the petitioners have been informed that instructions have been given to launch prosecution pursuant to the show-cause notices issued u/s (209)10, 209(b), 217(3) and 292(10)(e) of the 1995 Act. That the said letter has been received by the petitioners is an admitted fact but in spite of receipt no copy of letter dated 2nd December, 2008 has been sought by the petitioners; therefore, in respect of the said communication dated 20th February, 2009 the petitioner is not entitled to any order."
CONTENTIONS:
3. Mr. Ratnanko Banerjee learned senior counsel appearing for the appellants would contend, initially in 2008 when the first batch of notices was served and the learned Judge asked the petitioners to reply to the show cause notices the petitioners duly replied to the said notices giving explanation as to the alleged irregularity and submitted all records for the perusal of the Registrar and participated at the hearing held on August 28, 2008. The authority based the notice on an inspection report dated December 2, 2008 that was never given to the petitioners for their perusal and comment. According to Mr. Banerjee, the notice u/s 209(3)(b) and Section 217(3) would relate to leave encashment. The Company was a small company and whatever records they had with regard to leave encashment were produced giving sufficient explanation hence, the authority ought to have dropped the proceeding. Commenting on the loans and/or inter-corporate deposits Mr. Banerjee would submit, the authority complained of violation of 209(1) and 292(1)(e) for alleged non recovery of such loans by the Company. According to him, the company tried their best to recover the same in fact, part of the loan complained of, was availed by Rajen and/or R.P. Kamani the complainant above named. Hence, the authority could not have proceeded on the basis of the complaint that the Kamani brothers lodged on April 12, 2006. Commenting on the judgment and order of His Lordship, Mr. Banerjee would comment, the learned Judge declined to interfere on the ground, petitioner did not ask for the copy of the letter dated December 2, 2008 that was an internal communication in the Government departments and the petitioners had nothing to do with the same, in fact, the petitioner was never favoured with any copy of such letter. Merely because the petitioners did not ask for a copy of the same, the learned Judge could not have declined relief.
4. Mrs. Asha Gutgutia learned Counsel was representing the Registrar of Companies. She could not be present during hearing however, we permitted her to submit a written note when she mentioned the matter at the time of rising of the Court on the day when we closed the hearing and reserved our judgment.
5. Per contra, Mrs. Gutgutia in her written notes on argument contended, the authority duly considered the reply to the show cause notices and acted accordingly. Learned company Judge considered the issue and passed a reasoned judgment and order that would deserve no interference by the Court of Appeal. On the issue of excuse in respect of the notices dated February 2 and February 13, 2009 she contended, the notices were not barred by limitation as the offence was continuing. Distinguishing the decision in the case of
OUR VIEW:
6. Before we deal with the controversy we make it clear, we are in full agreement with Mr. Banerjee, the learned Judge could not have denied relief on the ground mentioned above however, on independent examination of the issue we agree with the ultimate finding.
7. If we look to the bunch of notices issued on February 20, 2009 appearing at pages-80-92 of the paper book we would find, first two notices were issued for violation of Section 209(3)(b) and 217(3) of the said Act of 1956. The authority alleged, the books of accounts and other relevant records were inspected and the inspection report would reveal violation of the subject provisions. The authority alleged, no provision was made in the books of accounts regarding leave encashment as required u/s 209(3)(b) and Accounting Standard 15 specified in the said Act of 1956. There was also violation of the provisions of Section 217(3) that would appear from the Director''s Reports for the year ended March 31, 2005, March 31, 2006 and March 31, 2007 as no provision for leave encashment was made and no explanation was offered on that score.
8. There was another notice issued on u/s 297 where the authority was satisfied with the explanation and did not proceed further.
9. The notices u/s 209(1) and 292(1)(e) were issued for the loans and/or inter-corporate deposits. The authority alleged, the deposit shown in the balance sheet as on March 31, 2007 for a sum of Rs. 1 lac was made ten years back to Orsel Electronic Limited where no recovery proceeding was initiated. No benefit could be enjoyed by the Company against such deposit. In the other notice the authority complained, there were outstanding by the sister concerns like Narbheram Agencies Private Limited, Narbheram Leasing Private Limited, ENAR Industries and R.P. Kamani. The Company could not produce, to the inspecting officer, any supporting paper or voucher regarding the balance outstanding and thus violated the provisions of Section 209(1).
10. The Company also gave loan of Rs. 4 lacs to Narbheram Auto Private Limited on April 21, 2006 and further a loan of Rs. 5 lacs to Narbheram Motors Limited on March 13, 2006. There was no corresponding Board Resolution in the record certifying such loans. Despite being asked by the inspecting officer, the company failed to furnish copy of the resolution, if any, approving such loans and thereby violated Section 292(1)(e).
11. Mr. Banerjee relied on a Division Bench decision of this Court in the case of Bhagwati Foods Private Limited Vs. Registrar of Companies, West Bengal reported in 2008 Volume- 143 Company Cases (Calcutta) Page- 531. In the said decision the Division Bench observed, a notice to show cause should be specific and unambiguous. Absence of any specific allegation of dishonest intent would give presumption of innocence and thus would excuse the erring Directors from the alleged offences. The relevant paragraphs relied upon by Mr. Banerjee is quoted below:
"A person seeking to be excused u/s 633(1) or (2) of the Companies Act, 1956, from penal liability for contravention of any of the provisions of the Companies Act, 1956, is required to satisfy the Court that he acted honestly, reasonably and that having regard to the entire circumstances of the case, he ought fairly to be excused. The learned single Judge was apparently not convinced that the appellants had acted honestly and reasonably.
It is imperative that, a notice to show cause against proposed penal action, which involves punishment of imprisonment, should be specific and unambiguous. The exact offence has to be stated. Absence of any specific allegation of dishonest intent in the show cause notice, would give rise to presumption of innocence."
12. The observation of the Division Bench quoted supra, was a settled proposition of law however; the application of the same would depend upon the facts and circumstances involved in a particular case. In the instant case, the authority gave opportunity to disclose documents and offer suitable explanation that the directors failed and neglected however, for ends of justice we give them one more opportunity. In case of non-compliance despite opportunity given, the negligence would be apparent that would obviate proceedings to be initiated against them under the provisions mentioned above.
13. We thus give the company an opportunity to make provision for such leave encashment in the next financial year ending on March 31, 2015 failing which the authority would be at liberty to proceed against the erring directors. However, the erring Directors must be penalised for the irregularities that they committed so long. We impose a fine of Rs. 5000 on each of the appellants who were petitioners before the learned Judge, that would take care of the violation u/s 209(3)(b) and 217(3).
14. With regard to the other batch of notices complaining about irregularities in loans and/or inter-corporate deposits, we feel, the allegations were serious in nature. The appellants must make good the loss that the company suffered. They must either recover and/or deposit the amounts irregularly lent and advanced to various companies and/or individuals referred to above on or before March 31, 2015 and in default, the authority would be entitled to proceed against them. In case such deposits are recovered and/or made and the appellants pay Rs. 5,000 each as fine on that count within the time stipulated above, the Registrar would be restrained from proceeding in respect of the violation u/s 209(1) and 292(1)(e), failing which the authority would be at liberty to proceed accordingly.
15. The appeal thus succeeds in part and is allowed without however, any further order as to costs.
Manjula Chellur, C.J.
I agree.
