1985 (12) TMI 290 - HC - Companies Law

High Court Allows Revision Petitions, Emphasizes Liability of Directors

The High Court allowed the revision petitions, setting aside the trial Magistrate's order and directing the complaints to be taken on file and disposed of ... Officer who is in default – Meaning of, Annual Return – Penalty for not filing, Balance sheet - Default in filing copies of Issues Involved:1. Maintainability of complaints against all directors.2. Definition and liability of 'officer in default'.3. Requirement of specific averment in the complaint.4. Impact of serving notices on directors.5. Absolute liability of the company.Detailed Analysis:1. Maintainability of complaints against all directors:The preliminary objection raised was that prosecution cannot be launched against all directors for failure to comply with the provisions of the Companies Act but should be filed only against the company and those directors who are in default as defined under the Act. The trial Magistrate upheld this objection and dismissed the complaints. The High Court, however, held that the complaints cannot be rejected in limine and must be examined with evidence to determine if the directors can be considered officers in default.2. Definition and liability of 'officer in default':Section 162 of the Companies Act, 1956, states that the company and every officer of the company who is in default shall be punishable for non-compliance with sections 159, 160, or 161. The term 'officer in default' is defined under section 5 as any officer who is knowingly guilty of the default. The High Court emphasized that whether a particular director is an officer in default is a matter of evidence and cannot be decided at the threshold without a proper inquiry.3. Requirement of specific averment in the complaint:The complaint must specifically aver which officers are in default. The Calcutta High Court in Ajit Kumar Sarkar v. Assistant Registrar of Companies highlighted that the prosecution must fix the liability with respect to the particular 'officer in default' and there should be a specific averment to that effect in the complaint. The High Court in this case found that the absence of such specific averments rendered the complaints initially unsustainable.4. Impact of serving notices on directors:The High Court noted that notices had been served on all directors before the prosecution was launched, and none of the directors had responded. This, prima facie, indicated that all directors could be deemed officers in default. The Court held that it was open to the directors to rebut this presumption by providing evidence that they were not officers in default.5. Absolute liability of the company:The High Court clarified that the company's liability is absolute once the default is proved, and no question of 'knowingly committing default' arises for the company itself. The Court emphasized that the company must be included as an accused for the prosecution to be valid, and only if the company is convicted can the officers in default be convicted.Conclusion:The High Court allowed the revision petitions, set aside the trial Magistrate's order, and directed that the complaints be taken on file and disposed of according to law. The Court held that the complaints, filed after issuance of notice to all directors, were maintainable and that the liability of each director as an officer in default must be determined based on evidence during the trial.