1987 (6) TMI 353 - HC - Companies Law

High Court Upholds Charges Against Directors for Companies Act Violations

The High Court upheld the trial court's decision to frame charges against A-3 and A-4 for contravening Sections 58A(3)(c) and 58A(5) of the Companies Act. ... Officer who is in default - Meaning of, Public deposits Issues Involved:1. Jurisdiction and applicability of Section 482 of the Code of Criminal Procedure.2. Compliance with Section 58A(3)(c) and Section 58A(5) of the Companies Act, 1956.3. Determination of 'officer in default' under Section 5 of the Companies Act.4. Evaluation of evidence and framing of charges under Sections 244, 245, and 246 of the Code of Criminal Procedure.Issue-wise Detailed Analysis:1. Jurisdiction and Applicability of Section 482 of the Code of Criminal Procedure:The petitions were filed under Section 482 of the Code of Criminal Procedure, seeking to quash the order of the trial court. The High Court emphasized that the inherent powers under Section 482 should only be exercised to prevent abuse of the process of the court or to secure the ends of justice. The court found no grounds to quash the proceedings initiated by the respondent, as the trial court had acted within its jurisdiction and followed the correct legal procedure.2. Compliance with Section 58A(3)(c) and Section 58A(5) of the Companies Act, 1956:The company was found to have accepted deposits in contravention of the Reserve Bank of India Directions, 1966. The balance-sheet as on December 31, 1974, revealed unsecured loans amounting to Rs. 7,81,176, exceeding the permissible limit. The company failed to repay these deposits by April 1, 1975, as mandated by Section 58A(3)(c). This non-compliance attracted penalties under Section 58A(5). The court noted that the company admitted to this contravention in its reply to the show-cause notice (Exhibit P-19).3. Determination of 'Officer in Default' under Section 5 of the Companies Act:The court examined whether A-3 and A-4 could be considered 'officers in default' as defined under Section 5 of the Companies Act. Evidence showed that A-3 and A-4 were directors of the company during the relevant period. The trial court concluded that A-3 and A-4, being directors, had knowledge of the company's financial activities and were responsible for the contravention. The court rejected the argument that A-4 had ceased to be a director due to non-attendance at board meetings, as there was no evidence to support this claim.4. Evaluation of Evidence and Framing of Charges under Sections 244, 245, and 246 of the Code of Criminal Procedure:The trial court followed the procedure prescribed under Sections 244, 245, and 246 of the Code. It considered the evidence presented by PW-1 and the documentary evidence, including balance-sheets and auditors' reports, which indicated the company's financial position and the contravention of deposit rules. The court applied the 'prima facie' test to determine if there was sufficient ground to frame charges against A-3 and A-4. The High Court upheld the trial court's decision, stating that the evidence, if unrebutted, warranted the framing of charges.Conclusion:The High Court dismissed the petitions, finding no merit in the arguments presented by A-3 and A-4. The trial court's order to frame charges against A-3 and A-4 for the offence under Section 58A(3)(c) read with Section 58A(5) of the Companies Act was upheld. The court emphasized that the trial court had correctly applied the legal standards and procedures in evaluating the evidence and determining the prima facie case.