Fixed-date default and officer-in-default liability require strict limitation and proper notice before prosecution can proceed.
A fixed-date default under rule 3A of the Companies (Acceptance of Deposits) Rules, 1975 was held not to be a continuing offence, so prosecution had to comply with the six-month limitation for a fine-only contravention under section 468 CrPC; the complaint was therefore time-barred. The court also held that a director could not be treated as an "officer in default" under section 5 of the Companies Act, 1956 without proper service of show-cause notice, because statutory liability depends on knowing default or wilful participation. On both grounds, the criminal proceedings were quashed.
Issues: (i) Whether the prosecution for contravention of rule 3A of the Companies (Acceptance of Deposits) Rules, 1975 was barred by limitation on the ground that the default was not a continuing offence; (ii) Whether the petitioner could be treated as an "officer in default" under section 5 of the Companies Act, 1956 in the absence of proper service of show-cause notice.
Issue (i): Whether the prosecution for contravention of rule 3A of the Companies (Acceptance of Deposits) Rules, 1975 was barred by limitation on the ground that the default was not a continuing offence.
Analysis: The limitation under section 468 of the Code of Criminal Procedure, 1973 depends upon the nature of punishment. Contravention of rule 3A was punishable only with fine under rule 11, so cognizance had to be taken within six months. The rule required deposit or investment by a fixed date, and the omission was complete once that date passed. The rule did not contain language making continued non-compliance an offence until compliance. The principle of continuing offence was therefore inapplicable.
Conclusion: The prosecution for the alleged contravention of rule 3A was barred by limitation.
Issue (ii): Whether the petitioner could be treated as an "officer in default" under section 5 of the Companies Act, 1956 in the absence of proper service of show-cause notice.
Analysis: Under section 2(30) of the Companies Act, 1956, a director is included within the expression "officer", but liability as an "officer in default" requires knowing default, non-compliance, failure, refusal, or contravention, or knowing and wilful authorisation or permission of such default. The record showed that the show-cause notice sent to the petitioner was returned unserved. Proper service of notice was material to determine whether he knowingly permitted the default. In the absence of such service, the petitioner could not be fastened with the statutory character of an officer in default.
Conclusion: The petitioner was not an "officer in default" and could not be prosecuted on that basis.
Final Conclusion: Both prosecutions against the petitioner were unsustainable, and the criminal proceedings against him were quashed.
Ratio Decidendi: A fixed-date statutory default is not a continuing offence unless the statute clearly so provides, and a director cannot be prosecuted as an officer in default without proper service of notice showing knowing default or wilful participation.
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AI Drafter ✕
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