Prosecution quashed for accused No. 4 in limitation dispute, not officer in default under Companies Act.

Sivandhi Adityan Versus Additional Registrar of Companies

Sivandhi Adityan Versus Additional Registrar of Companies - [1995] 83 COMP. CAS. 616 (MAD.) Issues Involved:
1. Whether the prosecutions launched are barred by limitation.
2. Whether the petitioner (accused No. 4) is an "officer in default" under section 5 of the Companies Act, 1956, given that no show-cause notice had been served upon him.

Detailed Analysis:

Issue 1: Barred by Limitation

The period of limitation for taking cognizance of a complaint is provided under section 468 of the Code of Criminal Procedure, 1973. The limitation period varies based on the quantum of the sentence for the offences:
- Six months if the offence is punishable with fine only.
- One year if the offence is punishable with imprisonment for a term not exceeding one year.
- Three years if the offence is punishable with imprisonment for a term exceeding one year but not exceeding three years.

The infractions of sub-sections (1) and (4) of section 58A of the Companies Act, 1956, are punishable under sub-sections (6) and (5) of section 58A, respectively, with imprisonment which may extend to five years. Therefore, there is no bar of limitation for taking cognizance of complaints involving those offences, and the complaint in C.C. No. 1292 of 1983 is not beyond the period of limitation.

However, the violation of rule 3A of the Companies (Acceptance of Deposits) Rules, 1975, is punishable under rule 11 with a fine which may extend to Rs. 500. For such an offence, the period of limitation prescribed is six months. The complaint, taken cognizance of on December 13, 1983, for violations during the years ending March 31, 1979, 1980, 1981, and 1982, is beyond the six-month period and is thus barred by limitation.

The contention that such a violation is a continuing offence was examined. A continuing offence is one that involves a failure to comply with a rule, where the liability continues until compliance is achieved. However, the legislative intention in rule 3A does not indicate that the infraction is a continuing offence. Hence, the complaint is barred by limitation as it was filed beyond the six-month period from the dates of the alleged violations.

Issue 2: Officer in Default

Sub-section (30) of section 2 of the Companies Act defines "officer" inclusively, and section 5 defines "officer who is in default" as any officer who is knowingly guilty of the default, non-compliance, failure, refusal, or contravention, or who knowingly and wilfully authorizes or permits such default.

The combined effect of these sections is that not all directors can be construed as "officers in default" unless each director meets the criteria of section 5.

The petitioner (accused No. 4) contended that he cannot be considered an "officer in default" as no show-cause notice had been served upon him. The complaint revealed that notices were issued to the company and all its directors, but it was silent on the date of service. Upon reviewing the file, it was found that the notice sent to the petitioner was returned as "not found," indicating no proper service of notice on him.

The effect of non-service of notice before prosecution was considered in the case of Thomas (V.M.) v. Registrar of Companies, where the Kerala High Court held that without proper service of notice, a director cannot be said to have knowingly and wilfully authorized or permitted the default. This view was supported by the Madras High Court in Assistant Registrar of Companies v. Southern Machinery Works Ltd., which stated that if no reply is received after notice is served, it must be held that the officer knowingly committed the default.

Given that no proper service of notice was made on the petitioner, he cannot be construed as an "officer in default" under section 5 of the Act.

Conclusion

For the above reasons, the prosecutions against the petitioner (accused No. 4) are quashed. The proceedings in C.C. Nos. 1291 and 1292 of 1983, on the file of the Additional Chief Metropolitan Magistrate (E.O. No. 1), Egmore, Madras, against the petitioner shall stand quashed.