2002 (6) TMI 447 - HC - Companies Law

Court quashes proceedings against public servants for late financial filings under Companies Act

The court quashed the proceedings against petitioners 2 and 3, public servants, in a case involving the failure to file financial documents within the ... Balance sheet Issues:Failure to file balance sheet and profit and loss account within the stipulated time under the Companies Act, 1956; Requirement of sanction under section 197 of the Code of Criminal Procedure for prosecuting public servants.Analysis:The petitioners, accused in S.T.C. No. 62 of 1998, sought to quash the proceedings based on their alleged failure to file the approved balance sheet and profit and loss account within the specified timeframe as per the Companies Act, 1956. The petitioners, a Government company and its directors, were obligated to file these documents within 30 days before the Registrar of Companies after laying them before the annual general meeting. The complaint against them was filed for non-compliance with these statutory requirements, leading to the initiation of proceedings. The petitioners contended that the delay was due to auditors not being appointed on time by the Central Government, shifting the blame from them to the authorities responsible for the appointment. Additionally, it was argued that the directors accused of the offense were not in office at the time of the alleged default, and upon assuming their roles, they promptly got the accounts audited and balance sheet prepared, indicating a lack of negligence on their part.The central issue revolved around the necessity of obtaining sanction under section 197 of the Code of Criminal Procedure before prosecuting public servants, in this case, petitioners 2 and 3. The prosecution contended that no sanction was required for prosecuting the Managing Director and Secretary of the petitioner-company. However, the court found that petitioners 2 and 3, being public servants, necessitated sanction under section 197. The court relied on the principle that if an act is related to the discharge of official duty, sanction is mandatory. The court emphasized that the accused were not functioning as officials at the relevant time and could not be held accountable for the failures of their predecessors in fulfilling official duties. Consequently, the complaint against the public servants was deemed not maintainable without obtaining the required sanction.In light of the legal requirement for sanction under section 197 and established precedents, the court invoked its inherent powers to quash the proceedings against petitioners 2 and 3 due to the lack of sanction. Citing previous judgments, the court emphasized that when a legal impediment such as the absence of sanction exists, the proceedings must be quashed. Therefore, the court upheld the trial against petitioner No. 1 while quashing the proceedings against petitioners 2 and 3 in S.T.C. No. 62 of 1998, emphasizing the need for sanction in cases involving public servants.