2022 (5) TMI 1652 - HC - SEBI

Company failed to deposit dividend in separate account within five days, must face criminal trial under Section 205A

Karnataka HC dismissed petition to quash criminal proceedings under Section 482 Cr.P.C. Company declared dividend on 29-9-2012 but failed to deposit ... Offence u/s 205(1A) and 205A of Companies Act - criminal proceedings under Section 482 of Cr.P.C - accused company declared a dividend of but failed to deposit the amount in a separate bank account within five days and did not disburse it to the shareholders within thirty days - accused No. l is the Company and other accused persons are Managing Director and Directors of the Company and have declared the dividend to their shareholders and they have not paid to the shareholders. Offence was committed under the Old Company's Act, 1956 - as contended that the penal provision brought on the statute only to see the dividend shall be payable to the shareholders and once the dividend were already paid, the question of punishing the Company does not arise - HELD THAT:- Admittedly, the dividend was declared by the company on 29-9-2012 and they have not transferred the dividend declared within five days of its declaration to separate account as per Section 205(1A) and they have also not disbursed the dividend within thirty days from the date on which the due payable as per Section 205(1A), if calculated and if the dividend declared on 29-9-2012 within 5 days i.e., on 4-10-2012, they have to deposit in separate account and within 30 days i.e., on 3-11-2012 and they have to disburse the amount to the shareholders. Admittedly, the petitioner-company is defaulter in depositing and disbursing the amount, thereby, committed offence under section 205(1A) and 205A of Companies Act which is punishable under section 207 of the Companies Act. It is also not in dispute that the SEBI issued notice on 13-2-2013 and on 23-2-2013. The Head HR and Admin. of the Company sent a letter to the SEBI stating that he may require some more time to consult with the Directors as they have traveled to abroad. Subsequently, on 13-3-2013, again Head HR and Admin, of the Company wrote a letter to SEBI stating that they could not make the arrangement for payment of declared dividend and funds and cash flows have been affected badly due to defaulters and delays from their side and also they sought for opportunity to rectify and make the payment of dividends along with simple interest of 12% per annum as per Section 205A(4) of the Companies Act. Subsequently, on 28-6-2013, one Shiva Kumar Reddy, the Managing Director-accused No. 2 send a letter for having paid the dividends with 18% interest p.a. for delayed payments. These documents clearly indicates that the accused-company has committed offence under section 207 of the Companies Act apart from not depositing the amount within five days as per Section 205(1A) of Companies Act. Calculation of limitation offence under sections 205(1A) and 205A - Contention raised by the learned counsel for petitioners that the limitation point that the last amount was paid on 28-6-2013 as per their own letter, they have admitted that they have paid the entire amount along with interest. Therefore for the purpose of calculation of limitation offence under sections 205(1A) and 205A are the continuing offences until payment was made as on 28-6-2013. Such being the case, the complaint came to be filed in the year March 2016 within three years of the offence committed which is also continuing offence and it is continuing offence, the recurring limitation extends until the payment was made. Therefore, absolutely, there is no delay in filing the complaint and it was barred by the limitation under section 468 of Cr.P.C. Offence falls under the new Act, but not old Act - It is an admitted fact that the offence was committed under the old Companies Act, 1956 as the dividend declared in September 2012 and it was due for disbursement by 3-11-2012 and the new Companies Act came into force only in the year 2013. Though the complaint came to be filed in the year 2016, but the savings and repealed Act as per Section 465 of the Companies Act which was introduced or inserted only in the year 2020. Therefore, the complaint under the old Act has rightly filed as on the date of filing the complaint, Section 465 was not brought in the statute book. Therefore, the said contention by the petitioner counsel also is not sustainable. Once the amount has been paid, the penal provision should be exonerated - Here in this case, there is a clear violation of the provision of law for non-depositing the amount within five days and also not disbursing within thirty days and it was paid nearly for three years. Even some of the payments were made after filing of the complaint. Such being the case, the penal provision cannot be exonerated and otherwise, there is no meaning in mentioning the penal provision under the statute book. Therefore, considering all these facts, petitioner has not made out the ground for quashing the criminal proceedings and on the other hand, they have to face the trial before the Court. Issues Involved:1. Quashing of criminal proceedings under Section 482 of Cr.P.C.2. Alleged offences under Sections 205(8), 207, 55A, 205(1A), and 621 of the Companies Act, 1956.3. Limitation for taking cognizance under Section 468 of Cr.P.C.4. Applicability of the old Companies Act, 1956 vs. the new Companies Act, 2013.5. Penal provisions and their applicability post-payment of the dividend.Issue-Wise Detailed Analysis:1. Quashing of Criminal Proceedings under Section 482 of Cr.P.C.:The petitions were filed by the accused seeking to quash the criminal proceedings in C.C.No.116/2016. The accused contended that the offences were committed in 2013, and the complaint was filed in 2016, thus barred by limitation under Section 468 of Cr.P.C. They also argued that the new Companies Act, 2013 was in force at the time of filing the complaint, making the prosecution under the old Act unsustainable. The court, however, found that the offences were continuing in nature, and the complaint was filed within the permissible period, making the petitions for quashing the proceedings untenable.2. Alleged Offences under Sections 205(8), 207, 55A, 205(1A), and 621 of the Companies Act, 1956:The complaint by SEBI alleged that the accused company declared a dividend of Rs. 3,01,86,390/- but failed to deposit the amount in a separate bank account within five days and did not disburse it to the shareholders within thirty days, as required by Sections 205(1A) and 205A of the Companies Act, 1956. The failure to comply with these provisions attracted penalties under Sections 205(8) and 207, which include fines and imprisonment for the directors.3. Limitation for Taking Cognizance under Section 468 of Cr.P.C.:The petitioners argued that the complaint was time-barred as it was filed three years after the alleged offences. However, the court held that the offences were continuing in nature until the final payment was made on 28-6-2013. Since the complaint was filed in March 2016, it was within the three-year limitation period for continuing offences, thus dismissing the argument of the petitioners.4. Applicability of the Old Companies Act, 1956 vs. the New Companies Act, 2013:The petitioners contended that the complaint should be under the new Companies Act, 2013. The court clarified that the offences were committed under the old Companies Act, 1956, as the dividend was declared in September 2012, and the new Act came into force in 2013. Therefore, the prosecution under the old Act was valid, and the savings and repealed provisions of Section 465 of the Companies Act, 2013, introduced in 2020, did not affect the validity of the complaint.5. Penal Provisions and Their Applicability Post-Payment of the Dividend:The petitioners argued that since the dividend was eventually paid with interest, the penal provisions should not apply. The court rejected this argument, stating that the penal provisions are meant to ensure compliance with statutory requirements. The delayed payment, even after the complaint was filed, did not exonerate the company and its directors from the penalties prescribed under Sections 205(1A), 205A, and 207 of the Companies Act, 1956. The court emphasized that the statutory penalties must be enforced to uphold the law.Conclusion:The court dismissed both criminal petitions, affirming that the accused had committed offences under the relevant sections of the Companies Act, 1956, and that the prosecution was timely and valid. The accused were required to face trial for their non-compliance with the statutory provisions regarding the declaration and disbursement of dividends.