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 amount in separate account within five days and disburse to shareholders within thirty days as required under Sections 205(1A) and 205A of Companies Act, 1956. Court held offence was continuing until payment made on 28-6-2013, making complaint filed in March 2016 within limitation period. Payment of dividend with interest after default does not exonerate penal liability. Accused company and directors must face trial for violation of statutory provisions.

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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.

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