2025 (10) TMI 185 - HC - Companies Law

Section 454 is continuing offence, prosecution failed to prove wilful default or records under Section 106; accused acquitted

Mr. Dinesh Chandra Maingi, The Official Liquidator and the Liquidator of M/s. Geeta Marine Services P. Ltd (In Liqn). Versus Shivkant V. Chaudhary, Sudhir S. Chaudhary, Geeta S. Chaudhary, Seema Menon.

HC held offence under Section 454 (failure to file statement of affairs) is a continuing offence, but prosecution failed to prove wilful default or ... Continuing offence for limitation purpose - offence of committing default in complying with the requirements of Section 454 of the Companies Act as the Statement of Affairs has not been filed with the official liquidator - whether an offence under Section 454 of Companies Act constitutes “continuing offence”? - HELD THAT:- The complaint has been filed in the year 2013. Section 468 of Cr.PC bars taking of cognizance after lapse of period of limitation and provides for limitation of three years where offence is punishable with imprisonment exceeding one year but not exceeding three years. The offence in the present case is punishable with imprisonment for a term which may extend to two years or with fine which may extend to one thousand rupees for every day during which the default continues, or with both. The offence under Section 454 of Companies Act is summons triable case. It would be relevant to note the provisions of Section 472 of CrPC which provide that in case of a continuing offence, a fresh period of limitation shall begin to run at every moment of time during which the offence continues. The issue to be considered is whether an offence under Section 454 of Companies Act constitutes “continuing offence”. In the case of State of Bihar v. Deokaran Nenshi [1972 (8) TMI 133 - SUPREME COURT], the Hon’ble Apex Court was considering the issue of limitation in case of offence under Sections 66 and 79 of the Mines Act, 1952. Section 66 of Mines Act, 1952 provided that upon any person omitting inter alia to furnish return in the prescribed form or manner or at or within the prescribed time required under the Act shall be punishable with fine which may extend to Rs. 1,000/-. Section 79 of the Mines Act, 1952 provided for the complaint to be made within 6 months of which the offence was alleged to have been committed or comes to the knowledge of inspector whichever is later. In Globe Associates P. Ltd v. F. C. Mehra [1986 (8) TMI 365 - HIGH COURT OF DELHI]. the Delhi High Court while considering an identical issue of limitation, observed that the object of requiring the filing of statement of affairs within 21 days or within 3 months is to facilitate speedy action in winding up and to enable the Official liquidator to get himself immediately acquainted with all the relevant facts relating to the affairs of company. It held that reading of the provisions of Section 454 of the Companies Act would make it abundantly clear that non filing of statement of affairs in time is a continuing offence and it terminates only upon the filing of statement of affairs. It further held that the same is the reason why punishment of fine is extended for every day during which the default continued. Section 106 of Evidence Act which is an exception to Section 101 of Evidence Act, places the burden of proving the fact which is especially within the knowledge of that person upon that person. It will have to be considered whether the fact of existence of reasonable excuse is a fact which can be said to be especially within the knowledge of the Accused placing the burden of proof upon the Accused by applying Section 106 of Evidence Act - In Official Liquidator of Security and Finance Ltd v. B.K. Bedi [1974 (1) TMI 46 - HIGH COURT OF DELHI], the Full Bench of Delhi High Court held that the Official Liquidator need only prove that notice was sent to the concerned Director to submit the statement of affairs, that prescribed time has lapsed and that no extention has been sought for from him or the court and that the necessary books of the company were available for inspection by the concerned director. It held that if these facts are shown prima facie he would have proved that the default is without reasonable excuse and then it would be for the concerned director to prove the circumstances to justify his conduct and to show reasonable excuse for the default. The initial burden was upon the Official Liquidator to prove the relevant facts to establish the wilful default in filing the statement of affairs. The prosecution was, therefore, required to lead evidence to demonstrate that all the records necessary for filing the statement of affairs were available with the accused and despite thereof there is default - The evidence merely proves that the Accused were directed from time to time to submit the statement of affairs. However, it is not the default in filing of the statement of affairs which constitutes an offence but wilful default i.e. default without reasonable excuse that would constitute an offence under Section 454 of Companies Act. PW-1 has not event deposed about the preliminary facts to prove the availability of records with the accused sufficient to prepare the statement of affairs which would have resulted in the onus shifting upon the accused. Consequently, the initial burden has not been discharged by the prosecution. The prosecution has not only failed to prove wilful default, but also failed to prove that there was default in filing statement of affairs. P-14 speaks of submission of statement of affairs alongwith the records available with the Accused. PW-1 has deposed that the letter dated 22nd March, 2012, was misplaced in the office of Official Liquidator and could not be traced and copy of the letter dated 22nd March, 2012 was placed on record. PW-1 has deposed on the basis of official records and had no personal knowledge - In the absence of personal knowledge about P-14 and absence of proof of contents of P-15, the prosecution has failed to prove beyond reasonable doubt that the statement of affairs and the documents submitted alongwith P-14 did not meet the requirements of Section 454(1) of Companies Act. P-14 would prove that the Accused based on the records available had submitted statement of affairs to the Official Liquidator. The offence under Section 454 of Companies Act constitutes a continuing office. The offence being summons triable, the evidence was required to be taken in presence of accused and in conformity with the rules framed by the High Court. As no objection was raised by the accused at the time of leading evidence by way of affidavit, the contents of Affidavit not being inherently inadmissible, its admissibility on ground of mode of proof cannot be raised subsequently. The initial burden to prove the preliminary facts to establish wilful default on part of accused is upon the prosecution, which upon being discharged, will shift the onus upon the accused. The prosecution has failed to prove beyond reasonable doubt that the failure to file the statement of affairs by the Accused was without reasonable excuse. The onus did not shift on the accused to show that there was sufficient explanation for the default - all Accused are acquitted. ISSUES PRESENTED AND CONSIDERED 1. Whether the offence under Section 454(5) of the Companies Act (non-filing of statement of affairs) is a continuing offence for limitation purposes. 2. Whether evidence by way of affidavit in lieu of examination-in-chief is permissible in a summons-triable offence under Section 454(5) (i.e., whether the prosecution's affidavit evidence complied with CrPC and Evidence Act requirements). 3. On whom lies the burden of proving absence of a 'reasonable excuse' for failing to file the statement of affairs: prosecution's initial burden and any shift to the accused. 4. Whether failure to issue notice in prescribed Form (Rule 124 of Companies (Court) Rules, 1959) absolves directors from the statutory obligation to file statement of affairs. 5. Whether the prosecution led evidence sufficient to prove wilful default beyond reasonable doubt (including proof of availability of necessary books/records with accused and that defaults continued despite availability). 6. Whether any prejudice arose from not putting wilful-default allegations to accused under Section 313 CrPC and whether Section 313 compliance affected the outcome. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Continuing nature of offence and limitation Legal framework: Section 454(3) prescribes 21 days (extendable up to three months) from the relevant date to file statement of affairs; Section 454(5) prescribes punishment including fine 'for every day during which the default continues.' Limitation for summons trials governed by Section 468 CrPC; Section 472 CrPC deals with continuing offences. Precedent treatment: Decisions recognizing continuing offences where statute prescribes recurrent penalty (e.g., State of Bihar v. Deokaran Nenshi; decisions on non-filing/returns and de die in diem penalties) and Delhi High Court authority holding non-filing of statement of affairs to be continuing (Globe Associates). Interpretation and reasoning: The Court examined the legislative language 'for every day during which the default continues' and comparative authorities on de-in-deie penalties to conclude that the statutory scheme contemplates a continuing wrong that persists until compliance. Treating the offence as not continuing would frustrate the winding-up process and permit escape from obligation after expiry of the initial window. Ratio vs. Obiter: Ratio - the offence under Section 454(5) is a continuing offence; reliance on legislative wording and precedent forms the operative ratio. Conclusion: The offence constitutes a continuing offence; limitation is governed by Section 472 CrPC so the complaint was not time-barred. Issue 2 - Admissibility of affidavit evidence in summons trial Legal framework: CrPC Sections 273 (evidence in presence of accused), 295-296 (affidavit evidence in limited situations), Section 283 (High Court rules on recording evidence); Evidence Act definition of 'evidence'. Precedent treatment: Apex Court authorities emphasize accused's right to see witnesses and cross-examine (Dr. Praful B. Desai; Sujay Mitra; A.T. Mydeen), and that affidavit evidence is permissible only in specified, formal circumstances; case law distinguishing contexts where affidavits are acceptable. Interpretation and reasoning: Section 454(5A) makes procedure for summons cases applicable; Section 273 therefore governs and ordinarily requires oral evidence in presence of accused. Affidavit in lieu is permissible under Sections 295/296 only for specified formal matters, not general prosecution evidence. Rule 976 of Bombay High Court rules prescribes manner of taking evidence. However, procedural waiver principles apply: the affidavit was tendered in court without objection at tendering; subsequent belated objection is treated as waived where the accused cross-examined the witness and the affidavit contents were not inherently inadmissible. The Court balanced strict procedure and principles of fair trial with waiver doctrine and prior judicial ruling rejecting the initial objection. Ratio vs. Obiter: Mixed - ratio that affidavit evidence is not a substitute for oral evidence except where law permits; but where a party fails to object at the point of tender, objection to mode may be waived - operative holding in the case. Conclusion: Affidavit evidence was not the preferred mode but the omission to object when the affidavit was tendered and subsequent cross-examination amounted to waiver; admissibility challenge could not be raised later to vitiate the trial. Issue 3 - Burden of proof as to 'reasonable excuse' for default Legal framework: Evidence Act Sections 101, 105, 106 (burden of proof; exceptions). Criminal burden principles require prosecution to prove guilt beyond reasonable doubt except where statute creates exceptions. Precedent treatment: Authorities (P.V.R.S. Manikumar; Vertex; Official Liquidator v. B.K. Bedi) hold that prosecution bears initial burden to show absence of reasonable excuse by proving primary facts; Section 106 applies only in exceptional cases where facts are especially within accused's knowledge and inaccessible to prosecution. Interpretation and reasoning: The Court reaffirmed that prosecution must initially prove wilful default (absence of reasonable excuse). Section 106 does not generally shift burden to accused unless prosecution cannot, with due diligence, produce facts especially within accused's knowledge. The statutory language of Section 454(5) does not create a legal exception placing burden on accused; thus prosecution must make prima facie case (notice, lapse of time, availability of records) before onus shifts to accused to explain. Ratio vs. Obiter: Ratio - prosecution bears initial burden; only after prima facie proof does burden shift to accused to prove reasonable excuse; Section 106 applies narrowly. Conclusion: The prosecution bore the initial onus to establish absence of reasonable excuse; the onus would shift only upon discharge of that initial proof burden. Issue 4 - Necessity of Rule 124 Form 55 notice Legal framework: Substantive duty to file statement arises from Section 454; Rule 124 prescribes Form 55 notice by Official Liquidator. Precedent treatment: Authorities interpret relationship between substantive enactment and procedural rules; issuance of prescribed form may be procedural but not a condition precedent where statute imposes independent duty. Interpretation and reasoning: Conjoint reading shows Section 454 imposes duty on directors from relevant date; Rule 124 prescribes a procedural step for the Official Liquidator. The Court held that absence of Form 55 notice is not a sine qua non to fix culpability because statutory obligation exists irrespective of whether the Official Liquidator issued the particular form notice; thus non-issuance is irrelevant to culpability under Section 454(5). Ratio vs. Obiter: Ratio - failure to issue Form 55 notice under Rule 124 does not relieve directors of statutory duty to file statement of affairs. Conclusion: Lack of formal notice in Form 55 is not a defence to criminal liability under Section 454(5); liability attaches to statutory non-compliance unless a reasonable excuse is proved. Issue 5 - Sufficiency of prosecution evidence to prove wilful default beyond reasonable doubt Legal framework: Prosecution must prove elements of offence beyond reasonable doubt, including that accused wilfully defaulted without reasonable excuse and had the means/records to comply. Precedent treatment: Earlier High Court decisions set out minimum proof: notice, lapse of time, and availability of company records with accused to enable preparation of statement of affairs. Interpretation and reasoning: The prosecution relied on affidavit evidence of an Official Liquidator's junior officer and documentary exhibits (communications, orders). Critically, the Court found gaps: PW-1 lacked personal knowledge of meetings and documents; P-14 indicated that statement and records were forwarded; PW-1 could not prove contents of P-15 or demonstrate that requisite books/records were in accused's possession sufficient to prepare statement of affairs prior to filing; P-18 and P-19 (statements filed after complaint) were produced but were incomplete and their sufficiency was not established by prosecution evidence. On these facts the prosecution failed to discharge the initial burden of proving wilful default without reasonable excuse. Ratio vs. Obiter: Ratio - absent prima facie proof that records were available with accused and despite that they wilfully failed to file a compliant statement, prosecution fails; findings about evidentiary insufficiency are dispositive. Conclusion: Prosecution did not prove wilful default beyond reasonable doubt; therefore accused are entitled to acquittal. Issue 6 - Section 313 CrPC compliance and prejudice Legal framework: Section 313 CrPC requires putting evidence against accused for explanation; purpose is to afford opportunity to contradict adverse facts. Precedent treatment: Section 313 is remedial and affords accused chance to explain; prejudice arises only where material adverse facts appear in evidence and are not put for explanation. Interpretation and reasoning: Because prosecution failed to lead evidence establishing wilful default, there were no material adverse facts required to be specifically put; absence of targeted questioning under Section 313 did not prejudice accused. Accused made statements explaining submission of documents and one accused claimed no directorship at relevant time. Ratio vs. Obiter: Ratio - where prosecution fails to establish essential adverse facts, omission to put hypothetical wilful-default allegations under Section 313 causes no prejudice and does not vitiate trial. Conclusion: No prejudice resulted from Section 313 procedure in the circumstances; failure to prove wilful default was determinative. Final Disposition (Court's Conclusion) The prosecution failed to prove beyond reasonable doubt that the accused committed wilful default in filing the statement of affairs without reasonable excuse; while the offence is a continuing one and affidavit evidence is generally impermissible in summons trials, waiver and procedural facts rendered the affidavit admissible here; however evidentiary shortcomings on the critical issue of wilful default necessitated acquittal of all accused.