Employee security deposits must be kept in a special bank account; knowing non-compliance by office-bearers can sustain conviction.
An employee's mandatory deposit was treated as a security deposit under section 282B of the Indian Companies Act, 1913 because the employment terms and conduct showed it was meant to secure loss caused by him. The provision was held to apply broadly to all moneys or securities deposited under a contract of service, and it required the amount to be kept in a special account in a scheduled bank. Office-bearers were found to have knowingly contravened the section because the society followed a long-standing practice of retaining employee security money itself. No prejudice arose from the alleged procedural omissions under criminal procedure.
Issues: (i) Whether the amount deposited by the employee was a cash security deposit within the meaning of section 282B of the Indian Companies Act, 1913; (ii) whether section 282B applied to all moneys deposited by an employee in pursuance of the contract of service and imposed a duty to keep such money in a special account in a scheduled bank; (iii) whether the petitioners knowingly contravened section 282B(1); and (iv) whether the trial was vitiated by any failure to inform the accused that they could examine themselves as witnesses or by omission in the examination under section 342 of the Code of Criminal Procedure.
Issue (i): Whether the amount deposited by the employee was a cash security deposit within the meaning of section 282B of the Indian Companies Act, 1913.
Analysis: The appointment terms showed that the employee was required to deposit Rs. 500 and that the society could recover any loss caused by him from that amount. Even if the money initially came from another person as a loan, it was treated by the society as the employee's deposit and was ultimately standing to his credit. The surrounding terms of employment and the subsequent conduct of the society established that the amount was intended to operate as security.
Conclusion: The amount was a security deposit made by the employee.
Issue (ii): Whether section 282B applied to all moneys deposited by an employee in pursuance of the contract of service and imposed a duty to keep such money in a special account in a scheduled bank.
Analysis: The language of section 282B(1) was held to be wide enough to include all moneys or securities deposited by an employee in pursuance of the contract of service. The obligation to place the deposit in a special bank account was treated as distinct from the further prohibition on utilising the deposit except for the agreed purpose. The provision was not confined to deposits described as cash security alone.
Conclusion: Section 282B applied to the deposit in question and required it to be kept in a special account in a scheduled bank.
Issue (iii): Whether the petitioners knowingly contravened section 282B(1).
Analysis: The articles of association made the president, vice-presidents and general secretary ex officio directors. The evidence showed that the society had followed a long-standing policy of keeping employees' security money in the society itself rather than in a scheduled bank. The petitioners were members of the executive structure responsible for that policy and were therefore chargeable with knowledge of the continued non-compliance.
Conclusion: The petitioners knowingly contravened section 282B(1).
Issue (iv): Whether the trial was vitiated by any failure to inform the accused that they could examine themselves as witnesses or by omission in the examination under section 342 of the Code of Criminal Procedure.
Analysis: No duty was found in section 342A to explain to the accused that they could enter the witness box. The omission to put a specific question regarding the inference of knowledge did not occasion prejudice, since the relevant facts were proved by evidence and were open to legitimate inference by the Magistrate.
Conclusion: No procedural illegality or prejudice was established.
Final Conclusion: The conviction was upheld because the deposit fell within section 282B, the statutory obligation was violated with knowledge, and no procedural ground justified interference.
Ratio Decidendi: Section 282B of the Indian Companies Act, 1913 applies to all moneys or securities deposited by an employee in pursuance of the contract of service, and a long-standing corporate practice of retaining such deposits outside a scheduled bank can support a finding of knowing contravention by the responsible office-bearers.
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