1983 (9) TMI 255 - HC - Companies Law

Summary

Issues:
Violation of Companies Act - Acceptance of deposits exceeding prescribed limits
Constitutional validity of section 58A of the Companies Act
Liability of directors for prosecution
Article 20 violation in prosecution under section 58A of the Companies Act

Analysis:
The judgment pertains to two connected petitions filed under section 482 of the Code of Criminal Procedure seeking to quash proceedings in a criminal case involving the acceptance of deposits exceeding prescribed limits by a public limited company. The complaint alleged offenses under section 58A(3)(a) and section 58A(5) of the Companies Act, 1956. The accused company had accepted deposits exceeding the limits set by the Reserve Bank of India, leading to the initiation of proceedings against the company and its officers.

The petitioners contended that the provisions of section 58A of the Companies Act were ultra vires, violated constitutional articles, and did not apply to transactions entered into before its enactment. They argued that there was no contravention of Reserve Bank of India directions and that the time for deposit repayment had been extended, thus no violation occurred by the stipulated deadline. Additionally, they claimed that the managing director was primarily responsible, and the prosecution under section 58A was unconstitutional under article 20.

The court considered the arguments and found merit in the contention related to article 20 violation. The alleged contravention occurred before the Reserve Bank of India directions ceased, limiting the punishment to three years' imprisonment under the Reserve Bank of India Act, not the five years prescribed by the Companies Act. Therefore, the prosecution under section 58A(3)(c) was deemed violative of article 20 of the Constitution.

Furthermore, it was noted that the company had complied with section 58A of the Companies Act and its rules even in subsequent financial years, as certified by auditors. While this demonstrated the company's compliance, the legal argument regarding the punishment discrepancy was deemed sustainable. Consequently, the court allowed both petitions, quashing the proceedings against the company and its officers in the criminal case.

In conclusion, the judgment addressed the issues of violation of the Companies Act, the constitutional validity of section 58A, the liability of directors for prosecution, and the violation of article 20 in the prosecution under the Companies Act. The court's decision to quash the proceedings was based on the finding of an article 20 violation due to the discrepancy in prescribed punishments under different enactments for the same offense committed before the Reserve Bank of India directions ceased.