1960 (7) TMI 46 - HC - Companies Law

Loans to directors etc. and Winding up - Prosecution of delinquent officers and members of company

Summary

Issues Involved:
1. Compliance with Section 237(6) of the Indian Companies Act, 1913, and Section 545(6) of the Companies Act, 1956.
2. Maintainability of prosecution under Section 86D of the Indian Companies Act, 1913, after the enactment of the Companies Act, 1956.

Issue-wise Detailed Analysis:

1. Compliance with Section 237(6) of the Indian Companies Act, 1913, and Section 545(6) of the Companies Act, 1956:
The petitioners contended that the trial was vitiated due to non-compliance with Section 237(6) of the old Act and Section 545(6) of the new Act. These sections require that before initiating prosecution, the Registrar must place the case before the Advocate-General or Public Prosecutor and give the accused an opportunity to make a statement.

The Deputy Government Advocate argued that the petitioners did not raise this objection during the trial, and thus, the complainant could not present evidence of compliance. Furthermore, it was contended that these sections regulate the pre-trial actions of the Registrar and not the criminal courts' functions. Non-compliance with these provisions does not vitiate the trial.

The court agreed with the Deputy Government Advocate, stating that these provisions are intended to regulate the actions of the Registrar and not the criminal courts. The trial by criminal courts cannot be invalidated due to non-compliance with these pre-trial provisions. The court cited Sailendra Nath Sinha v. State, emphasizing that these provisions do not limit the criminal courts' jurisdiction.

2. Maintainability of prosecution under Section 86D of the Indian Companies Act, 1913, after the enactment of the Companies Act, 1956:
The petitioners argued that the re-enactment of Section 86D in Section 295 of the new Act implied that prosecutions for violations under the old Act were not maintainable. The Deputy Government Advocate countered that the liability under the old law continues under Section 6 of the General Clauses Act.

The court analyzed the changes in the law, noting that Section 86D prohibited companies from making loans to directors or firms in which directors were interested. The new Act liberalized these provisions, allowing such loans with the Central Government's approval and provided for regularizing old loans within a specified period.

The court held that under Section 295(3) of the new Act, companies could obtain approval for old loans and regularize them. This implied that the new Act did not contemplate the maintainability of prosecutions under Section 86D of the old Act. The court concluded that the prosecution under Section 86D was not justified and the convictions could not be maintained.

Conclusion:
The court accepted the revision petition, set aside the convictions of the petitioners, and acquitted them. The fines paid were ordered to be refunded. The judgment emphasized that the non-compliance with pre-trial procedural requirements did not vitiate the trial and that the new Act's provisions implied that prosecutions under the old Act were not maintainable. The revision was allowed, and the petitioners were acquitted.