G M MOHAN Vs. REGR OF COMPANIES

JUDGEMENT

(1.) This petition under S. 633 (2) of the Companies Act, 1956 is made by the three directors of Agro (Pvt) Ltd., Bangalore, a company incorporated under the Companies Act, 1956. The Company also is joined as a petitioner. Petitioners have been issued show cause notices by the Registrar of Companies in Karnataka dt. 26th June 1982, calling upon the Directors of the Company as to why the Company and its Directors should not be prosecuted for violating the provisions of S. 58-A (3)(c) read with Pule 3 (2)(i) and 4 (a) of the Companies Acceptance of Deposit Rules, 1975. The substance of the allegations in the show cause notice is that even after the Companies. Act was amended in 1974 by insertion of S. 58-A in the Companies Act prohibiting the acceptance of deposits or continuing deposits already accepted beyond 1st April 1975, except in accordance with the rules framed under S. 58-A viz, the Companies Acceptance of Deposit Rules 1975 in as much as the Company had accepted the deposits prior to the coming into force of Amendment in 1974 sums in excess of what was prescribed by the Reserve Bank of India for the companies and failed to repay the deposits in accordance with the rules before the expiry of 1-4-1975.

(2.) Numerous reasons are given by the petitioners for non-compliance. It is sufficient to state the substance of the various reasons given. Due to mismanagement by tine of the Directors resulting in lack of funds in the Company, the deposits could not be returned in accordance with the provisions referred to above. But, however, one of the Directors who is also the petitioner herein has since sold his personal Coffee Estate for a sum of Rs. 25 lakhs and has used that amount to repay all the deposits before the show cause notice came to be issued. In that circumstance, it is submitted for the petitioner that the violation of law and rules was not intentional, but something unavoidable in the peculiar circumstances in which the company was placed due to financial difficulty on account of the earlier mismanagement by one of its Directors.

(3.) It is also contended by Sri A. G. Holla learned counsel appearing for the petitioners that as on the date of the show cause notice issued by the respondent-registrar, there was no violation subsisting. Reliance was placed on a decision of the Calcutta High Court (1980 Coy. Cases 381) the case where in identical circumstances that court took the view having regard to the conduct of the petitioner company therein that any offence which had been committed by violating sub-section (3) (c) of S. 58-A of the Act read with Rule 4 of the Companies Acceptance of deposits Rules, the offence had ceased to be an offence immediately on refusal of exemption when the hotel had converted the deposits into charge or secured credit in favour of the depositors. In my view, the conduct in the case of the present petitioners is somewhat better in as much as the deposits have been repaid as on the date of the show cause notice and the date of this petition and there cannot possibly be any complaint against the company by the depositors. This should not be construed as condoning the lapses on the part of the Company. Violation of S. 58-A is a penal offence made as such in public interest and the companies cannot commit the offence with impunity.