P.P. LOOKE Vs. N.J. MATHEW

JUDGEMENT

(1.) THE complainant in C. C. No. 27 of 1965 on the file of the District Magistrate (Judicial), Alleppey, appeals against the acquittal of the accused who were hauled up before the court for offences under Section 409, Indian Penal Code, and Section 628 of the Indian Companies Act (1 of 1956). Accused No. 1 is the managing director and accused Nos. 2 and 3 the directors of the Cochin Chemicals and Refineries Limited (hereinafter to be referred to as the company), a company incorporated under the Indian Companies Act (7 of 1913) and the Indian Companies Amendment Act (21 of 1936). The case of the complainant is that in the directors' report and balance -sheet and profit and loss account of the company for the year 1962, published by the accused on 7th March, 1963, false particulars were made knowing them to be false or omitted to state material facts knowing them to be material. The specific instance pointed out was that in the balance -sheetthe value of plant and machinery of Rs. 1,51,492 was shown as fixed asset as on 31st March, 1962, while in fact the machinery of the oil refinery section of the Kozhippara mill belonging to the company was already sold by the accused for Rs. 1,65,000 to M/s. Sri Ranga Engineering Works 471 Park Road, Erode. The agreement with the Sri Ranga Engineering Works for the sale of the machinery was entered into by the accused on 1st February, 1963, and an advance of Rs. 10,000 was received. The balance of purchase money was also received later and the sale was effected on 13th February, 1963. The items of machinery were delivered in pursuance of the sale to the purchaser between 16th February, 1963, and 13th March, 1963. The transaction was thus completed ; but in the balance -sheet exhibit P -2, published by them on 2nd September, 1963, the machinery in question was shown as an item of asset belonging to the company and its value was shown as Rs. 1,51,492. They have also omitted to mention material facts in the balance -sheet knowing them to be material. The sale of the machinery for the sum of Rs. 1,65,000 and the receipt of the consideration was wilfully omitted or withheld from the report. The above facts according to the complainant would constitute an offence under Section 628 of the Companies Act and according to him the accused have committed also criminal breach of trust punishable under Section 409 of the Indian Penal Code in that they have dishonestly misappropriated Rs. 1,65,000 received from the purchaser company. The stand taken by the accused was that no false statements have been made by them in the balance -sheet and they are not guilty of any wilful omission also. It is true that they had entered into an agreement with M/s. Sri Ranga Engineering Works and the sale consideration was received and the machinery was also delivered, but the sale could be complete only on getting the approval or concurrence of the Kerala Financial Corporation (hereinafter referred to as the Corporation) with whom the machinery was pledged and so they were obliged to show the value of the machinery as an item of asset in the balance -sheet. The learned Magistrate accepting the plea has acquitted the accused.

(2.) THE position was thrashed out in all minuteness and I am satisfied that the order of acquittal entered by the learned Magistrate is correct and does not call for interference by this court. The most important point to be considered in respect of the transaction, is whether the alleged sale was complete or it was only in the stage of an executory contract. Exhibit D -4 is the assignment deed executed by the company in favour of the Corporation Under the terms and conditions set forth in exhibit D -4 it is patent that the right, title and interest of the company in the machinery and plant were transferred to the Corporation and the transfer was absolute. The Corporation was made the absolute owner of the property subject to the right of thecompany to redeem it on discharge of their liability. The company had also given the written undertaking to the Corporation that without their written consent the company would not remove the plant and machinery from its site referred to in the agreement. On a plain reading of exhibit D -4 it is clear that the company cannot transfer the property in the machinery and the plant, without the concurrence of the Corporation. In view of the clear position it is difficult to treat the transaction as a completed sale. The company on the date of the sale was in possession of the plant and machinery not in its own right but only on behalf of the Corporation. The case of the accused is that they had no intention to transfer the property in the machinery and the plant to the vendee until the sanction was obtained from the Corporation. Under Section 19 of the Indian Sale of Goods Act, where there is a contract for sale of the specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. The intention of the parties as expressed in the contract or inferred from their contract and other circumstances of the case has to be considered. In the present case it was the intention of the parties to convey the property in the plant and machinery only on getting the concurrence of the Corporation. The buyer was also fully alive to this fact as is evident from the two letters exhibit D -15 and exhibit D -16 addressed by him to the company after the date of the alleged sale. In exhibit D -15 the purchaser would state as follows: ' We have received the entire machinery as per our agreement. Please obtain the sanction from the Finance Corporation at your earliest and pass on to us the documents and title of the plants and machinery to complete the sale.'

(3.) HERE the third person is the Corporation and until the Corporation acknowledged to the buyer that they held the property on his behalf, the sale could not have been treated as completed. It was in these circumstances that the amount received from Sri Ranga Engineering Works was shown in the balance -sheet as a suspense item (under the caption, sundry creditors) and the value of the machinery, viz., Rs. 1,51,492, as an item of fixed asset Nothing else could be expected of the directors of the company under such circumstances. The agreement of sale entered into with the Sri Ranga Engineering Works has also been referred to in the balance -sheet. In the directors' report (page 1 of exhibit P -2) they have stated: 'The company has agreed to dispose of the oil refinery section of the Kozhippara mill and it is now awaiting sanction of the Kerala Financial Corporation.'