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 (Judl.), Alleppey appeals against the acquittal of the accused who ware hauled up before the court for offences under S.409 I. P. C. and 628 of the Indian Companies Act (Act 1 of 1956). Accused No. 1 is the Managing Director and accused 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 VII of 1913 and the Indian Companies Amendment Act XXI 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 7-3-1963, 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 sheet the value of plant and machinery of Rs. 1,51,492/- was shown as fixed asset as on 31-3-1962, 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, 47 Park Road, Erode. The agreement with the Sri Ranga Engineering works, for the sale of the machinery was entered into by the accused on 1-2-1963 and an advance of Rs. 10,000/- was received. The balance of purchase money was also received later and the sale was effected on 13-2-1963. The items of machinery were delivered in pursuance of the sale to the purchaser between 16-2-1963 and 13-3-1963. The transaction was thus completed; but in the balance sheet Ex. P 2, published by them on 2-9-1963, 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 S.628 of the Companies Act and according to him the accused have committed also criminal breach of trust punishable under S.409 of the I. P. C. 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 completed 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. Ex. D 4 is the assignment deed executed by the company in favour of the Corporation. Under the terms and conditions set forth in Ex. 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 the company 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 Ex. 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 S.19 of the Indian Sale of Goods Act, where there is a contract for 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 conduct 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 Ex. D 15 and Ex. D 16 addressed by him to the Company after the date of the alleged sale. In Ex. D 15 the purchaser would state as follows:

(3.) The charge under S.409 was not pressed at the final stage of the trial arid that under S.628 of the Companies Act alone was pressed. In order to sustain an action under S.628, the prosecution must show that false statements were made in the balance sheet knowing them to be false and with a dishonest intention. The learned counsel for the appellant relying on a Division Bench ruling of the Calcutta High Court (AIR 1936 Calcutta. 680) argued that in a statutory offence like this, 'mens rea' is not a necessary ingredient to fasten guilt upon the accused. The learned Judges held in that case that the expression "wilfully" does embody the idea of a criminal mentality and that it meant only the spontaneous action of a person who is a free agent. The learned Judge observed: