M VELAYUDHAN Vs. REGISTRAR OF COMPANIES

JUDGEMENT

(1.) The petitioners have, by this petition, moved this court under Section 482 of the Cr. P.C. seeking to quash a complaint dated 19th July, 1977, filed before the Chief Judicial Magistrate, Calicut, by the Registrar of Companies, the respondent in this petition. The four petitioners are the directors of a company by name, M/s. Sudarsan Trading Company Ltd. (hereinafter referred to for the sake of convenience as "Sudarsan"). The complaint has been filed by the Registrar of Companies complaining of contravention of Section 372 of the Companies Act, 1956, by the petitioners who are directors of Sudarsan and, therefore, seeking the imposition of penalties under Section 374 of the Companies Act. The petitioners seek to make out that on the facts averred in the complaint no case for prosecution is made out. It is further the case of the petitioners that there is no basis for taking action by filing complaint before the Chief Judicial Magistrate. According to them, the petitioners will be put to considerable hardship if action is taken on the complaint filed before the Chief Judicial Magistrate and in the circumstances of the case it would be appropriate for this court to quash the complaint pending before the learned Chief Judicial Magistrate, Kozhikode, in S.T. 211 of 1977.

(2.) M/s. Sudarsan Trading Company is a public company. The authorised capital of the company is Rs. 50 lakhs divided into 2,55,000 equity shares of Rs. 10 each and 2,45,000 shares of Rs. 10 each (equity/preference shares). The subscribed capital of M/s. West Coast Industrial Gases P. Ltd. is Rs. 15,07,000 as evidenced from the balance-sheet as at June 30, 1976. The case which is the basis for the complaint by the Registrar is that Sudarsan acquired on September 22, 1976, more than 54 per cent. of the subscribed capital of M/s. West Coast Industrial Gases P. Ltd. (referred to hereinafter as "West Coast Gases" for convenience) a company incorporated on June 28, 1972. It is the case of the complainant that in doing so Sudarsan invested in M/s. West Coast Gases more than 10 per cent. of its subscribed capital and also an amount in excess of 30 per cent. of its own subscribed capital. This was done without the prior approval of the Central Government and the resolution of the general body as required under Section 372(4) of the Companies Act. It is said that thereby the provisions of Sub-section (4) read with Sub-section (2) of Section 372 of the Act have been violated.

(3.) The facts are admitted. That M/s. Sudarsan has acquired more than 51 per cent. of the subscribed capital of the West Coast Gases is a fact conceded by the petitioner before this court. But it is said that prior to this, on September 19, 1976, an agreement was entered into between Sudarsan on the one hand and the West Coast Gases on the other (I may refer to the parties as first and second party to the agreement respectively) whereunder the first party agreed to finance the second party to meet its requirement in consideration of which the second party agreed to empower the first party to have control over the composition of the board of directors and to nominate the majority of the number of directors as per Article 98 of the articles of association of the second party. The second party was engaged in manufacturing oxygen and ancillary products. For completing the project of installing an acetylene plant and to provide for the working capital requirement of the project as a whole the second party required finance and the first party had been contacted for providing such finance. The agreement was entered into as a consequence. The agreement is annex. "B" to the petition. I may refer to the relevant Clauses in the agreement. Clause 1 provides for an advance being made by the first party of an amount not exceeding twenty lakhs of rupees. Clause 3 provides for the right of the first party to have absolute power to nominate the majority of the number of directors. Clause 4 provides that the nominee directors shall be entitled to all rights and privileges of a director of the second party and shall also have the right to attend all general meetings. Clause (5) provides that the second party is to co-opt the nominees of the first party to the board. These clauses, for the sake of convenience, may be extracted here.