EMPEROR Vs. LAXMAN BHARMAJI

JUDGEMENT

(1.) THIS is an application in revision against the petitioner's conviction under Section 134 of the Indian Companies Act, 1913, and the sentence of a fine of Rs. 100 by the Chief Presidency Magistrate, Bombay. The petitioner is. one of the directors of the India Patron Bank, Ltd. , which is a private limited company incorporated under the Indian Companies Act, its main business being to sell what are called "Patron Bonds", to invest moneys realised by the sale of those bonds and to take steps to carry out the terms of the scheme of those bonds. Being a private limited company, it cannot issue an invitation to the public to subscribe for any shares or debentures, and according to Section 2(1), Clause (13)(c), of the Indian Companies Act, if it issues such invitation to the public, it ceases to be a private company and becomes a public company liable to fulfil the obligations imposed upon a public company by the Act and the rules. One of such obligations, from which a private limited company is exempt, is to file three copies of the annual balance-sheet and profit and loss account with the Registrar of Companies after they have been laid before the company at the general meeting, and any default in complying with this requirement is made punishable under Section 134(4) of the Act. Section 134(3) provides that where a private company has included all the necessary provisions in its articles of association, but is not complying with those or any of those provisions, it shall cease to be entitled to the privileges and exemptions conferred on private companies under the provisions of the Act, and shall be treated as if it were not a private company.

(2.) BEING of opinion that the so-called Patron Bonds issued by the company to the public are in fact debentures and finding that the company had not filed with him three copies of its balance-sheet and profit and loss account for the year ending March 31, 19)39, the Registrar of Companies filed a complaint against the company and its three directors in the Court of the Chief Presidency Magistrate, Bombay. One of the directors died thereafter, and the learned Magistrate, agreeing with the view of the Registrar of Companies, convicted the remaining accused under Section 134(4) of the Indian Companies Act and sentenced each of them to a fine of Rs. 100. One of the directors thus convicted, who was accused No. 2, has now presented this application for revision.

(3.) ON a consideration of the nature and conditions of these Patron Bonds we are clearly of opinion that they are really debentures within the meaning of Section 2(1), Clause 13(c), of the Indian Companies Act. In Section 2(1), Clause (4), of the Act, a debenture is said to include debenture stock, but nowhere is to be found a legal definition of the word "debenture. " In Levy v. Abercorris Slate and Slab Co. (1837) 37 Ch. D. 260, 264 Chitty J. defined a debenture as "any document which either creates a debt or acknowledges it", and he says that any document which fulfils either of those conditions is a debenture. In British India Steam Navigation Co. v. Commissioners of Inland Revenue (1881) 7 Q. B. D. 165, 172 Lindley J. held that a document which on the face of it was called a debenture and recorded indebtedness and was one of a aeries was to be dealt with as a debenture under the Stamp Act. He observed (p. 172): Now, what the correct meaning of 'debentures' is I do not know. I do not find anywhere any precise definition of it. We know that there are various kinds of instruments commonly called debentures. You may have mortgage debentures, which are charges of some kind on property. You may have debentures which are bonds, and, if this instrument were under seal, it would be a debenture of that kind. You may have a debenture which is nothing more than an acknowledgment of indebtedness.