PUBLIC PROSECUTOR Vs. ANANTHAKRISHNA IYER

JUDGEMENT

(1.) This appeal is by the Provincial Government against the acquittal of the respondent by the Sessions Judge of Madura of an offence punishable under Section 277-L (4) of the Indian Companies Act and of which he had been convicted by the Sub-Divisional First Class Magistrate of Usilampatti in C.C. No. 195 of 1941 and sentenced to pay a fine of Rs. 1,000 with simple imprisonment for six months in default of payment.

(2.) The facts which are undisputed were these. The respondent is a director and also the secretary of a banking company known as the Swarnavalli Bank, Limited, situated in Periakulam and according to its Articles of association a reserve fund had been created which amounted on the day of the alleged occurrence to Rs. 20,302 and odd. This sum related to profits earned prior to 1934 and it is common ground that since then no profits have been earned. Under the Indian Companies (Amendment) Act of 1936, the maintenance of a reserve fund became obligatory for all banking companies and Clause (3) of Section 277-K of the Act regulates the investment of the reserve fund. Under the proviso to Section 277-K, Clause (3), however, the mandatory provisions regarding investment did not apply to a banking company incorporated before the commencement of the Amending Act until after the expiry, of two years. On 15 January, 1939, the company capitalized this reserve fund and distributed it amongst the then shareholders in the form of shares in accordance with a resolution passed at an extraordinary general meeting of the company held on that day. Subsequently the Assistant Registrar of Joint Stock Companies, Madura, proceeded against this respondent and other members of the company for failure to invest the reserve fund in accordance with Section 277-K of the Act. The respondent was convicted by the learned Joint Magistrate, but was acquitted by the learned Sessions Judge and it is against this order of acquittal that this appeal has been brought.

(3.) The view taken by the learned Sessions Judge was that the proviso to Clause (3) of the section applied also to clauses (1)and(2) so that the provisions of the section did not affect the company until the i6 January, 1939. He took the new that the mandatory provisions of the section did not apply to any reserve fund which was already in existence on 15 January, 1937, so that when its provisions did come into force on 16 January, 1939, in relation to companies which were already in existence on 15 January, 1937, there was by then ho reserve fund in existence and no offence had been committed by the respondent. As pointed out by the learned Public Prosecutor, this view regarding the operation of the section in relation to a reserve fund already in existence when the Amending Act came into force ignores the clear wording of the section itself. The proviso at the foot of Clause (3) of Section 277-K is a subsidiary clause to Clause (3) and applies only to sub-clause (3). The learned advocate for the respondent has contended that the maintenance of a reserve fund was something new in the Indian Companies Act but this ignores Regulation 99 of Table A in the first schedule of the Act, sample Articles which, under Section 17 of the Act, it is open to a company to adopt either in whole or in part. Therefore the maintenance of a reserve fund was. nothing new under the Act and the effect of Section 277. K was to make a reserve fund obligatory and provide for its investment. I am unable to see any force in the argument that Section 277-K did not apply to a reserve fund which was already in existence and I agree with the contention of the learned Public Prosecutor that the use of the word "maintain" in Clause (1) of the section means "maintain intact and necessarily prohibits the utilization of that fund in any way other than m accordance with Clause (3) of the section. Although Art. 150 of the Company's Articles of Association provided for the capitalisation of its reserve fund, this power automatically came to an end with the Amending Act of 1936.