BAIDYA NATH BISWAS Vs. EMPEROR

JUDGEMENT

(1.) Appeal No. 891. In this case, the appellant Baidyanath Biswas, Managing Director of the Federal Insurance Co. Ltd., was charged under Section 282, Indian Companies Act, with having prepared a false balance-sheet. The section reads as follows: Whoever in any return, report, certificate, balance-sheet or other document, required by or for the purposes of any of the provisions of this Act, wilfully makes a statement false in any material particular, knowing it to be false, shall be punishable under this section.

(2.) The prosecution case is that certain items on the expenditure side of the balance-sheet were false, The establishment charge actually shown in the balance-sheet was Rs. 120, whereas the actual establishment charge during the year was Rs. 1,020, the balance of Rs 900 being credited to organisation expenses which amounted to Rs. 2,257. Certain other correct items of expenditure were also credited to organisation expenses. The result of this was that the company were able to show in the revenue account a balance to their credit of Rs. 227-10- 5 which was shown as "life fund" at the end of the period ending 31 December 1932. Had these ordinary current charges been shown in the revenue accounts as expenditure in fact the revenue accounts would have shown a loss of over Rs. 1,400.

(3.) For the appellant it has been maintained that these being initial heavy expenditure charges, the appellant was entitled to show them in his accounts in the way in which he has done. But the prosecution evidence is to the effect (and this is supported by authority) that the initial expenditure which can be shown as organisation expenses is limited to the expenditure incurred before the Company began to earn revenue. Unless the expenditure is shown in the profit and loss account, the purpose, for which under the Indian Companies Act a balance-sheet has to be returned, would be defeated inasmuch as the public might be deceived, because there would be no check on the amount of expenditure which might be shown as organisation expenses. For instance, in this case, a great deal more current expenditure might have been shown as organisation charges, thus increasing the favourable balance of the revenue account. The fact that the auditor has given a certificate to the effect that this account is drawn up in conformity with the provisions of the Provident Insurance Societies Act, is not of much value when the auditor himself admits that the account is not correct. He excuses himself in these terms: Had the liabilities of the company been all properly disclosed to me, this life fund would have been washed out. There would have been a debit balance on the other side. I was shown entries in the books and on the basis thereof I certified the balance-sheets. All the facts had not been disclosed to me. If they had been I would not have certified them.