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G.M. Mohan and ors. Vs. Registrar of Companies, Karnataka - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKarnataka High Court
Decided On
Judge
Reported in[1985]56CompCas265(Kar); 1983(1)KarLJ128
ActsCompanies Act, 1956 - Sections 58A, 58A(3) and 633(2)
AppellantG.M. Mohan and ors.
RespondentRegistrar of Companies, Karnataka
Advocates:A.G. Holla, Adv.
Excerpt:
.....of permits. grant of renewal is a fresh grant, though it breathes life into previous grant, as per existing provisions of act. - 58a, of the act, inasmuch as the companies had accepted the deposits, prior to the coming into force of the amendment in 1974, sums in excess of what was prescribed by the rbi for the companies and failed to repay the deposits in accordance with the rules before the expiry of april 1, 1975. 2. numerous reasons are given by the petitioners for non-compliance. in my view, the conduct in the case of the present petitioners is somewhat better inasmuch as the deposits have been repaid as on the date of the show-cause notice and the date of this petition and there cannot possibly be any complaint against the company by the depositors......the provisions of s. 58(3)(c) read with rr. 3(2)(i) and 4 of the companies (acceptance of deposits) rules, 1975. the substance of the allegations in the show-cause notice is that even after the companies act, 1956, was amended in 1974 by the insertion of s. 58a in the companies act, 1956, prohibiting the acceptance of deposits or continuing deposits already accepted beyond april 1, 1975, except in accordance with the rules, viz., the companies (acceptance of deposits) rules, 1975, framed under s. 58a, of the act, inasmuch as the companies had accepted the deposits, prior to the coming into force of the amendment in 1974, sums in excess of what was prescribed by the rbi for the companies and failed to repay the deposits in accordance with the rules before the expiry of april 1,.....
Judgment:

Chandrakantaraj Urs, J.

1. This petition under s. 633(2) of the Companies Act, 1956, is made by the three directors of M/s. Agro (Pvt) Ltd., Bangalore, a company incorporated under the Companies Act, 1956. The company also is joined as a petitioner. The petitioners have been issued show-cause notices by the Registrar of Companies in Karnataka, dated June 26, 1982, calling upon the directors of the company as to why the company and its directors of the company as to why the company and its directors should not be prosecuted for violating the provisions of s. 58(3)(c) read with rr. 3(2)(i) and 4 of the Companies (Acceptance of Deposits) Rules, 1975. The substance of the allegations in the show-cause notice is that even after the Companies Act, 1956, was amended in 1974 by the insertion of s. 58A in the Companies Act, 1956, prohibiting the acceptance of deposits or continuing deposits already accepted beyond April 1, 1975, except in accordance with the rules, viz., the Companies (Acceptance of Deposits) Rules, 1975, framed under s. 58A, of the Act, inasmuch as the companies had accepted the deposits, prior to the coming into force of the Amendment in 1974, sums in excess of what was prescribed by the RBI for the companies and failed to repay the deposits in accordance with the rules before the expiry of April 1, 1975.

2. Numerous reasons are given by the petitioners for non-compliance. It is sufficient to state the substance of the various reasons given. Due to mismanagement by one of the directors resulting in lack of funds in the company, the deposits could not be returned in accordance with the provisions referred to above. But, however, one of the directors, who is also a petitioner herein, has since sold his personal coffee estate for a sum of Rs. 25 lakhs and has used that amount to repay all the deposits before the show-cause notice came to be issued. In that circumstance, it is submitted for the petitioner that the violation of law and rules was not intentional, but something unavoidable in the peculiar circumstances in which the company was placed due to financial difficulty on account of the earlier mismanagement by one of its directors.

3. In is also contended by Sri A.G. Holla, learned counsel appearing for the petitioners, that, as on the date of the show-cause notice issued by the respondent-Registrar, there was no violation subsisting. Reliance was placed on a decision of the Calcutta High Court in East India Hotels Ltd., In re [1980] 50 Comp Cas 381, wherein, in identical circumstances, the court took the view, having regard to the conduct of the petitioner company therein, that any offence which had been committed by violating sub-s. (3)(c) of s. 58A of the Act read with r. 4 of the Companies (Acceptance of Deposits) Rules, 1975, the offence had ceased to be an offence, when the hotel had converted, immediately on a refusal of exemption, the deposits into a charge or secured credit in favour of the depositors. In my view, the conduct in the case of the present petitioners is somewhat better inasmuch as the deposits have been repaid as on the date of the show-cause notice and the date of this petition and there cannot possibly be any complaint against the company by the depositors. This should not be construed as condoning the lapses on the part of the company. Violation of s. 58A is a penal offence made as such in public interest and the companies cannot commit the offence with impunity.

4. Therefore, in the circumstance made out in this case, this court, under s. 633(2) of the Act, directs the Registrar of Companies to forbear from prosecuting the petitioners for the offence mentioned in the show-cause notice which is at annex-B.

5. Accordingly, this petition, is allowed.


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