1. The State has filed this appeal under Section 417 of the Code of Criminal Procedure against the order dated 21st August 1950 passed by the Additional City Magistrate, Indore in criminal case No. 143 of 1950 acquitting the two respondents of an offence under Section 87(D) of the Indore Companies Act.
2. Respondent No. 1 Seth Hiralalji is the Managing Director of the Kalyanmal Mills Ltd., Indore, incorporated under the Indore Companies Act (Act No. 6 of 1914) and respondent No. 2 is his son who is also a permanent Director of the above said Mills. Both the respondents are proprietors of the Firm Tilokchand Kalyanmal and Co. Indore, which seems to be a joint-family business firm. This firm works as Secretaries, Treasurers and Agents of the Kalyanmal Mills Ltd., Indore.
3. On 17th November 1947, the Kalyanmal Mills Ltd., and Tilokchand Kalyanmal and Co., both executed a promissory note for a sum of Rs. 2 lacs at four and a half per cent interest in favour of the Bank of Indore Ltd. wherein they jointly and severally promised to pay the sum to the Indore Bank. This pro-note was renewed from time to time till 11th March 1948, and then the loan was repaid to the Indore Bank. Respondent No. 1 Seth Hiralalji executed and signed on behalf of the Kalyanmal Mills Ltd., as well as on behalf of the Tilokchand Kalyanmal and Co. It is admitted that the sum of Rs. 2 lacs went to the Mills who subsequently paid it back to the Indore Bank.
4. Then on 11.9.1948, Tilokchand Kalyanmal and Co. and the Kalyanmal Mills Ltd., approached the Manager, the Bank of Indore Ltd., and took another loan of Rs. 1 lac at four and half per cent, interest. The pro-note in favour of the Bank was executed and signed by respondent No. 1 Seth Hiralalji on behalf both of Tilokchand Kalyanmal and Co. and the Kalyanmal Mills Ltd. This is a joint and several promise to pay to the Bank of Indore Ltd., the sum of Rs. 1 lac. Ex. P/1 shows that there was a request by the Mills as well as by the Tilokchand Kalyanmal and Co. to the Bank of Indore to pay an amount thereof to 'one of us', viz. Tilokchand Kalyanmal. The receipt Ex. P/2 was also executed by Tilokchand Kalyanmal and Co., on 11.9.1948, and there is no doubt that this sum of Rs. 1 lac was taken not by the Mills but by the Managing Agents, Tilokchand Kalyanmal and Co. It is this pro-note that is to be interpreted in this appeal.
5. In the report of the Auditors, S.B. Billimoria and Co. Bombay, dated 8th June 1948, this liability of the Mills on behalf of the Managing Agents was objected to in the following words:
The Company and the Secretaries, Treasurers and Agents have jointly passed a Promissory note to the Bank of indore Ltd., for Rs. 1,00,000 which sum has been received by the Secretaries, Treasurers and Agents, and, not by the Company, and there is no entry in respect thereof in the Company's Books. This appeal's to be in contravention of Section 87D of the Indore Companies Act.
6. On the basis of the Auditor's report, Mr. Jagjiwandaj Tulsiram Shah, a share-holder of the Mills, lodged a complaint on 21.1.50 against the two respondents? under Section 87D of the Indore Companies Act which is identically the same as Section 87D of the Indian Companies Act. The complaint also alleged that the loan had been repaid to the Bank on 31.12.48. The complaint was dismissed and the accused acquitted as stated above, and the State has riled this appeal against the order of acquittal. The main point taken in the appeal is that by agreeing to execute a promissory note jointly and severally with the Managing Agents in favour of the Indore Bank, the Mills had taken a liability upon themselves which was in contravention of the spirit underlying Sections 86D and 87D of the Companies Act.
7. The Government Advocate contends that signing of the promissory note by Kalyanmal Mills for the loan that was going to the Managing Agents clearly meant that the Mills took the liability upon themselves and thus guaranteed the loan. The learned Government Advocate argues that it was nothing short of guaranteeing a loan made to the Managing Agents within the meaning of the expression used in Section 87D.
8. Mr. Samvatsar, learned Counsel for the respondents, argues that the first loan of Rs. 2 lacs was taken by the Mills and the pro-note was also jointly and severally executed by the Mills arid the Managing Agents. The Managing Agents had taken liability to the extent of 2 lacs of Rupees which went to the Mills. When the Managing Agents had become liable for payment of Rs. 2 lacs which went to the Mills, the learned Counsel contends, that there was nothing wrong, when in consideration of this liability, the Mills executed the pro-note for the money (Rs. 1 lac) which went to the Managing Agents. Mr. Samvatsar urges that this joint and several 'pro-note' executed in this manner cannot come within the term 'guaranteeing a loan'. In his opinion the word 'guarantee' in Section 87D should be literally construed; but in the opinion of the learned Government Advocate, it should be construed in a liberal sense and its meaning should not be restricted to mean a contract of guarantee as defined under Section 126 Contract Act.
9. The portion of Section 87D, Indore Companies Act which is similar to the same section of Indian Companies Act, that is material for the purposes of this appeal, runs as follows:
1. No Company shall make to a Managing Agent of the Company or to any partner of the Firm, if the Managing Agent is a firm.any loan out of the monies of the company or guarantee any loan made to the Managing Agent.
3. In the event of any contravention of Sub-section (1) any Director of the Company who is a party to the making of the loan or giving of the guarantee shall be; punishable with fine which may extend to Rs. 500, and if default is made in repayment of the loan or discharging the guarantee shall be liable jointly and severally for the amount unpaid.
10. Mr. Samvatsar rightly contends that under Sub-section (3) the only person who can be punished is the Director of the Company who is a party to the making of the loan or giving of the guarantee. And as the pro-note was executed by respondent No. 1 and not by respondent No. 2 the latter cannot be held guilty. In our opinion this contention is well-founded, and we order that this appeal should be dismissed, so far as respondent No. 2 Shri Narendra Kumar Singh is concerned. The question then remains whether the first respondent No. 1 can be held guilty under Section 87D.
11. It has to be borne in mind that the Legislature has used the word 'guarantee' in Sub-sections (1) and (3) quoted above. The first and most elementary rule of construction is, that it is to be assumed that the words and phrases of technical legislation are used in their technical meaning, if they have acquired one, and, otherwise in their ordinary meaning. (Maxwell page 3), The word 'guarantee' has acquired a technical meaning and the legislature was aware of it. The essence of guarantee is that a guarantor agrees to discharge his liability only in one event i.e. when the principal debtor fails in his duty. 'Let him have the loan, I will see you paid 'or' if he does not pay I will'.are phrases ordinarily used when a guarantee is given. In other words, a guarantee pre-supposes the existence of a principal debtor, and if in any contract there never was at any time another person who can properly be described as 'the principal debtor' in respect of whose default a guarantee can be given, there cannot be said to have been any 'guarantee' either in its technical meaning or in. its ordinary meaning. So, in my opinion a promissory note executed jointly by a Company and its Managing Agents does not come within the purview of Section 87D.
12. It is true that because the money had gone to Tilokchand Kalyanmal and Co. the Mills could not have shaken off their individual & separate obligation for the debts incurred. Under the terms of the promissory note, the entire liability for the money borrowed from the Bank of Indore could have been borne by the Managing Agents alone, or by the Kalyanmal Mills alone. In case of default, the Bank could have sued either of the two and could have under Section 43 of the Contract Act excluded the right of a joint promisor to he sued along with the co-promisor. In this sense, it can be said the Mills took a liability for the loan which had not been received by them. In other words, by executing the pro-note they facilitated a loan by the Indore Bank to their Managing Agents and adopted a device which ought to be stopped by the Legislature. But as the wording of Section 87D is, I am clear in my mind that the action of the Mills in executing the pro-note does not come within the meaning of the expression 'guaranteeing a loan'.
13. It has again to be noted that the provision contained in Section 87D, is a penal provision and such a provision is to be construed strictly.
14. Maxwell in 9th Edition (1946) at page 268 observes as follows:
But the rule of a strict construction requires that the language shall be so construed that no cases shall be held to fall within it which do not fall both within the reasonable meaning of its terms and within the spirit and scope of the enactment. Where an enactment may entail penal consequences, no violence-must be done to its language to bring people within it, but rather care must be taken that no one is brought within it who is not within its express language.
To determine that a case Is within the intention of a Statute, its language must authorise the Court to say so, but it is not admissible to carry the principle that a case which is within the mischief of a statute is within its provision so far as to punish a crime not specified in the statute, because it is of equal atrocity or of a kindred character with those which are enumerated. If the Legislature has not used words sufficiently comprehensive to include within its. prohibition all the cases which fall within the mischief intended to be prevented, it is not competent to a Court to extend them.
15. Then at page 289 Maxwell adds that-
the effect of the rule of strict construction might almost be summed up in the remark, that, where an equivocal word or ambiguous sentence leaves a reasonable doubt of its-meaning which the canons of interpretation fail to solve, the benefit of the doubt should be given to the subject and against the Legislature which has failed to explain itself.
16. On the basis of these principles of interpretation, I find that the learned Additional City Magistrate's order seems to be correct and the principles do not allow a Court to extend the meaning of the word 'guarantee' so as to include within it a joint pro-note executed by the Mills and the Managing Agents for facilitating a loan, to the Managing Agents.
17. The learned Government Advocate has also drawn our attention to an irregularity committed by the learned Additional City Magistrate in this case. As the respondents were exempted from attending the Court under an order of His Highness the Maharaja Holkar, the learned Magistrate, instead of examining them under Section 342, recorded the statement of the counsel for the respondents. We are sure that this was not warranted by any provision of the Code of Criminal Procedure. We entirely disapprove of the procedure adopted by the Magistrate but we do not think the case necessitates a retrial in as much the appeal against order of acquittal cannot succeed.
18. We, therefore, dismiss it.