S. Natarajan, J.
1. Both these petitions are connected and are, therefore, being disposed of by a common order. The former petition has been filed by accused Nos. 1 to 3, 5 and 10, 12 and 14 and the latter petition has been filed by accused No. 13 in C.C. No. 7571 of 1979 on the file of the III Metropolitan Magistrate, George Town, Madras. The two petitions have been filed under section 482 of the Code of Criminal Procedure for quashing the proceedings in the criminal case mentioned above. The Assistant Registrar of Companies, Madras, who is the complainant in the case, has filed the complaint against the petitioners and two other accused, viz., one T.R. Dharaneedharan (accused No. 4) and S.T. Adityan (accused No. 11), alleging commission of offences under section 200 of the Code of Criminal Procedure read with section 58A(3)(a) and section 58A(5) of the COmpanies Act, 1956. The complaint proceeds as follows:
The first accused is a public limited company incorporated under the Indian Companies Act. Accused Nos. 2 to 13 have been impleaded in their capacity as present directors or former directors of the company at the relevant time of the company had committed the offences. The accused company has a public loan scheme under which it had accepted loans and deposits. Prior to February 1, 1975, the Reserve Bank of India had issued directions for controlling and regulating the acceptance of deposits by companies. Initially, the loans received form the members were totally excluded form the definition of 'deposits'. But, with effect from January 1, 1972, the unsecured loans received form the shareholders were also treated as loans and the Reserve Bank of India directed that those loans together with the loans obtained by the company under the guarantee of directors, managing agents, etc., should not exceed 25 per cent. of the aggreate of the paid-up capital and reserves less accumulated loss. The limit was further reduced to 15 per cent. on and from January 27, 1975.
2. Section 58A of the companies Act, 1956, which came into force on and form February 1, 1975, provided certain restrictions on the acceptance of deposits by companies. As per section 58A(3)(c) of the Companies Act, if any deposit had been received in contravention of any direction made under Chapter III-B of the Reserve Bank of India Act, 1934, before the commencement of the companies (Amendment ) Act, 1974, the company should repay such deposits in full on or before April 1, 1975.
3. In so far as the first accused company is concerned, a scrutiny of the balance-sheet for the years June 30, 1971, to June 30, 1975, and return of deposits during the period between March 31, 1975, and June 30, 1976, relived that the company was entitled to have deposits only to the extent of Rs. 9,,38,844 as on June 30, 1971. But the company had accepted deposits exceeding the limit prescribed under the Reserve Bank of India directions. The total amount of unsecured loans and deposits amounted to Rs. 37,40,508.12. It was noticed that the company had received loans or deposits from the members or from the general public as under:
Date AmountRs.From Aditanar EducationalInstitution 23-3-1973 3,50,00011-4-1973 1,00,00019-4-1973 1,00,0002-1-1975 8,00,000From K. R. Sharma ....... 15-9-1973 1,000From S. Rajalakshmi ....... 14-12-1973 1,000-----------13,52,000-----------
As per the balance-sheet as on June 30, 1975 , it was found that the company had exceeded the limit prescribed under rule 3(2)(i) of the Companies (Acceptance of Deposits ) Rules, 1975, and the excess amounted to Rs. 9,16,031.59.
4. The first accused company was entitled to have deposits only to an extent of Rs. 9,38,844 as on June 30, 1971. Since the company had excess deposits even on that day, the company should not have accepted fresh deposits to the tune of Rs. 13,52,000 between March 23, 1973, and January 2, 1975, and the deposits remained outstanding as on March 31, 1976. The excess amount of deposits should have been repaid on or before April 1, 1975, but the company had failed to do so. Hence, the company and its officers are liable to punishment under section 58A(5)(a) and section 58A(5)(b), respectively, of the Companies Act.
5. The learned Magistrate took the case on file and issued summons to the accused. Subsequently, the petitioners have come forward with these petitions to quash the proceedings on various grounds.
6. It has been urged by the petitioners that the Reserve Bank of India directions were in force till June 3, 1975, and hence section 58A of the Companies Act which came into force on February 1, 1975, is ultra vires because the Legislature has no power to alter the character of the private transactions already entered into. Moreover, section 58A can govern contraventions which have taken place after February 1, 1975, but cannot have application to transactions entered into earlier. Further, the provisions of section 58A offend article 19(1)(a), (b) and (g) as well as article 14 of the Constitution . Even assuming that a complaint can be made for non-compliance with the provisions of section 58A(3)(c), the position would be that so far as the deposits received up to June 30, 1971, are concerned, there was no contravention of the Reserve Bank of India directions since the amounts received from shareholders were not treated as deposits within the meaning of the term 'deposit'. Even as regards deposits received between March 23, 1973, and January 2, 1975, there has been no contravention of the Reserve Bank of India directions. Up to January 1, 1972, the deposits received by the company, within the meaning of the Reserve Bank of India directions as on December 31, 1971, were only Rs. 10,16,035. The other amount received from he Aditanar Educational Institution, who was a shareholder, was an advance for the supply of paper and was not, therefore, a deposit. The total deposits received by the company under the category of 'deposit from a shareholder' during that period amounted only to Rs. 5,57,000. As early as in 1967, Daily Thanthi had given advance of Rs.8,00,000 for supply of paper. At the request of Daily Thanthi, the credit entry was transferred on January 2, 1975, in favour of the Aditanar Educational Institution. As such the company did not receive any actual deposit on January 2, 1975, but it was only a transfer entry. Therefore, the total amount of deposits received during the period was only Rs. 5,50,000 and this was well within the limit prescribed by the section. Furthermore, under the rules framed under section 58A(1), which replaced the Reserve bank of India direction the time repayment of deposits had been extended form December 31, 1977, to March 31, 1978, and then to December 31, 1978, and finally, to June 30, 1979. Consequently, there has been no violation of any provision of law as on April 1, 1975.
7. Another contention raised by the petitioners is that the affairs of the company were bring looked after by a managing director who ad been subsequently removed from office and, as such, the other directors of the company are not liable for prosecution. The last submission made is that a prosecution under section 58A of the Companies Act offends article 20 of the Constitution and on the ground also, the complaint is not maintainable.
8. Though several contention have been raised by the petitioners in their petitions, Mr. G.Vasantha Pai , learned counsel for the petitioners, advanced arguments before the me only in respect of the last mentioned contention. Learned counsel pointed out that the offences alleged to have been committed , viz., receiving the deposits in contravention of the section , took place during the period March 23, 1973, to January 2, 1975, and the said period would fall within the date June 3, 1975, till which date the Reserve Bank of India directions were in force. As such, the contravention, if at all, would attract section 58B(5)(a) and (b) of the Reserve Bank of India Act, which lays down that if any person receives any deposit in contravention of any direction given or order made under Chapter III-B of that Act, he shall be punishable with imprisonment for a term which may extend to three years and shall also be liable to fine, as provided under clauses (i) and (ii) of that section. But, under section 58A(5)(a) and (b) of the Companies Act, for receiving a deposit in contravention of section 58A(3)(c), the punishment provided for every officer of the company is imprisonment for a term which may extend to five years and also fine. Having regard to the different nature of sentences provided for in the two enactments, Mr.Vasantha Pai contended that under article 20 of the Constitution, no person shall be convicted of any offence except for violation of law in force at the time of the commission of the act charged as an offence, nor be subject to a penalty greater that that which might have been inflicted under the law in force of the time of the commission of the offence. Hence, Mr. Vasantha Pai argued that the prosecution of the petitioners for an offence under section 58A(3)(c) which provides for a greater punishment than the one prescribed by the Reserve Bank of India Act, is violative of article 20 of the Constitution.
9. I think the contention of Mr. Vasantha Pai is well founded. The alleged receipt of deposits had taken place prior to June 3, 1975, till which date the directions issued by the Reserve Bank of India were in force. Hence, the contravention, if any, would attract punishment only up to three years' imprisonment but not imprisonment up to five years as provided for in section 58A(5)(b) of the Companies Act. Therefore, the prosecution is violative of article 20 of the Constitution.
10. Mr. Vasantha Pai further submitted that the company had complied with the provisions of section 58A of the Companies Act and the rules framed thereunder even during the financial year ended June 30, 1980. In the balance-sheet, the auditors have certified that the company has complied with the provisions of section 58A of the Companies Act, 1956, and the rules framed thereunder wherever applicable. This contention has been put forth to show that the company has not wantonly flouted the provisions of the Act and that the excess deposit amounts have been brought into conformity with the Act and the directions during the year 1979-80.
11. THis contention may prove the bona fides of the company, but in so far as the legal contention raised by the company is found to be a substantial;e one, the proceedings initiated against the company and its officers deserve to be quashed. COnsequently, both the petitions will stand allowed and the proceedings in C.C. No. 7571 of 1979 on the file of the III Metropolitan Magistrate, Madras will stand quashed.