1. The Okkaliga Mahajana Bank Limited, Karamadai went into voluntary liquidation on 15th June, 1934 on an extraordinary resolution passed by it; and the company appointed the accused, who was the secretary of the company, as the liquidator. He performed the duties of the liquidator, and in accordance with those duties he had to send in periodical returns of the position of the company as required by Section 244 of the Indian Companies Act. He showed the assets of the company as Rs. 53,010-12-0 and liabilities as Us. 36,465-2-2 in all of his returns. On 19th June, 1935, he made certain entries in the accounts which rendered the subsequent periodical statements incorrect. He owed to the company a sum of Rs. 33,600, on a promissory note; and on 19th June, 1935, he showed that amount on the credit side. On 20th March, 1935, he showed on the debit side as share capital--K. Kampai Goundar Rs. 2,000 and share capital--K. Ramaswami Goundar Rs. 2,000, these persons being his uncle and brother respectively. Against' the date 19th June, 1935, he showed a debit entry of Rs. 6,000 for his own shares, Rs. 1,125 for his own current account, Rs. 3,000 as having been paid to the Karamadai Ranganathaswami Devasthanam, a Fixed Deposit of Rs. 6,000 to the Coimbatore Janopakara Nidhi; and another item of Rs. 400 towards a Fixed Deposit in the Okkaliga Mahajana Bank (possibly his own). He also showed vartious other payments by way of 'interest, then debited the Bank with Rs. 660 as unpaid salary due to himself and the remainder necessary to balance these various items against the credit item of Rs. 38,600, he entered as 'Bad debts written off'--Rs. 11,974-2-0.
2. The accused was first prosecuted in the Court of the Sub-Divisional First Class Magistrate of Coimbatore under Section 282 of the Indian Companies Act, for sending a false periodical return and again before the Sessions Judge of Coimbatore under Section 236 of the Act for falsifying the accounts. He was convicted by both the Sub-Divisional Magistrate and by the Sessions Judge of these offences, and was sentenced to six months rigorous imprisonment and a fine of Rs. 250 with a further period of three months rigorous imprisonment in default of payment of the fine, and two years rigorous imprisonment respectively, the Sessions Judge making his sentence to run concurrently with the sentence imposed by the Sub-Divisional Magistrate. The accused appealed against the conviction by the Sub-Divisional Magistrate; and the appeal was heard by the Additional Sessions Judge of Coimbatore,. who affirmed the conviction and sentence. These two matters have now come up before this Court in revision against the order of the Additional Sessions Judge of Coimbatore dismissing the appeal and also by way of a regular appeal against the conviction and sentence by the Sessions Judge of Coimbatore.
3. It is not quite certain from the records in the Courts below what exactly the case of the accused was. He stated before the Committing Magistrate 'I did not do anything fraudulently. I did so for the benefit of the Bank.' As the learned Sessions Judge says, this reads as if the accused admitted that he was responsible for these entries; but that he pleaded that he had done so in the best interests of the Bank. In the Sessions Court he said,
There was a proposal for holding a general meeting for winding up the Bank, but as there was no quorum 'nothing could be done. Subsequently I did no transaction on behalf of the Bank. I do not know who made the entries in the books after 1934.
4. The learned Sessions Judge naturally took this to be a plea that he did not know anything about it. In this Court; the learned advocate for the accused has made it clear that the case of the accused is that although he did not actually write these accounts, he did know what was written, that they were written with his authority, that those entries were correct even though some of the transactions were unauthorised, and that the accounts were not false. The balance sheet he admits to be incorrect, but pleads that it was sent in negligently in the same form with the same figures without any dishonest motive.
5. There is no doubt in my mind that looking at the accounts as a whole, the accused did intend to write off his own debt by making the entries he did in the accounts, that he knew that he had no authority to do so, and that he made those entries with the dishonest purpose of avoiding payment of his debt. I have no doubt too that the purpose of sending in the periodical returns in the same form throughout was to conceal from the Registrar and persons likely to see those periodical returns the fact that he had made these dishonest entries in the accounts. That is what the Sub-Divisional Magistrate found; and I have no doubt that he was right.
6. It is argued that the charges in these two cases were inconsistent, because if the entries in the accounts were false, then the periodical return was true; and so the accused could not be found guilty of both offences. It is also argued that there is no reason to believe that the entries in the accounts of 20th March, 1935, and on 19th June, 1935, were not true. It is pointed out that the prosecution has not let in any evidence to show that the creditors-mentioned therein were not actually paid. It is further contended that although the accused as a liquidator had no authority either to write off share capital and credit it against debts or to write off the balance of his own debt against sums due to creditors and to shareholders, yet the entries corresponded with real transactions, and so cannot be false entries. There is something to be said for this last argument as far as the debts, and perhaps also the writing off of share capital and the sum due to the accused on current account are concerned; but I do not agree that the writing off as a bad debt the balance of Rs. 11,974-2-0 due by the accused is a real transaction. I do not believe that the accused even purported to exercise an authority to write off a part of his own debt. He had written off against his own debt of Rs. 33,600 as many individual items of shares and debts as he could think of; and if he was to balance his accounts he had to enter this sum of Rs. 11,974-2-0. Something had to be written against that figure; and 'Bad debts written off' was apparently the best that the accused could think of. At least with regard to this sum of Rs. 11,974-2-0, therefore, the account of 19th June, 1935, was false as well as dishonest; and the accused was therefore properly convicted by the Sessions Judge. If, as the accused contends, the other entries are true entries, then the accused was also guilty of an offence under Section 282 of the Act. The latter conviction, however, is of little importance; because the sentence was six months' rigorous imprisonment and a fine of Us. 250 with rigorous imprisonment for three months in default of payment, which was to run concurrently with the larger sentence imposed by the Sessions Judge.
7. It has been argued with regard to the offence under Section 236 read with Section 282 of the Companies Act; that the accused was not a director or manager or an officer or contributory and therefore could not be found guilty under that section. It was argued that although he was once a director of the company, he ceased to be one, when once liquidation proceedings had begun. Section 208-A (2) says that on the appointment of a liquidator all the powers of a director cease except so far as the company in general meeting or the liquidator sanctions the continuance thereof. The wording of this section thus indicates that although the director loses most of his powers, he does not cease to be a director. Moreover, the liquidator is an officer of the Company. That was held in In re, Windsor Steam Coal Co. (1929) 1 Ch. 151. The accused was also a contributory. So whether as director, officer, or contributory, Section 236 would apply to the accused.
8. With regard to the conviction under Section 282, it is argued that the accused was not legally appointed as liquidator, because at the extraordinary general meeting at which a resolution was passed there was no proper quorum, the quorum being ten and only nine persons attending. The accused explained in reply to a letter from the Registrar on this point that he held a proxy from another director which made the quorum. Even if there had been no quorum, I still think that the accused was properly convicted under Section 282; for the liquidator referred to in that section is presumably the de facto liquidator. A person who accepts an appointment as liquidator of a company and who has acted in. accordance with the powers granted to him, must be deemed to have accepted the duties and responsibilities of that office and so any wrongful act done by him was a wrongful act done by him as liquidator. This view was held by Mr. Justice 'Walsh in Emperor v. Satis Chandra Ghose I.L.R. (1917) All. 412 J.C. De v. K.B. Boy Chowdry A.I.R. 1934 Rang. 271, has been quoted as an authority for the opposite view; but the question that calls for decision here did not arise in that case however. There, there was scarcely any pretence of an extraordinary resolution that the company should go into voluntary liquidation. No notice had been sent to the directors or to the members; and the agenda made no reference to the bringing up of this subject. During the course of the winding up, the liquidator applied to the Court for directions to examine the directors; and it was held by the learned Judge that as the company: had not passed any valid resolution that it could not, by reason of its liabilities, continue its business and that it was advisable to wind up, the company was not in voluntary liquidation at all; there was therefore no liquidation, and the liquidator had no authority to do any of the acts ordinarily permitted to a liquidator. The application to the Court was then opposed by members of the company; but in the present case, as far as we know, all the members of the company approved of the voluntary winding up, everything was regular with the possible exception of the quorum, for which the accused gave a reasonable explanation. There can be no doubt that the accused always acted as if he was the liquidator; and every act he did purported to be done in the exercise of that power freely conferred by the members of the company at a meeting properly convened for the purpose of winding up the company.
9. The only remaining question is that of sentence. There can be no doubt that the accused committed a serious offence by making these entries in his account books. He was able to secure himself against all action for the recovery of the large debt due by him; and there can be no doubt that throughout he was actuated by a dishonest motive in concealing the fact that this debt was shown as paid off. Had it not been for the fact that another liquidator was subsequently appointed by this Court because of the unsatisfactory manner in which the company was being wound up by the accused, this fraudulent transaction of the accused would never have come to light. On the other hand, it is argued that this offence took place nearly six years ago and that the accused could easily have avoided liability by filing an insolvency petition for he had no money with which he could have met his obligation. The accused has already been subjected to two trials and has served more than six months in jail; and I do not think the interests of justice require a further long term of imprisonment. There is still due from him a fine of Rs. 250 in default of payment of which he will have to undergo a further period of three months rigorous imprisonment.
10. The conviction and sentence of the Sub-Divisional Magistrate under Section 282 of the Indian Companies Act are affirmed and the revision petition dismissed. The conviction by the Sessions Judge under Section 236 of the Act is affirmed and the sentence reduced to the period already undergone. The 'accused will undergo the default sentence imposed by the Sub-Divisional Magistrate under Section 282 of the Act if he does not pay the fine within a month of this date.