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Ashoka Marketing Ltd. Vs. Addl. Registrar of Companies - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKolkata High Court
Decided On
Case NumberCriminal Revision No. 1254 of 1967
Judge
Reported in[1985]57CompCas187(Cal),87CWN499
ActsCompanies Act, 1956 - Sections 237, 629, 629A and 635B
AppellantAshoka Marketing Ltd.
RespondentAddl. Registrar of Companies
Appellant AdvocateA.K. Dhar and ;Jayanta Kumar Biswas, Advs.
Respondent AdvocateA. Sengupta, Adv.
Cases ReferredMatic Ltd. v. Hinchcliffe
Excerpt:
- .....ltd. and sone valley portland cement co. ltd., brought into existence a common concern named sahu cement service with a view to getting various services including appointment of personnel for all the participating companies, that sahu cement service on behalf of its constituents appointed sri. d.n. gupta as their registered engineer by a letter dated april 16, 1960, that thereafter, the services of sri d.n. gupta were lent and transferred to the accused company and sri gupta in fact became an employee of the accused company, that the central govt. ordered investigation into the affairs of the accused company under section 237 of the companies act, 1956, that during the pendency of such investigation, the accused company by its letter dated june 29, 1966, terminated the services of sri.....
Judgment:

Amitabha Dutta, J.

1. This revisional application is for quashing the proceeding in Case No. C-3411 of 1967 pending in the court of the learned Chief Metropolitan Magistrate, Calcutta.

2. The impugned proceeding has arisen out of a complaint filed on November 14, 1967, by the Additional Registrar of Companies, West Bengal, against Ashoka Marketing Ltd., and its four directors and secretary alleging commission of an, offence under Section 629A read with Section 635B of the Companies Act, 1956. The substance of the complaint is that the accused company and four other companies, viz., Ashoka Cement Ltd., Jaipur Udyog Ltd., Rohtas Industries Ltd. and Sone Valley Portland Cement Co. Ltd., brought into existence a common concern named Sahu Cement Service with a view to getting various services including appointment of personnel for all the participating companies, that Sahu Cement Service on behalf of its constituents appointed Sri. D.N. Gupta as their registered engineer by a letter dated April 16, 1960, that thereafter, the services of Sri D.N. Gupta were lent and transferred to the accused company and Sri Gupta in fact became an employee of the accused company, that the Central Govt. ordered investigation into the affairs of the accused company under Section 237 of the Companies Act, 1956, that during the pendency of such investigation, the accused company by its letter dated June 29, 1966, terminated the services of Sri D.N. Gupta without sending prior intimation of the proposed action to the Company Law Board, and that the accused company thus contravened the provisions of Section 635B of the Companies Act, 1956, which is punishable under Section 629A of the said Act.

3. The learned Chief Metropolitan Magistrate, Calcutta, on receiving the complaint took cognizance and issued summons against the accused persons for their appearance by his order dated November 14, 1967.

4. The petitioners in their revisional application have challenged the proceeding on the ground (1) that the petition of complaint does not disclose any criminal offence against the directors of the accused company in the absence of any specific averment that they or any of them was actually in charge of or responsible for the day-to-day conduct of the business and affairs of the said company, (2) that, on the facts of the case, the provisions of Section 635B of the Companies Act, 1956, are not attracted as Sri D.N. Gupta was never an employee of the accused company and his employers were Sahu Cement Service of which the accused company was merely an organiser and agent, (3) that the services of Sri D.N. Gupta were never lent and transferred to the accused company as alleged and could not be legally transferred without a tripartite agreement (between the transferor, the transferee and the employee concerned) of which there is no allegation or averment in the complaint, and (4) that Section 635B of the Companies Act, 1956, does not constitute or create a criminal offence punishable under Section 629A of the Act.

5. The learned advocate for the petitioner has elaborated the aforesaid points and jetted on the decision in the case of Mahalderam Tea Estate Ltd. v. D.N. Prodhan [1979] 49 Comp Cas 529 ; 1978 CHN 336, in relation to the first point, the decision in the case of Pyarchand Kesarimal Potwal Bidi Factory v. Onkar Laxman Thenge : (1970)ILLJ492SC , in connection with the third point and the decision in the case of Registrar of Companies v. Bharat Produce Co. Ltd. [1980] 50 Comp Cas 250 (Cal), in support of the fourth point.

6. On the other hand, the learned advocate for the opposite party-complainant has submitted with reference to the averments made in the affidavit-in-opposition and its annexures ' B ' to ' D ' that Sri D.N. Gupta used to draw his salary from the accused company and the said company issued certificate of deduction of income-tax from his salary and also deducted the employee's share of contribution to the provident fund and paid the employers' share of contribution to the provident fund in respect of Sri D.N. Gupta and also asked him to make compulsory deposit. It is contended that Sri Gupta was in fact an employee of the accused company which terminated his services by its letter dated June 29, 1966, without complying with Section 635B of the Companies Act, 1956, while the affairs of the accused company were being investigated under Section 237 of the Act.

7. After considering the submissions made by the learned advocates for the parties and the materials placed before me, I find that the present proceeding should be quashed for the following reasons. It is not disputed that the organisation named Sahu Cement Service formed by the memorandum of agreement dated June 19, 1959 (which is annexure ' Z ' to the petitioners' application), between the accused company as organizers and four companies which were manufacturers of cement for rendering technical services to them was a separate legal entity and that Sri D.N. Gupta was appointed regional engineer in the said organisation at Calcutta by the letter of appointment dt. April 16, 1960 (annexure ' A ' to the application), subsequently superseded by the letter dated May 16, 1960 (annexure ' Y ' to the application), on the terms and conditions mentioned therein. The said letters of appointment were signed by one T.P. Bhalle, director for Sahu Cement Service. There is nothing in the said memorandum of agreement to show that Sahu Cement Service had any authority or power to appoint any employee for or on behalf of the accused company. Paragraph 5 of the memorandum of agreement provides ' that the organisers will appoint engineers, architects, technicians and officers and staff for offices and field work required for proper functioning of this service '. It has, however, been alleged in the petition of complaint that the services of Sri D.N. Gupta after the appointment were lent and transferred to theaccused company and in fact Sri Gupta became an employee of that company and was treated as such. But there could be no such transfer in law without a tripartite agreement which has not been alleged in the complaint This view is supported by the decision of the Supreme Court in the case of Pyarelal Kesarimal Porwal Bidi Factory v. Onkar Laxman Thenge, : (1970)ILLJ492SC . The Supreme Court has held that the general rule in respect of relationship of master and servant is that a subsisting contract of service with one master is a bar to service with any other master unless the contract either provides or the master consents. A contract of employment involving personal service is incapable of transfer. In some cases there may be a transfer of the benefit of the services of the employee for a particular work. A contract of service being incapable of transfer unilaterally, such a transfer of service from one employer to another can only be affected by a tripartite agreement between the employer, the employee and the third party the effect of which would be to terminate the original contract of service by mutual consent and to make a new contract between the employee and the third party. Therefore, when an employer orders an employee to do a certain work for another person, the employee still continues to be in his employment. The only thing that happens in such a case is that he carries out the orders of his master. The employee has the right to claim his wages from the employer and not from the third party to whom his services are lent or hired. It may be that such third party may pay his wages during the time that he has hired his services; but that is because of his agreement with the employer. That does not preclude the employee from claiming his wages from the employer. If the employee fails to carry out the direction of the third party, the latter cannot dismiss him and can only complain to the employer. The right of dismissal vests in the employer. In view of the legal position emerging from the aforesaid decision of the Supreme Court, payment of salaries and provident fund contribution by the accused company during certain period to Sri D.N. Gupta does not make him an employee of the accused company. Moreover, Sri Gupta was retired from service with effect from August 1, 1966, by a letter dated June 29, 1966 (annexure ' C '), by the accused company as organisers or agent of Sahu Cement Service. So the facts alleged in the petition of complaint with their legal implications do not disclose that Sri D.N. Gupta was the employee of the company during the material period and thus the act of termination of service of Sri Gupta by the accused company on behalf of Sahu Cement Service does not attract the provisipns of Section 635B of the Companies Act, 1956, although an investigation into the affairs of the accused company under Section 237 of the Act was pending at that time.

7. The complaint in so far as it seeks to implicate the directors of the accused company suffers from the further infirmity of absence of any averment that the accused directors or any of them took part in the running of the business of the company by being in overall control of its day to day business. Directors are normally concerned with matters of policy of a company and not with its actual daily operations. So the allegation that accused Nos. 2 to 6 were directors of the accused company without any averment of their taking part in its day-to-day business operations does not make out a case for taking cognizance of an offence punishable under Section 629A read with Section 635B of the Act See Girdharilal Gupta v. D.N. Mehta : [1971]3SCR748 , Mahalderam Tea Estate P. Ltd. v. D.N. Prodhan [1978] CHN 336 ; [1979] 49 Comp Cas 529 (Cal).

8. On the point whether Section 635B creates an offence punishable under Section 629A of the Act, the learned advocate for the petitioners has submitted that it does not, and in support of his submission has relied on the case of Registrar of Companies v. Bharat Produce Co. Ltd. [1980] 50 Comp Cas 250 (Cal), in which the learned single judge, Manoj Kumar Mukherji J., relying on the Bench decision of Allahabad High Court in Raghunath Swarup Mathur v. Har Swarup Mathur [1967] 37 Comp Cas 802.; [1968] Cr LJ 670 and the judgment of a Queen's Bench in Sales-Matic Ltd. v. Hinchcliffe [1959] 1 WLR 1005 (QB), has held that Section 269(2) of the Companies Act, 1956, is only declaratory and does not create an offence quoting with approval the observation of Lord Parker C.J. in the latter case that Section 21 of the Betting and Lotteries Act, 1934, which declared all lotteries to be unlawful did not create any offence but it was only a declaration that all lotteries were unlawful and the following observation of the Division Bench of the Allahabad High Court in the former case (at page 804) ' section 629A does not create any offence and only provides penalty for such contraventions of the Act for which no specific penalty has been provided elsewhere. Section 629A of the Act presupposes a contravention of the provisions of the Act and there can be a contrvention only when there is a direction or prohibition. As we have already observed, Section 269(2) of the Companies Act, 1956, contains no direction or prohibition and Section 629A does not, therefore, have any application '. It may be mentioned that Section 269(2) provides that where a public company or a private company which is subsidiary of a public company, is an existing company, the re-appointment of a person as a managing or whole-time director for the first time after the commencement of the Companies (Amendment) Act, 1960, shall not have any effect unless approved by the Central Government. But, in my view, Section 635B of the Companies Act, 1956, is not pari materia with Section 269(2) of the Act as Section 635B contains the specific direction that a company proposing to discharge an employee during the course of any investigation of the affairs and other matters relating to the company ' shall send by post to the Company Law Board previous intimation in writing of the action proposed against the employee ' and if the company does not receive any notice of objection from the Company Law Board, 'then and then only ' the company 'may proceed to take against the employee the action proposed'. In my view such direction and implied prohibition in Section 635B creates an offence in case of contravention punishable under Section 629A of the Act, But as the petitioners have succeeded on other points, the revisional application must be allowed.

9. I, therefore, make the rule absolute and quash the proceedings in case No. SG 3411 of 1967 pending in the court of the Chief Metropolitan Magistrate, Calcutta.


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