1. The appellant, Pulin Chandra Daw, has been convicted by the learned Chief Presidency Magistrate, Calcutta, under Section 282, Companies Act, and sentenced to detention till the rising of the Court as also a fine of Rs. 1000, in default, rigorous imprisonment for nine months. The act for which he has been so convicted and sentenced is that he, as a Director of the Santal Parganas Electric Supply Corporation, Ltd., made in the balance sheet of that company for the year 1944, a statement to the effect that the company owed a debt of Rs. 73,000 secured by a first mortgage on all its properties and undertakings, although, in fact, there was no such mortgage and that he thus made a false statement, knowing it to be false, in a material particular in the said balance sheet.
2. The facts are simple and are not disputed. It appears that a firm called Datta Brothers obtained a license from the Government of Bihar for the supply of electricity within the town of Deoghar and adjacent localities and the present Company was formed with the object of taking over and exploiting that license. The first Managing Agents of the Company were the firm of Dutta Brothers. Sometime later, one of the partners of that firm died but the Government of Bihar permitted the surviving partners to hold and exploit the license for a further period of one year. Dutta Brothers thereupon continued to be the Managing Agents till April 1941 when another firm Daw's Agency, of which the appellant is a member took over the managing agency. Previously, the appellant had lent to the company various sums of money and in respect of those advances an agreement had been entered into on 8-11-1938 between the company, the then Managing Agents, Dutta Brothers and the appellant by which the company undertook to execute in favour of the appellant a mortgage for Rs. 40,000 within a certain period. Thereafter certain further sums were lent by the appellant and all the debts were consolidated in the year 1939 and on the 1st January of that year a second agreement was entered into between the same parties by which the company agreed to execute a mortgage in favour of the appellant for a sum of Rs. 73,000. It was stipulated that the company would apply to the Local Government for the necessary sanction to create a mortgage within three months of the agreement and that the formal mortgage would be executed within a period of one month from the date of the sanction. A further clause provided that if the company failed or neglected to apply for or to secure the sanction of the Local Government within the time aforesaid, the mortgagee would be entitled to call for immediate repayment of the whole amount. In fact, however, no application was made to the Government for sanction, nor was any mortgage ever executed. The balance sheet of 1941 shows debts owing by the company to the appellant which apparently include the aforesaid sums, but no mention is there made of any mortgage. No balance sheets were published either in the year 1942 or 1948 on account; it is said, of the ban, then existing, on the disclosure of details regarding public utility companies, but is 1944 a balance sheet was published which contained an entry to the following effect: 'Loans secured on first mortgage of all the properties and undertakings, Rs. 73,000.' It is this entry which is the subject-matter of the present charge against the appellant.
3. The complainant was a share-holder of the company, holding a single share of Rs. 10 and also a small creditor. Apparently, he has not been very friendly to the company and when in the year 1943 another share-holder made an application to the Patna High Court for the winding up of the company, he swore the affidavit in support of that application. That application was rejected. Subsequently, at the general meeting of the share-holders called to consider the balance sheet for the year 1944, the complainant raised various objections and among them he asked for information as to how the balance sheet had come to contain an entry to the effect that the sum of Rs. 73,000 had been borrowed on executing a first mortgage. It appears that the chairman asked the appellant to explain this entry and the appellant stated then and there that no mortgage deed had in fact been executed. The complainant seemed to be satisfied for the time being with the information disclosed but subsequently brought the case which resulted in the present conviction of the appellant.
4. Certain facts are clear It is not disputed that there is no formally executed mortgage by which the loan of Rs. 73,000 is secured. On the other hand, it is not disputed that the appellant did advance a sum of Rs. 73 000 It appears further, as already stated that when the disputed entry was challenged at the meeting of the share holders the appellant at once disclosed the real facts. As to how the entry came at all to be made, it appears that Ex. H which is a draft statement as regards the position of the company supplied by the Managing Agents to the Auditors, described this loan as an unsecured one but added that it had been taken as per agreements dated 8-11-1938 and 1-1-1939. The final balance sheet which is Ex. G in the case was ultimately prepared by the auditors from Ex. H, but there the loan of Rs. 73,000 was described as a loan secured by the first mortgage o all the properties and undertakings of the company.
5. The learned Magistrate has found that since no mortgage admittedly exists, the statement that, the loan was a secured one was demonstrably false. He has found further that inasmuch as the appellant voted for the adoption of the balance sheet containing the said entry even after the entry had been challenged, it must be held that he made the statement wilfully and he knew it to be false. As regards the motive of the appellant in making a false statement the learned Magistrate found that the motive was obvious inasmuch he himself was the creditor. On the above findings, the learned Magistrate convicted and sentenced the appellant as already stated.
6. The facts being as recounted above, the only question for our consideration is whether an offence within the meaning of Section 282, Companies Act, has been established. Mr. Deb who appeared on behalf of the Crown contnded that all that the said section required was that there must be a statement in a balance sheet, that it must be known to be false, that it must be made wilfully in the sense that it must be intended to be made and it must relate to some material particular. Given these elements, Mr. Deb proceeded to contend, it was altogether irrelevant whether the person responsible for making the statement had any criminal intention at all or intended to deceive or succeeded in deceiving anybody. In support of his contention Mr. Deb relied strongly on the decision of Cunliffe and Henderson JJ. reported in Superintendent and Remembrancer of Legal Affairs, Bengal v. Akhil Bandhu : AIR1936Cal680 .
7. It is not necessary for us, nor is it possible to lay down any proposition of universal application. It is true that the Companies Act speaks of a statement which is false, which is known to be false, which is wilfully made and which is false in a material particular. Our enquiry in the present case must, therefore, be as to whether these elements are supplied by the special facts. The document concerned here is a balance sheet and Section 132 (1), Companies Act, does enjoin that the balance sheet shall give such particulars as will disclose the general nature of the liabilities and assets and how the value of the fixed assets has been arrived at. The form of the balance sheet is contained in Form 'F' set out in the appendix to the Act and one finds there that; loans are classified into two classes, 'secured' and 'unsecured'. Item (i) under 'secured loans' speaks of loans on mortgage or fixed assets. Item (iv) under 'unsecured loan' speaks of advances by the Directors or Manager and Managing Agents. It is unnecessary to refer to the other items under the two heads, none of which seems to be appropriate to the kind of loan with which we are here concerned. Recalling now the facts of this case, it has to be observed that although no formal mortgage had been executed, the loan could not be said to be an unsecured loan, pure and simple. There was the agreement to mortgage, dated 1-1-1939 and although that document gave the mortgagee an option to call for the immediate payment of the entire sum if the company did not obtain the sanction of the Government within the time stipulated, it did not make it binding on him to do so. It appears that he could yet insist on the execution of the mortgage. The loan here seems to be of an intermediate variety which could not properly and correctly be described either as a secured loan or an unsecured loan. It was therefore, a case in which it was wholly impossible to conform strictly to Form ' F' as set out in the Companies Act.
8. In this state of the facts, the question we have to ask ourselves is, can it be said that the statement contained in the balance sheet was false and known to be false? In our opinion, on the special facts of the case, the answer must be in the negative. It is not necessary to decide finally one way or the other contention of Mr. Deb that questions of mens rea are altogether (irrelevant?) to a charge under Section 282, Companies Act. We might however refer to the recent decision of the Privy Council in Srinivas Mall v. Emperor 34 A.I.R. 1947 P.C. 135 where their Lordships quoted with approval the proposition, laid down in an earlier case, which is to the effect that.
unless a statute by itself or by necessary implication rules out mens rea as a constituent part of a crime, a person should not be found guilty of an offence against the criminal law unless he has got a guilty mind.
Be that as it may, it appears to us that the language used by Section 282 itself does import an element of mens rea, when it speaks of the relevant statement being known to be false. In the case cited by Deb, both the Judges in fact found mens rea although they stated by way of a general proposition that the term wilfully did not embrace or involve a guilty intention. In our opinion, assuming that the appellant made the statement in the present case wilfully, that is to say, intending that it should be made and assuming further that the statement was false or incorrect in a material particular, it is still a question whether the appellant knew it to be false.
9. Having regard to the somewhat anomalous character of the loan which was not secured by any formal deed of mortgage but which was yet entitled to come to be so secured if the mortgagee insisted on the fulfilment of the agreement, it appears to us that the appellant cannot I be said to have known the description to be false.
10. Reference may further be made in this connection to the draft statement supplied by his office to the Auditors in which he stated in quite a correct and straightforward manner that the loan was unsecured and that it had been advanced as per the two agreements. If on that information the auditors described the loan in the balance as ' secured ' and the appellant signed that document he accepted a description which was hardly more inappropriate than the description ' unsecured ' would have been.
11. In the above view of the matter, it has not, in our view, been established that the appellant made a statement which was false and known to be so. The conviction and sentence of the appellant are accordingly set aside and he is acquitted. The fine, if paid, will be refunded.