Mr.C.Shivakumar Reddy vs Securities &
2022 Latest Caselaw 7277 Kant

                           1


     IN THE HIGH COURT OF KARNATAKA AT BENGALURU

          DATED THIS THE 19TH DAY OF MAY, 2022     R
                         BEFORE

          THE HON'BLE MR. JUSTICE K.NATARAJAN

           CRIMINAL PETITION NO.3454 OF 2017
                   CONNECTED WITH
           CRIMINAL PETITION NO.5646 OF 2016
IN CRIMINAL PETITION NO.3454 OF 2017
BETWEEN

1.   M/S. KAVVERI TELECOM PRODUCTS LTD.,
     A COMPANY INCORPORATED UNDER
     THE COMPANIES ACT, 1956 AND HAVING ITS
     CORPORATE OFFICE AT:
     PLOT NO.31 TO 36, 1ST FLOOR,
     1ST MAIN, 2ND STAGE,
     ARAKERE MICO LAYOUT,
     BENGALURU-560 076.

2.   MR. B. S. SHANKARNARAYAN
     MANAGING DIRECTOR,
     NO.86, NGEF COLONY
     SANJAY NAGAR
     BENGALURU - 560 094.

3.   MRS. R. H. KASTURI
     WHOLE TIME DIRECTOR,
     NO.14, 29TH MAIN
     BTM LAYOUT, 2ND STAGE
     BENGALURU - 560 076.

4.   MR. L. R. VENUGOPAL
     DIRECTOR,
     NO.705, GOKULAM
     17TH CROSS, 25TH MAIN
     J.P. NAGAR, 6TH PHASE
     BENGALURU -560 078.
                               2


5.     MR. L. NICHOLAS
       DIRECTOR,
       B-7, BDA MIG FLAT
       DOMLUR
       BENGALURU - 560 076.

6.     MR. C. V. JAGADISH
       DIRECTOR, NO.32, PATTALLAMMA TEMPLE STREET,
       BASAVANAGUDI,
       BENGALURU-560 004.

                                       ... PETITIONERS
(BY SRI SATYANARAYANA S CHALKE, ADVOCATE)

AND

M/S. SECURITIES AND EXCHANGE BOARD OF INDIA
A STATUTORY BODY ESTABLISHED UNDER THE PROVISIONS OF
THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992,
HAVING ITS HEAD OFFICE AT:
SEBI BHAVAN, C-4A, G BLOCK, BANDRA-KURLA COMPLEX,
BANDRA EAST, MUMBAI-400 051,
AND ITS REGIONAL OFFICE AT:
2ND FLOOR, JEEVAN MANDAL BUILDING,
NO.4, RESIDENCY ROAD,
BENGALURU - 560 025.                    ... RESPONDENT

(BY SRI JITENDRA C.P., ADVOCATE FOR
 SRI V VINAYGIRI, ADVOCATES)

       THIS CRIMINAL PETITION IS FILED UNDER SECTION 482
OF THE CODE OF CRIMINAL PROCEDURE, PRAYING TO QUASH
THE ENTIRE PROCEEDINGS IN C.C.NO.116/2016 ON THE FILE
OF    SPECIAL   COURT,   ECONOMIC   OFFENCES,   BENGALURU.
                            3


IN CRIMINAL PETITION NO.5646 OF 2016

BETWEEN

MR.C.SHIVAKUMAR REDDY
MANAGING DIRECTOR
KAVVERI TELECOM PRODUCTS LTD
CORPORATE OFFICE AT PLOT NO.31 TO 36,
1ST FLOOR, 1ST MAIN, 2ND STAGE
ARAKEREMICO LAYOUT,
BENGALURU-560076.                     ... PETITIONER

(BY SRI SATYANARAYANA S. CHALKE, ADVOCATE)
AND
SECURITIES &
EXCHANGE BOARD OF INDIA
HEAD OFFICE AT SEBI BHAVAN, C4A,
G BLOCK, BANDRAKURLA COMPLEX,
BANDRA EAST, MUMBAI

REGIONAL OFFICE AT
2ND FLOOR JEEVAN MANDAL BUILDING
NO.4, RESIDENCY ROAD,
BENGALURU 560 025.                       ... RESPONDENT
(BY SRI JITENDRA C.P., ADVOCATE FOR
 SRI V. VINAYGIRI, ADVOCATES)

      THIS CRIMINAL PETITION IS FILED UNDER SECTION 482
OF THE CODE OF CRIMINAL PROCEDURE, PRAYING TO QUASH
THE PROCEEDINGS AGAINST THE PETITIONER i.e., ACCUSED
NO.2 IN THE PROCEEDING AND ITS DIRECTORS HEREIN i.e.,
ACCUSED NO.2 IN C.C.NO.116/2016, BEFORE THE SPECIAL
COURT FOR ECONOMIC OFFENCES, BENGALURU.

      THESE CRIMINAL PETITIONS HAVING BEEN HEARD AND
RESERVED FOR ORDERS ON 20.04.2022, THIS DAY THROUGH
VIDEO   CONFERENCING,   THE    COURT   PRONOUNCED      THE
FOLLOWING:
                                4


                             ORDER

Crl.P.No.5646/2016 is filed by accused No.2 and

Crl.P.No.3454/2017 is filed by accused Nos.1 and 3 to 7

under Section 482 of Cr.P.C. for quashing the criminal

proceedings in C.C.No.116/2016 pending on the file of

Special Judge, Economic Offences Court, Bengaluru.

2. Heard the arguments of learned counsel for the

petitioners and learned Special counsel for the respondent.

3. The case of the petitioners is that the

respondent-M/s. Securities and Exchange Board of India,

Mumbai (hereinafter referred to as 'SEBI') has filed a

complaint against the accused persons under Section 200

of Cr.P.C. for the offence punishable under Sections 205(8)

and 207 read with Sections 55A, 205(1A) and 621 of the

Companies Act, 1956 alleging that accused No.1-Kavveri

Telecom Products Limited, Bengaluru being registered

under the Companies Act, the SEBI was established under

the Securities and Exchange Board of India Act, 1992 to

protect the interests of investors in securities and to

promote the development of and to regulate the securities

market as well as matters connected therewith or

incidental thereto Section 11 of the Securities and

Exchange Board of India Act. Accused No.1-Company

engaged in business of manufacture of wireless

telecommunication products. It has declared dividend to

its shareholders at the Annual General Meeting (AGM) held

on 29.09.2012 and total dividend declared at the AGM of

accused No.1-Company which is amounted to

Rs.3,01,86,390/-. As per Section 205(1A) read with

Section 205(1C) of the Companies Act, accused No.1 was

statutorily required to deposit the amount of dividend

declared into a separate Bank account within 5 days of

such declaration and the accused were statutorily bound to

transfer the said amount to the shareholders within thirty

days. But accused No.1 being a company represented by

accused No.2 who is a Managing Director of the said

company and accused Nos.3 to 7 are the Directors of the

Company who are responsible for the day to day affairs of

the Company have not deposited the said amount to the

investors or shareholders within prescribed time.

Therefore, a Show Cause notice was also issued after

receiving the complaints from the shareholders. Accused

No.1 given reply on 23.02.2013 and on the notice of the

respondent dated 13.02.2013, accused No.1 sought two

weeks' time to provide the information as accused Nos.2 to

5 were in abroad. Accordingly, the petitioner sent a letter

to the complainant on 13.03.2013 on untenable ground

seeking further time. The complainant further alleges that

the accused with a malafide intention of defrauding its

investors, despite several complaints by investors and

reminders from the complainant has failed to comply with

its obligations and duties as required under the Companies

Act. The accused also required to pay the dividend with

18% interest per annum. The complainant received a letter

dated 28.06.2013 from accused No.1 where they have

categorically admitted for violating the provisions of

Companies Act. Thereby, the accused persons are

committed the above said offences. Hence, the prosecution

came to be launched against the petitioners which is under

challenge.

4. Learned counsel appearing for the petitioners

has contended mainly that the alleged offences are said to

have been committed in the year 2013 and the complaint

came to be filed in the year 2016, after the lapse of three

years. Therefore, no cognizance can be taken and there

was a bar for taking cognizance as per Section 468 of

Cr.P.C. The learned counsel further contended that the

complaint came to be filed in the year 2016, at that time,

the new Companies Act, 2013 came into force and the old

Companies Act, 1956 was not in existence, therefore, the

criminal prosecution under the old Act cannot be

sustained. He further contended that as on the date of

filing of the complaint, no dividend is required to be

payable by the accused. Therefore, there is no offence

committed by the petitioner-company. Hence, the criminal

prosecution is liable to be quashed. Therefore, prayed for

quashing the criminal proceedings. He would further

contended that the penal provision brought on the statute

only to see the dividend shall be payable to the

shareholders and once the dividend were already paid, the

question of punishing the Company does not arise. In this

regard, the learned counsel has relied upon the judgment

of the Madras High Court in the case of N.Kumar vs.

M.O.Roy, Assistant Director, Serious Fraud

Investigation Office, Ministry of Company Affairs,

Government of India in Crl.O.P.No.27813/2006

Cdated 20.04.2007.

5. Per contra, learned counsel appearing for the

respondent objected the petition and contended that the

trial Court while taking the cognizance has rightly held that

the offence is continuing offence and the notice was issued

to the petitioner on 13.02.2013 for non-payment of the

dividend and the reply was given by the petitioner on

23.02.2013 seeking extension of time. Subsequently,

some more time was sought on 13.03.2013 and thereafter,

they made part payments and finally, the letter dated

28.06.2013 was received by the complainant from the

petitioner-company stating that they have made all the

payments of dividend pertaining to 2011-2012 to its

shareholders. Therefore, the payment was made only after

the show cause notice issued by the complainant, the

offence is continuing offence and the prosecution was

launched in March 2016 itself. Therefore, there is no delay

in filing the complaint and there is no bar for taking

cognizance and the complaint is within the time. Learned

counsel for the respondent also contended that as per the

provisions of Section 205 of the Companies Act, any part

payment are default until and unless the amount were

paid, the offence is continuing offence and calculating the

penalty over the payment other than 18% interest.

Therefore, the contention of the petitioner cannot be

sustainable. Hence, prayed for dismissing the petition.

Learned counsel also contended that the petitioner-

company are very much aware that in spite of declaring

the dividend they have not paid the same. The last

payment was made in the year 2013 as per their letter

dated 28.06.2013. There was delay of three years in

making payment by the petitioner which amounts to

violation of the provision of law. Therefore, the penal

provision is attracted as the company has paid an amount

on belated stage. Accordingly, the prosecution cannot be

exonerated. Hence, prayed for dismissing the petitions.

6. Learned counsel also contended that the

offence was committed under the Old Company's Act,

1956 and subsequently, the Companies Act was amended

and now the Company's Act came into force in the year

2013. Therefore, if the offence is committed under the old

Act, the prosecution cannot be launched under the new Act

and as on the date, there is no such law was in force in

view of the Article 20 of the Constitution of India. Learned

counsel further contended that Section 465 of the

Companies Act was amended by repealing certain

enactments and savings and proviso thereto came into

force only in the year 2020 where Section 465(2)(g)

provides the incorporation of companies registered under

the repealed enactments shall continue be valid and the

provisions of this Act shall apply to such companies as if

they were registered under this Act, therefore, the learned

counsel has contended that the Companies Act has not

brought at one stretch but it was brought in force part by

part. Therefore, the prosecution was launched under the

old Act and even if the dividend was paid at belated stage,

hence, the criminal prosecution cannot be exonerated.

Hence, prayed for dismissing the petitions.

7. Having heard the arguments and on perusal of

the records, it is an admitted fact that the accused No.1 is

the Company and other accused persons are Managing

Director and Directors of the Company. It is also an

admitted fact that they have declared the dividend to their

shareholders for Rs.3,01,86,390/- and they have not paid

to the shareholders. A notice was also got issued by the

respondent on 13.2.2013 and the Head HR and Admin. of

the Company sought extension of time vide his letter dated

23.02.2013 and subsequently, one more letter dated

13.03.2013 was issued. As per Section 205A of the

Companies Act, 1956 (Old Act), the dividend has been

declared by a company but has not been paid within thirty

days from the date of declaration, to any shareholder

entitled to the payment of the dividend, the company

shall, within seven days from the date of expiry of the said

period of thirty days, transfer of total amount of dividend

which remains unpaid within the said period of thirty days,

to a special account to be opened by the company in that

behalf in any scheduled bank, to be called "Unpaid

Dividend Account of the Company Limited/Company

(Private) Limited. As per Section 205(1A), the Board of

directors may declare interim dividend and the amount of

dividend including interim dividend shall be deposited in a

separate bank account within five days from the date of

declaration of such dividend. On bare reading of 205(1A)

and 205A of the Companies Act, once the dividend

declared shall be deposited within five days in separate

bank account and thereafter, within thirty days, it shall be

paid to the shareholders by transferring to their accounts

and if the amount was not claimed by the shareholders, a

separate account shall be opened and kept in the said

account and as per Section 205A(8) of the Companies Act,

if the company fails to comply with any of the

requirements of this section, the company and every

officer of the company who is in default, shall be

punishable with fine which may extend to five thousand

rupees for every day during which the failure continues.

As per Section 207 of the Companies Act, 1956, the

Penalty for failure to distribute dividends within thirty

days, once the dividend has been declared by a company

but has not been paid, or the warrant in respect thereof

has not been posted, within thirty days from the date of

declaration, to any shareholder entitled to the payment of

the dividend, every director of the company shall, if he is

knowingly a party to the default, be punishable with simple

imprisonment for a term which may extend to three years

and shall also be liable to a fine of one thousand rupees for

every day during which such default continues and the

company shall be liable to pay simple interest at the rate

of 18% per annum during the period for which such default

continues. Admittedly, the dividend was declared by the

company on 29.09.2012 and they have not transferred the

dividend declared within five days of its declaration to

separate account as per Section 205(1A) and they have

also not disbursed the dividend within thirty days from the

date on which the due payable as per Section 205(1A), if

calculated and if the dividend declared on 29.09.2012

within 5 days i.e., on 04.10.2012, they have to deposit in

separate account and within 30 days i.e., on 03.11.2012

and they have to disburse the amount to the shareholders.

Admittedly, the petitioner-company is defaulter in

depositing and disbursing the amount, thereby, committed

offence under Section 205(1A) and 205A of Companies Act

which is punishable under Section 207 of the Companies

Act. It is also not in dispute that the SEBI issued notice on

13.02.2013 and on 23.02.2013. The Head HR and Admin.

of the Company sent a letter to the SEBI stating that he

may require some more time to consult with the Directors

as they have traveled to abroad. Subsequently, on

13.03.2013, again Head HR and Admin. of the Company

wrote a letter to SEBI stating that they could not make the

arrangement for payment of declared dividend and funds

and cash flows have been affected badly due to defaulters

and delays from their side and also they sought for

opportunity to rectify and make the payment of dividends

along with simple interest of 12% per annum as per

Section 205A(4) of the Companies Act. Subsequently, on

28.06.2013, one Shiva Kumar Reddy, the Managing

Director-accused No.2 send a letter for having paid the

dividends with 18% interest p.a. for delayed payments.

These documents clearly indicates that the accused-

company has committed offence under Section 207 of the

Companies Act apart from not depositing the amount

within five days as per Section 205(1A) of Companies Act.

8. Now coming to the contention raised by the

learned counsel for petitioners that the limitation point that

the last amount was paid on 28.06.2013 as per their own

letter, they have admitted that they have paid the entire

amount along with interest. Therefore for the purpose of

calculation of limitation offence under Section 205(1A) and

205A are the continuing offences until payment was made

as on 28.06.2013. Such being the case, the complaint

came to be filed in the year March 2016 within three years

of the offence committed which is also continuing offence

and it is continuing offence, the recurring limitation

extends until the payment was made. Therefore,

absolutely, there is no delay in filing the complaint and it

was barred by the limitation under Section 468 of Cr.P.C.

9. As regards to the another contention raised by

the learned counsel for the petitioners that the offence falls

under the new Act, but not old Act. Therefore, filing the

complaint under the old Act is not sustainable. In this

regard, it is an admitted fact that the offence was

committed under the old Companies Act, 1956 as the

dividend declared in September 2012 and it was due for

disbursement by 03.11.2012 and the new Companies Act

came into force only in the year 2013. Though the

complaint came to be filed in the year 2016, but the

savings and repealed Act as per Section 465 of the

Companies Act which was introduced or inserted only in

the year 2020. Therefore, the complaint under the old Act

has rightly filed as on the date of filing the complaint,

Section 465 was not brought in the statute book.

Therefore, the said contention by the petitioner counsel

also is not sustainable.

10. As regards to the third contention raised by the

learned counsel for the petitioners is that once the amount

has been paid, the penal provision should be exonerated.

He has also relied upon the judgment of the Madras High

Court in the case of N.Kumar stated supra. On perusal of

the judgment of the Madras High Court, where it is

pertaining to the Directors who was already left the

Company and he was not a Director as on the date of

complaint. Therefore, that judgment will not be applicable

to the case on hand. Here in this case, there is a clear

violation of the provision of law for non-depositing the

amount within five days and also not disbursing within

thirty days and it was paid nearly for three years. Even

some of the payments were made after filing of the

complaint. Such being the case, the penal provision cannot

be exonerated and otherwise, there is no meaning in

mentioning the penal provision under the statute book.

Therefore, considering all these facts, I am of the view that

the petitioner has not made out the ground for quashing

the criminal proceedings and on the other hand, they have

to face the trial before the Court.

11. Accordingly, both the Criminal Petitions are

hereby dismissed.

Sd/-

JUDGE

GBB/-