Case Laws Companies Act H P Gupta Vs Hiralal

PETITIONER:
H. P. GUPTA

Vs.

RESPONDENT:
HIRALAL

DATE OF JUDGMENT:
24/02/1970

BENCH:
SHELAT, J.M.
BENCH:
SHELAT, J.M.
MITTER, G.K.

CITATION:
1971 AIR 206 1970 SCR (3) 788
1970 SCC (1) 437
CITATOR INFO :
E&D 1985 SC1156 (28,36)
ACT:
Indian Companies Act (of 1956), s. 207-Jurisdiction to
try complaint for failure to pay dividend-Whether at place
where company’s registered office or shareholder’s
registered address.

 

HEADNOTE:
The respondent filed complaints before the Magistrate at
Meerut under s. 207 of the Companies Act, 1956 on an
allegation of failure on the part of appellant,the director-
incharge of a Company whose registered office was at Delhi,
to pay the respondent dividends on shares held by him,
although the dividends were declared by the company for the
respective years. The appellant contended that the
Magistrate at Meerut had no jurisdiction to try the
complaints and that the Magistrate at Delhi where the
registered office of the Company was situated had the
jurisdiction. The Magistrate rejected the appellant’s
contention-on the ground that as the dividends had to be
paid at the registered address of the respondent,Which was
at Meerut, the Court, at Meerut had jurisdiction. This view
\\,,as upheld in appeal by the Sessions Judge and in
revision by the High ,Court. In appeal on certificate, this
Court
HELD : The- Court at Delhi and not at Meerut was
competent to try the offenses.
It is clear from s. 205(5) that the company could pay
dividend either in cash or by posting a cheque or a warrant
at the registered address of the respondent. Article 132 of
the Articles of Association also authorises the Company to
pay dividend either in cash or by posting a cheque or it
warrant to the shareholder at his registered address. The
effect of Art. 132 is that when a dividend warrant is posted
at the registered address of the shareholder that would be
equivalent to payment. Once a warrant is so posted the
company is deemed to have paid and discharged its obli-
gation. The Articles of Association constitute an agreement
between the ,company and the shareholders, and the latter
are entitled to the payment of dividend in the manner laid
down in the Articles and in that manner alone. Article 132
thus not only ‘authorises the company to make the payment in
the manner laid down therein but amounts to a request by the
shareholders to be paid in, the manner so laid down. When,
therefore, the company posts the dividend warrant at the
registered address of a shareholder, that being done at the
shareholder’s request, the post office becomes the agent of
the shareholder and the loss of a dividend warrant during
transit thereafter is the risk of the shareholder. [793 F]
That being the position, the place where a dividend
warrant would be posted, is the, post office at such place
being the agent of the shareholder, is the place where the
obligation to pay the debt is discharged in the present case
at Delhi where the company has its registered office. It
follows that the offence under s. 207 of the Act would also
occur at the place where the failure to discharge that
obligation arises, namely, the failure to post the dividend
warrant within 42 days. The venue of the offence,
therefore, would be Delhi -and not Meerut, and the court
competent to try the offence would be that court within
whose jurisdiction the
789
offence takes place, i.e., Delhi. This should be so both in
law and common sense, for, if held otherwise, the directors
of companies can be prosecuted at hundreds of places on an
allegation by shareholders that they have not received the
warrant. That cannot be the intention of the legislature
when it enacted s. 207 and made failure to pay or post a
dividend warrant within 42 days from the declaration of the
dividend an offence. [794 C]
Indore Malwa United Mills Ltd. v. Commissioner of
Income-tax, [1966] 59 I.T.R. 738, followed.
Hickman v. Kent or Rommey Marsh Sheep Breeders’
Association, [1951] 1 Ch. 881, Beattie v. Beattie, [1938]
Ch. 708, Thairlwall v. The Great Northern Railway Co.,
[1910] 2 K.B. 509, Norman v. Ricketts, 3 T.L.R. 182 and
Regina v. James Milner, 175 E.R. 128, referred to.

 

JUDGMENT:
CRIMINAL APPELLATE JURISDICTION : Criminal Appeals Nos. 225
to 232 of 1966.
Appeals from the judgment and order dated April 1, 1966
of the Allahabad High court in criminal Revision Nos. 895,
894, 876, 877, 897, 899 and 898 of 1964.
H. R. Gokhale, K. K. Jain, Bishamber Lal and H. K.
Puri,. for the appellant (in all the appeals).
The respondent did not appear.
The Judgment of the Court was delivered by
Shelat, J. All those appeals, founded on a certificate
granted by the High Court of Allahabad, raise a common
question as to jurisdiction. The appeals arise from
complaints filed by the respondent in the Court of First
Class Magistrate at Meerut under S. 207 of the Companies
Act, 1956 on an allegation of failure on the part of the
appellant, the director-in-charge of M/s Iron Traders
(Private) Ltd., to pay to him dividends on shares held by
him, although the dividends were declared by the company
for the respective years. The question being common, all
these appeals are disposed of by a common judgment.
The appellant contended that the Magistrate at Meerut
had no jurisdiction to try the complaints, and that the
Magistrate at Delhi, where the company’s registered office
is situate, who would have the jurisdiction. The Magistrate
rejected the contention and held that as the dividend had to
be paid at the registered address of the respondent, which
was at Meerut, it was the Meerut Court which had the
jurisdiction. The Sessions Judge, on appeal, upheld the
order of the Magistrate and in revision the High Court,
rejecting the appellant’s contention, confirmed the view
taken by the Magistrate and upheld by the Sessions Judge The
High Court in taking the aforesaid view observed :
“The object behind the statute is to ensure
prompt payment of dividend to a shareholder.
That payment may be, made to him directly or
it may be made by sending a cheque or warrant
to- his registered address. If a
790
shareholder complains that he has not received
payment he is entitled to proceed against the
company and its Directors by filing a
complaint at the place where he resides
because the law demands that payment should
have been made to him there.”
The High Court’s reasoning was clearly based on the premise
that payment of dividend has to be made at the place where
the shareholder resides, and therefore, it is the Magistrate
within whose jurisdiction the shareholders registered
address is situate who has the jurisdiction. The contention
in these appeals is that ,such a view is not in accord with
sec. 207. The question is of some importance, for, if the
view taken by the High Court is correct, it would mean that
directors of companies would be liable to be prosecuted at
hundreds of places where the registered -addresses of their
shareholders are on allegations that dividends are not paid
to them.
Section 205 deals with dividends and the manner and
time of payment thereof. Sub-sec. I provides that no
dividend shall be declared or paid by a company for any
financial year except out of the company’s profits for that
year arrived at in the manner therein set out. Sub-sec. 3
provides that no dividend shall be payable except in cash.
Sub-sec. 5 (b), however, empowers payment of dividend by
cheque or dividend warrant sent through the post directed to
the registered address of the shareholder entitled to the
payment of the dividend or in the case of joint shareholders
to the registered address of that one of them who is first
named in the register of members or to such person or to
such address as the shareholder or the joint shareholders
may in writing direct. Sec. 206 provides that no dividend
shall be paid by a company in respect of any share therein
except to the registered holder of such share or to his
order or to his bankers, or where a share warrant has been
issued to the bearer of such warrant or to his bankers.
Sec. 207 lays down the penalty for failure to distribute
dividends declared by the company and provides that where a
dividend has been declared by a company but has not been
paid or a cheque or a warrant in respect thereof has not
been posted within 42 days from the date of declaration to
any shareholder entitled to the payment of the dividend,
every director of the company, its managing agent or
secretaries and treasurers shall, if he is knowingly a party
to the default, be punishable with simple imprisonment for a
term which may extend to 7 days and shall also be liable to
fine. But the section further provides that no offence
shall be deemed to have been committed within the meaning of
the foregoing provision in the cases therein set out.
A dividend once declared is a debt payable by the
company to its registered shareholders. It is clear from s.
205 that although
791
under sub-s. 3 no dividend shall be payable except in cash,
sub-s. 5 authorises a company to pay the dividend by a
cheque or a warrant. Therefore, dividend can be said to
have been paid either when it is paid in cash or when a
cheque or a warrant is sent through the post directed to the
registered address of the shareholder entitled to payment
thereof. Indeed, sec. 207 itself lays down that the offence
thereunder is committed when dividend is either not paid or
a cheque or a warrant in respect thereof has not been posted
within the time prescribed therefore. Once, therefore, a
dividend warrant is posted at the registered address of the
shareholder, dividend is deemed to have been paid.
The section casts an obligation on the company to pay
the dividend, which is declared, to the shareholder entitled
thereto ,within 42 days from its declaration. The offence
under the section takes place when there is failure to pay
or a cheque or a warrant therefore is not ‘posted to the
registered address of the shareholder. It will be noticed
that the section makes the failure to post within the
prescribed period and not the non-receipt of the warrant by
the shareholder an offence. Therefore, the obligation to
pay within the prescribed period is satisfied once the
dividend is paid or a cheque or a warrant therefor is posted
at the registered address of the shareholder. Prima facie,
both the obligation to post the dividend warrant and the
failure to satisfy that obligation would occur at the place
where the obligation is to be performed and that would be
the registered office of the company and not the address at
which the warrant is to be posted.
But the question is since the dividend, when declared,
becomes a debt payable by the company to the shareholder and
the company becomes a debtor, does the common law rule that
the debtor must seek out the creditor apply? There are two
considerations which must not be lost sight of before that
rule is applied. The first is that s. 207 does not make the
non-receipt of the dividend warrant by the shareholder
within 42 days an offence. The offence consists in the
failure to post the dividend warrant within the prescribed
period. The provisions of s. 205 empower payment of
dividend by a cheque or a warrant and treat the posting of a
cheque or a warrant as payment. Therefore, payment in cash
or the posting of a cheque or a warrant are equivalent and
the obligation to pay is discharged when either of them is
done. The second consideration is that the power to pay
dividend by posting a cheque or a warrant provided in sec.
205(5) is- incorporated in the Articles of Association of
the company by Art. 132. That article reads
“Unless otherwise directed by the company in
General Meeting any dividend may be paid by
cheque or farrant sent through the post to the
registered add-
792
ress of the member entitled or in the case of
joint holders to the registered address of
that one whose name stands first on the
register in respect of the joint holding and
every cheque so sent shall be made payable to
the order of the person to whom it is sent.”
Section 36 of the Act, which is in the same terms as
sec. 20 of the English Companies Act, 1948, provides that
subject to the provisions of the Act the Memorandum and
Articles of Association, when registered, bind the company
and the members thereof to the same extent as if they
respectively have been signed by the company and by each
member, and contained covenants on its and his part to
observe all the provisions of the Memorandum and of the
Articles. It is well established that the Articles of
Association constitute a contract between a company and its
members in respect,of their ordinary rights as members. [see
Hickman v. Kent or Romney Marsh Sheep Breeders’
Association(1) ‘and Beattie v. Beattie(‘)]. If under a
contract, a promise prescribes the manner in which the
promise is to be performed, the promisor can perform the
promise in the manner so prescribed. (see s. 50 of the
Contract Act). Thus, if A desires B, who owes him Rs. 100/-
to send him a note for that amount ‘by post, the debt, is
discharged as, soon as B puts into the post a letter
containing the note duly addressed to A. (see illustration
(d) to s. 50 of the Contract Act.) In this connection the
decision in Thairlwall v. The Great Northern Railway Co.(‘)
shows how the problem is dealt with by the English Courts.
The plaintiff there, who held certain stocks of the
defendant company, filed an action to recover dividend
payable on those stocks. The defence was that the dividend
was paid having been sent by post to the registered address
of the plaintiff. The question was looked at from the point
of view whether there was any agreement by or obligation on
the plaintiff to accept the dividend warrant as payment. If
there was any such agreement, the principle laid down in
Norman v. Ricketts(‘) would apply, namely, that a debtor or
a creditor can agree to make and accept payment of the debt
in some form other than cash and that when the creditor asks
his debtor to send the amount by post, then if the debtor
sends a cheque for the amount by post the risk of loss in
transit falls on the creditor and the posting is equivalent
to payment. Further the stock certificates had upon the
back of them a clause that dividend would be payable by
warrant which would be sent by post to the proprietor’s
registered address, or to any person duly authorised to give
a receipt for the same. Sec. 9 of the Act of 1890, under
which the defendant-company was incorporated, also provided
that the
(1) [1915] 1 C.h. 881.
(3) [1910] 2, K.B. 509.
(2) [1938] Ch. 708.
(4) 3 Times L. R. 182.
793
terms and conditions on which the stock was issued shall be
stated on the certificate thereof. In the six monthly
report of accounts issued by the directors to the stock-
holders there was a statement that the profits of the
company had enabled the directors to declare a dividend and
there, was at the back of that report a notice that the
dividend warrants would be payable on a certain date and
would be sent by post to the stockholders on the previous
day. Under s. 90 of the Companies Act, 1845 it was within
the power of the directors to fix the date at which and the
mode in which dividends should be paid, subject of-course to
the control of a general meeting. The stockholders of the
company at their general meeting had declared the amount of
dividend as proposed by the directors but had passed no
resolution as to how payment was to be made. It was held
that though no such resolution was passed by the
stockholders, they-had notice as to how the directors
proposed to pay the dividends and as no alteration was made
in those proposals, the stockholders were held to have
decided among themselves by a proper resolution that the
dividend should be paid on a certain day and in the manner
proposed by the directors. Such a conduct was equivalent to
a request, and therefore, the stockholders became entitled
to payment in that way and in that way alone. Consequently,
when the dividend warrant had been sent by post the dividend
was paid and the company’s obligation to pay stood
discharged.
It follows, therefore, that once a mode of payment of
dividend is agreed to, namely, by posting a cheque or a
warrant, the place where such posting is to, be done is the
place of performance and also the place of payment, as such
performance in the manner agreed to is equivalent to payment
and results in the discharge of the obligation.
It is clear from s. 205 (5) that the company could pay
dividend either in cash or by posting a cheque or a warrant
at the registered address of the respondent. Art. 132 of
the Articles of Association also authorises the company to
pay dividend either in cash or by posting a cheque or a
warrant the shareholder at his registered address. The
effect of Art. 132 is that when a dividend warrant is posted
at the registered address of the shareholder that would
be,equivalent to payment. Once a warrant is so posted the
company is deemed to have paid and discharged its
obligation. As aforesaid, the Articles of Association
constitute an agreement between the company and the
shareholders, and the latter are entitled to the payment of
dividend in the manner laid down in the Articles and in that
manner alone. Art. 132 thus not only authorises the company
to make the payment in the manner laid down therein but
amounts to a request by the shareholders to be paid in the
manner so laid down. When, therefore, L 10 SupCI(NP)70-6
794
the company posts the dividend warrant at the registered
address of a shareholder, that being done at the
shareholder’s request, the post office becomes the agent of
the shareholder, and the loss of a dividend warrant during
transit thereafter is the risk of the shareholder. In
Indore Malwa United Mills Ltd. v. Commissioner of Income-
tax(‘) this Court, on a question arising whether on the
facts there payment was made in taxable territory, held that
if by an agreement, express or implied, between the creditor
and the debtor, or by a request, express or implied, by the
creditor, the debtor is authorised to pay the debt by a
cheque and to send the cheque to the creditor by post, the
post office is the agent of the creditor to receive the
cheque and the creditor receives payment as soon as the
cheque is posted to him. That being the position, the place
where a dividend warrant would be posted, the post office
being the agent of the shareholder, is the place where the
obligation to pay the debt is discharged-in the present case
at Delhi where the company has its registered office. It
follows that the offence under sec. 207 of the Act would
also occur at the place where the failure to discharge that
obligation arises, namely, the failure to post the dividend
warrant within 42 days. The venue of the offence,
therefore, would be Delhi and not Meerut, and the court
competent to try the offence would be that court within
whose jurisdiction the offence takes place, i.e., Delhi.
This should be so both in law and common sense, for, if held
otherwise, the directors of companies can be prosecuted at
hundreds of places on an allegation by shareholders that
they have not received the warrant. That cannot be the
intention of the legislature when it enacted see. 207 and
made failure to pay or post a dividend warrant within 42
days from the declaration of the dividend an offence.
This view is also in accord with the principle laid down
by Maule J. in Regina v. James Milner(2) that the felony of
not surrendering at a district court to a flat in
bankruptcy, under Stat. 5 and 6 Vict. c. 122, S. 32 is
committed at the place where the district court is situate;
and an indictment for the offence cannot be sustained in a
different county from that in which the person was a trader
or in which he committed an act of bankruptcy. On the same
principle the High Court of Calcutta has also held in
Gunanand Dhone v. Lala Santi Prokash Nanley(3) that it is
the court within the local limits of whose jurisdiction the
accused is liable to render accounts and fails to do so by
reason of having committed a breach of trust alleged against
him that has the jurisdiction.
(1) (1966) 59 I.T.R. 738. (2) 175 E.R. 128.
(3) 29 C.W.N. 432.
795
The offence under s. 207 is the failure to pay dividend
or to post a cheque or a warrant for the dividend amount.
Since the obligation to post the warrant arose at the
registered office of the company, failure to discharge that
obligation also arose at the registered office of the
company. Therefore, the alleged offence must be held to
have taken place at the place where the company’s registered
office is situate and not where the dividend warrant, when
posted, would be received.
In that view, the High Court was in error in holding
that the Magistrate at Meerut had the jurisdiction to try
the said complaints. The, appeals must accordingly be
allowed and the High Courts orders set aside. Order
accordingly.
Y.P. Appeals allowed.
796

 

 

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