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SUPREME COURT OF INDIA
J.M. SHELAT AND G.K .MITTER, JJ.
Hanuman Prasad Gupta, (in all the Appeals), Appellant
Versus
Hiralal (in all the Appeals), Respondent.
Criminal Appeals Nos. 225 to 232 of 1966, D/- 24-2-1970.
Advocates appeared
Mr. H. R. Gokhale, Sr. Advocate (M/s. K. K. Jain Bishamber Lal and H. K. Puri, Advocates with him), for Appellant, (in all the Appeals).
-constitute a contract between Company and its members in respect of their ordinary rights as members
-a dividend once declared is a debt payable by the Company to its registered-shareholders. It is clear from Section 205 that although under sub-section (3) no dividend shall be payable except in cash, sub-section (5) authorises a Company to pay the dividend by 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 share holder entitled to payment thereof. Indeed, Section 207 itself lays down 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 therefor. 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 therefor 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 on a cheque or a warrant therefor is posted at the registered address of the shareholder. Prima facie, both the obligations 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. Section 207 does not make 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. Therefore, payment in cash or the posting of a cheque or a warrant are equivalent and the obligation to pay be 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 Section 205(5) is incorporated in the Articles of Association of the Company. Section 36 of the Act 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 it and its part to observe all the provisions of the Memorandum 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.
Further held, in the case of Hanuman Prasad Gupta v. Hiralal, AIR 1971 SC 206 1 (1970) 2 Com. L.J. 195=40 Com. Cos. 1058=(1970) M.L.W. (Cri) 252=(1970) 3 SCR. 788=(1971) I SCA. 263=(1971) I SCJ. 104 that once a mode 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. Also held that the offence under Section 207 is the failure to pay dividend or to post a cheque or a warrant for the dividend. 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.
-a dividend once declared is a debt payable by the Company to its registered shareholders. It is clear from Section 205 that although under sub-section (3) no dividend shall be payable except in cash, sub-section (5) authorise a company to pay the dividend by cheque or a warrant. Therefore, dividend by 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, Section 207 itself lays down the offence therunder 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 therefor. 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 therefor 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 on 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. Section 207 does not make 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. Therefore, payment in cash or the posting of a cheque or a warrant are equivalent and the obligation to pay be 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 Section 205(5) is incorporated in the Articles of Association of the Company. Section 36 of the Act, 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 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 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.
Judgment
SHELAT, J.:- All these 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 section 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.
2. 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 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 shareholder s registered address is situate who has the jurisdiction. The contention in these appeals is that such a view is not in accord with section 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.
3. Section 205 deals with dividends and the manner and time of payment thereof. Sub-section (l) 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-section (3) provides that no dividend shall be payable except in cash Sub-section 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. Section 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 Section 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
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