Non-payment of declared dividends is continuing offence; executive directors liable without prior notice; company impleadment not mandatory.

ORDER

This criminal original petition has been filed challenging the proceedings initiated in CC.No.44 of 2021 on the file of the learned Principal Sessions Judge at Chennai.

2. The respondent filed complaint alleging that on 25.09.2012, the company called M/s.Zylog Systems Limited (hereinafter called as ‘the company’) had declared dividend to the tune of Rs.16,44,64,200/-. However, the company did not pay the dividend to the shareholders within the stipulated time. Therefore, the respondent issued show cause notice to the company seeking explanation as to why the dividend had not been paid as mandated under the provisions of The Securities and Exchange Board of India (hereinafter called as ‘SEBI’) Act, 1992 and the Companies Act, 1956 and 2013. On receipt of the same, the company, by its reply dated 20.02.2013, admitted that it had failed to comply with the provisions of the Companies Act related to the opening of the bank account and its failure to pay the dividend to its investors quoting various financial problems and sought time. Further, the company also assured to pay the dividend on or before 30.04.2013. The company had also annexed the details of its Directors as on the date of declaration of the dividend i.e. 25.09.2012 by mentioning their names and addresses. Thereafter, communication dated 25.06.2013, 07.08.2013, 18.12.2013 was sent to the National Stock Exchange of India Limited (hereinafter called as ‘NSE’) at Mumbai and sought for details relating to the failure of the company to pay declared dividends. The NSE replied by its reply dated 08.01.2014 that the said company had not responded to the enquiries made by it. Therefore, the company failed to pay dividend within the prescribed period of 30 days from the date of declaring the dividend. Further, the company is also liable to pay interest at the rate of 18% during the period for which the default continues thereby the company violated the procedures and stipulations and the same is punishable under Section 207 of the Companies Act, 1956 / Section 127 of the Companies Act, 2013 with regard to payment of dividend and also interest. After obtaining sanction to prosecute the accused, the respondent filed complaint and the trail court had taken cognizance for the offence punishable under Section 24(1) of the SEBI Act r/w Section 207 of the Companies Act, 1956 and Section 127 of the Companies Act, 2013 in CC.No.44 of 2021.

3. The learned Senior Counsel appearing for the petitioner submits that there are totally seven accused, in which the petitioner is arrayed as A3. He is the Executive Director of the Company. The complaint has been filed belatedly i.e. after two years from the date of the alleged default. Therefore, it is barred by limitation as contemplated under Section 468 of Cr.P.C. Further, the petitioner was not issued with show cause notice and as such, there is absolutely no cause of action to file complaint by the respondent as against the accused. Though the petitioner was appointed as Executive Director of the Company, as per the terms and conditions of his appointment, the petitioner shall not be involved in the day to day affairs or activities of the company. He shall not be required to take part in the management of the company and his roles shall be restricted to attending the capital market initiatives of the company. Further, he submits that the company was not implicated as an accused and it is clear violation of the Companies Act. It is akin to the provisions under Section 141 of NI Act. Therefore, when a complaint is filed as against the Directors, the company shall be implicated as an accused to maintain the complaint. He further submits that a similarly placed accused approach