SEBI Can't Prosecute Company For Delay After Payment of Dividends: Karnataka High Court

A single judge bench of Justice Hemant Chandangoudar allowed a criminal petition filed by Cranes Software Int. and its directors and said,

"A combined reading of Section 55(A) and Section 207 of the Companies Act, 1956 clearly indicates that the SEBI is vested with power to safeguard the interests of the shareholders in the matter of non payment of dividends and the moment the dividends are paid, the SEBI has no power to initiate any action against the company or its directors who have defaulted in payment of dividend within 30 days as specified under Section 207 of the Act."

The Company, in its Annual General Board Meeting held on 29.09.2009, resolved to declare dividends to its shareholders. Since the Company did not pay the dividends as resolved in its meeting, SEBI issued several notices to the Company calling upon it to pay the dividends. It is only after issuance of the show cause notices that the Company in question paid the dividends to its shareholders from 27.04.2012 to 03.11.2013 with interest and fine for the delayed payment.

The company having not paid dividend within 30 days, was said to have committed the aforesaid offences. The Magistrate after perusal of the complaint under Section 200 of CrPC took cognizance of the aforesaid offence and issued summons. Taking exception to the same, the Company and its Directors approached the High Court.

Findings:

The bench noted that Section 207 was substituted by Companies (Amendment) Act, 2000 with effect from 13.12.2000, which specifies that when dividends have been declared by the company but have not been paid within 30 days from the date of declaration, 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 be liable to 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.

The Court said since the offence alleged to have been committed by the Petitioners is under the amended section which is a continuing offence. Hence, the Complaint is not barred by limitation as specified under Section 468(2) of CrPC.

It observed that the second proviso to Section 621 of the Act specifies that the cognizance can be taken on a complaint filed by the SEBI for non payment of dividend. It thus observed that SEBI has got the locus standi to maintain a complaint under the 2nd proviso to Section 621 of the Act.

Further it held, "Section 621 clearly specifies that the shareholder/registrar of companies/person authorised by a central government can only maintain a complaint for the offence punishable u/s 207 even though the dividends are paid, since criminality does not get absolved on payment of dividends after the stipulated time."

It added that the respondent had no locus standi to file the private complaint under Section 200 of CrPC and the cognizance taken on the said complaint stands vitiated.

Case Title: MUKKARAM JAN v. SECURITIES EXCHANGE BOARD OF INDIA

Case NO: CRL.P.No.3755/2017

Citation: 2022 LiveLaw (Kar) 397

Date of Order: 12TH DAY OF JULY, 2022

Appearance: RAVI.B.NAIK, SR. ADV A/W DHYAN CHINNAPPA, SR.ADV FOR CHINTAN CHINNAPPA, ADVOCATE FOR petitioners; Advocate JEETHENDRA.C.P for respondents

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