055-NLR-NLR-V-52-CUMARASAMY-Appellant-and-R.-A.-DE-MEL-et-al.-Respondents.pdf
1930Present : Nagalingam J.C UM A If A S AMY, Appellant, and R. A. de MEL, et al., RespondentsS. C. 979—M. C. Colombo, 6,503 A
Companies Ordinance, No. 51 of 193S—Section 111, sub-sections 1 and 9—Statutorymeeting—Duty of Directors to hold such meeting—“ Knowingly and wilfully ”—Burden of proof.
Where a Company has failed to hold, within the prescribed period, thestatutory meeting required, by section lid (1) of the Companies Ordinance,the Directors of the Company are prima facie guilty* of the default or can besaid to have knowingly and wilfully permitted the default, within the meaningof section 111 (9).
A PPEAL from a judgment of the Magistrate's Court, Colombo.
T. S. Fernando, Crown Counsel, with A. Alahendrarajah, Crown Counsel,for the complainant appellant.
No appearance for the accused respondents^
Cur. adv. vult.
November 29, 1950. Nagalingam 3 .—
This is an appeal by the complainant with leave of the Attomey-Oeneral obtained from a verdict of acquittal entered against therespondents by the learned Magistrate of Colombo in regard to a chargepreferred against them under section 111 (9) of the Companies Ordinance,No. 51 of 1938. This is not the type of case that comes up before aMagistrate’s' Court' and it is therefore not surprising that the order ofthe learned Magistrate is challenged on the ground that errors both offact and law have been committed by the learned Magistrate.
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. The charge against the respondents is correctly framed in terms ofsection 111 of the Companies Ordinance. I propose to draw attentionto the terms of the charge as it is not quite clear whether the Magistratehas correctly appreciated the essentials of the offence with which theaccused were charged. Section 111 (1) requires that a Company shouldwithin a period of not less than • one month nor more than three monthsfrom the date on which the Company is entitled to commence businesshold the statutory meeting. Sub-section 9 proceeds to enact that in theevent of any default in complying with the provisions of this sectionevery director of the Company who is guilty of the default, to focusattention on- one limb at the moment, shall be guilty of an offence.
The view taken by the Magistrate that where the Company is in defaultit is the Company that should be prosecuted may be a sound piece oflogical reasoning but it is not supported by the provisions of the sectionwhich looks at the problem from a larger and a practical standpoint—the sub-section, it will be noted, does not enact that the Company shouldbe made liable. Between the date of the incorporation of a Companyand the date of the holding of the statutory meeting, the shareholdersare not brought together nor are they apprised in regard to the variousmatters affecting the Company such as what part of the capital hasbeen subscribed, whether the shares taken have been fully or partlypaid or the nature of the consideration for the shares allotted, and infact the shareholders are in entire ignorance of what has been done inrespect of these matters. To punish the Company as such at this stagewould be to punish even shareholders for whose protection the require-ment that the statutory meeting should be held has been enacted andwho themselves are powerless to have the meeting held, for prior to thestatutory meeting being held the directors must forward a report toevery member (sub-section 2) and also a copy of it to the Registrar(sub-section 5). Unless, therefore, the directors forward this reportthemselves first, no statutory meeting can be held and the shareholderswould be punished for a default which they can in no way prevent.
Under Article 64 of Table A in the First Schedule to the CompaniesOrdinance (the Company has adopted the article substantially) provisionis made for the appointment of the first directors and the appointment,it is of importance to note, is made not by the shareholders who havetaken up shares in the Company but by the subscribers to the Memoran-dum of Association. The reason for the subscribers to the Memorandumdeciding upon the first directors is that the shareholder's have noopportunity before the statutory meeting is held of electing directors.
There can therefore be no reason to punish the shareholders beforethe holding of the statutory meeting, and it is in consideration of thesefactors that the Legislature in its wisdom prescribes that where there isdefault on the part of the Company the Company is not to be subjected toa penalty but the persons who bring obout "the default.
If the Company is not liable, then one has to determine who the personor persons are who are made liable for the default. Sub-section 9 imposesa penalty on every Director of the Company who is guilty of the defaultor who knowingly and wilfully permits a default. The question, then,is whether it can be said that where the Company has failed to hold thestatutory meeting within the period prescribed the Directors of the Com-pany are guilty of the default or cfan be said knowingly, and wilfully tohave permitted the default.*
This leads to a consideration as to what are the functions of the directorsin relation to a Company. In the case of Edmunds v. Foster 1 LordColeridge C. J. had to consider an analogous provision of the EnglishCompanies Act of 1862 which required that a Company should, onee atleast in every year, forward a list of the shareholders of the Company,the share capital and other particulars, and in default it provided interalia that every director who shall knowingly or wilfully permit such defaultshall be subject to a penalty. The learned Chief Justice made thisobservation:
“ I assume that there was evidence that the appellant continued tobe a Director. Now, in my judgment there is prima facie evidence thathe knowingly and wilfully permitted the default upon the part of theCompany, for a Director is one ‘ who directs ’ the proceedings ofthe Company. Xo step can be taken and no omission can occur inits management without his having the power to raise an objection.He is therefore prima facie responsible for any default on the part of theCompany, and the burden of proof is upon him to show that the failureto do what was required of the Company happened without any blameattaching to him.”
Lord Coleridge’s dictum that a director is one “ who directs ” the pro-ceedings of the Company has received statutory recognition by theLegislature enacting in Article 67 of Table A that the business of theCompany shall be managed by the directors and that they may exerciseall such powers of the Company as are not required by the Ordinanceor the Articles to be exercised by the Company in general meeting. Thisparticular Article of Tale A has been adopted by the Company in question.
The law, therefore, easts the duty upon the Directors to manage thebusiness of the Company and one of the first items of business that aCompany has to transact and perform is to hold the statutory meeting.The statutory meeting, as evident from the terms of the section itself,can only be held by and at the instance of the. directors. If there is adefault on the part of the Company in not holding the statutory meeting,it would be a default brought about by the Directors themselves, andprima facie the directors would be guilty fjf the default. I say primafacie because, if, for instance, a director could show he was out of the
{187S) 45 L.J. M.C. 41.
Island lie ■ would then ■ have rebutted the inference that he was guiltyof the default. One therefore can appreciate the Legislature fenactingthat where there is a default on the part of the Company it is not the• Company but the directors who are liable to punishment.
Furthermore, as- was said by Lord Coleridge, there cannot be a defaulton the part of the Company without that default being permittedknowingly and wilfully by the directors for, as pbserved, no step can betaken and no omission ean occur in its management without the directorshaving the power to raise an objection. In this case, applying thesame principle, it would follow that the Company’s failure to hold thestatutory meeting could not have arisen unless it was permitted by thedirectors, and they being the persins who had the management andconduct of the business of the Company, prima facie the permitting ofsuch failure must necessarily have been “ knowingly and wilfully ’'.
The order of the learned Magistrate, therefore, that the charge shouldhave been laid against the Pembroke Academy Limited and not the directorsof the Company cannot be supported.
I now pass on to consider certain other matters. The charge specifiesthree alternatives as constituting the offence. It declares that thedirectors are liable to punishment in that (a) they are guilty of the defaultconsisting in the failure of the Company to hold the statutory meeting,or (b) they knowingly and wilfully authorized the default, or (e) theyknowingly and wilfully permitted the default. In regard to (b) and (c)above, which involve knowledge and deliberation, the learned Magistrateobserves that the prosecution should prove that the accused had“ knowledge of the requirements under the Ordinance ”. This is awholly untenable proposition. Apart from the ordinary maxim thatevery man is presumed to know the law, it would be expected of a personwho acts as a director of a Company that he has taken the trouble atleast to acquaint himself with the law or at any rate to take adviceas regards his duties and functions as a director, Knowledge of theprovisions of the law is not a matter for proof by the prosecution, andignorance of the law would be no excuse on the part of an accused personfor the default.
The learned Magistrate also observes that there is no evidence whichconclusively establishes that no statutory meeting has been held by theCompany. 'In a prosecution such as this, the prosecutor cannot beexpected to and need not do more than place before the Court a primafacie case against the accused. The question whether a statuory meetingwas held or not is a matter which is especially within the knowledge ofthe directors themselves. The prosecutor has shown that no statutoryreport was delivered to the Registrar of Companies as required by section111 (5), which is a necessary prerequisite to the holding of a statutorymeeting. It must follow that if no such report has been delivered, thena statutory meeting could never have been held. Besides, there is theevidence of Mr. Tudor Perera, the Company's auditor, who swore hesigned no statutory report. He also stated that he was one of the partieswho should sign such a report along with two directors. The Magistrateexpressed the view that the statement of Mr. Perera was incorrect.
Unless a statutory report contains a certificate of an auditor in regardto the statements therein contained relating to the shares allotted bythe Company, to the cash received in respect of such shares and toreceipts of the payments of capital (sub-section 4) it ■would not be a■statutory report as required by law. It would therefore be correct tosay that unless the auditor himself places his signature certifying to thecorrectness of these matters in the report, the statutory report cannotcome into being. In this sense it is correct that the auditor himself■should sign the statutory report.* The evidence, therefore, of the auditorthat, he not having signed any such report, no report could in fact have•come into existence and therefore ^no statutory meeting could have beenheld, is perfectly correct. This testimony, there can be little doubt,Is prima facie evidence that no statutory meeting had in fact been held.Besides, there is evidence that what purported to be a statutory report(P 14) signed by two of the directors and the auditor was deliveredto the Registrar long after the period within which the statutory meeting■should have been held and that it bears the date 7th November, 1949.This, again, is another piece of evidence which prima facie is proof thatno statutory meeting had been held within the period prescribed by law.
now come to another point referred to by the learned Magistrate inregard to the question whether the certificate to commence business,P 7, had reached the respondents or the Company so as to render it•obligatory on them to hold the statutory meeting. The evidence of theprosecutor is that the certificate to commence business was applied forby Ranjit Wijemanne, Managing Director, and it was issued to him,but added that it was taken delivery of by one Pieris. It does not followthat where a messenger or a clerk is sent to obtain the certificate and itis proved that the messenger or clerk was duly delivered the documentany further proof is necessary that it reached the Company, because-delivery to an agent is delivery to the principal, so that it is difficult tounderstand the reasoning underlying the view that there must be furtherproof that the document reached the Company. When it is shown that“the document was received by an agent of the Company, the fact of thedelivery of the document to the Company is thereby established andproved.•
Directly the certificate was issued, then by virtue of sub-section (3) ofsection 93, the Company became entitled to commence business and it isimmaterial, to inquire whether it did or did not commence business,for the date fixed by section 111 (1) for the holding of the statutorymeeting is not with reference to the date of actual commencement ofbusiness but in relation to the date when the Company became entitledfo commence business. It follows that where, after the issue of the-certificate to the Company, and within the period allowed by law, nostatutory meeting is prima facie shown to have been held, the Companywould be in default and the directors who have the control and manage-ment of the Company would themselves prima facie be guilty either of the-default or of having knowingly and wilfully permitted the default.
From the foregoing observations, it would be manifest that a primafacie case has been made out against the accused persons, and the learnedMagistrate should have called upon the respondents for their defence.
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