075-NLR-NLR-V-51-HEEN-BANDA-Appellant-and-HERATH-Respondent.pdf
Heen Banda v. Hcrath
305
1949Present: Gratiaen 3.
HEEN BANDA, Appellant, and HERATH, Respondent8. 0. GU—M. C. Kandy, 2,849
Companies Ordinance, No. 51 of 1938—Keeping of proper books of account by com-pany—Director'a liability for failure—Meaning of “ proper books ”—Differencebetween section 120 and section 262.
Thera is a sufficient compliances with tho provisions of section 120 of theCompanies Ordinance, No. 51 of 1938, if the books of a Company contain anaccurate record of each and every transaction which the section requires to berecorded. It cannot be said that tho books aro not “ proper books ” so longas they correctly embody at all relevant times such information as is necessaryto enable an auditor periodically to prepare the Company's profit and lossaccount and balance sheet os required by the Ordinance.
./.PPEAL from a judgment of the Magistrate, Kandy.
U.V. Perera, K.C., with C. 8. Barr Kwnarahdasinghe, A. 1. Raja•singham and B. 8. C. RatuxUle, for defendant appellant.
N.E. Weerasooria, K.C., with C. E. S. Perera and D. 8. Jayauickrama,for complainant respondent.
20 Cr. App. Rep. 191.
Cttr. adv. vuU.
306
GRATIAEN J.—Jleen Banda v. Heralh
Septoraber 16, 1049. Gratiarn J.—
Tho accused was throughout tho year 1947 the Managing Directorof a company in the Kandy District. The Company was registeredunder the Companies Ordinance, No. 51 of 1938, and the object of itsincorporation was to maintain an omnibus sorvico along certain prescribedroutes. The learned Magistrate points out in his judgment that itsaffairs had, as so often happens, been entrusted since its inception topersons who, though no doubt well-intentioned, possessed no previousexperience of modern methods of business or accountancy.
The charge against the accused is that during his period of office theComf>any had failed, as required by Section 120 (1) of tho Ordinance,“ to keep proper books of accounts with respect to (a) all sums of moneyreceived and expended by tho Company and the matters in respect ofwhich the receipt and expenditure took place; (b) all sales and purchasesof goods by tho Company ; and (c) tho assets of the Company ”, andthat the accused was guilty of an offence under Section 120 (3) in thathe had failed in his capacity as Diroctor “ to take all reasonable stepsto secure compliance by the Company ” with those statutory require-ments. The learned Magistrate found the accused guilty and sentencedhim to pay a fino of Rs. 40. This lenient sentenco was imposed becausein the Magistrate’s view there was nothing to indicate any fraud on thepart of the accused but only ncgligonce, attributable largely to ignoranoo,in tho manner in which the Company’s affairs woro carried on.
Tho background of these proceedings is not unusual in Companiesof this particular description. The directors had fallen out amongthemselves, and representations against tho accusod were made by themembers of ono disgruntled faction to tho Director of Commerce andIndustries who appointed a Chartered Accountant, Mr. Satchithananda,to investigate and report upon tho affairs of the Company under Section133 of the Ordinanco. Tho report was duly referred to the Attorney-General but he apparently decided that no prosocution or other actionwas called for in the public interest (vide Section 134 of tho Ordinance).Nevertheless the oomplainant, who owns shares in the Company, wasdissatisfied with this result and ho accordingly prosecuted the accusedin the present action on his own initiative.
The only witness called at tho trial was Mr. Satchithananda to whomI have already referred. As he is an export in matters of accountancybis evidence would undoubtedly have been of groat assistance if it hadboon confined to his observations on the alleged inadequacy of theCompany’s books with reference only to the question whether or notthey had failed to comply with the special statutory requirements ofSoction 120 of the Ordinanco. Unfortunately this was not done, and hisoral evidence introduced a great dual of extraneous matter relating in ageneral way to the conduct of the Company's affairs with which theCourt was not concerned at tho trial. His report P 1 addressed to theDiroctor of Commerce and Industries and setting out tho conclusionsarrived at by him in the course of his roving investigation of the Company’sactivities was also read in evidence. All this inadmissible evidence onlyserved, I fear, to cloud tho issue upon which the Magistrate was requiredto adjudicate. In tho circumstances the accused’s conviction mustbe quashed unless I can satisfy myself that he has not been prejudiced by
GRATIAEN J.—H«n Banda v. Uerath
307
the improper reception of evidence at tho trial. This could only arise ifthere is on the record other evidence which is relevant and demonstrablyestablishes his guilt.
Before I refer to the evidence it is neoessary to examine tho provisionsof Section 120 of the Ordinance. This Section has been taken oververbatim from Section 122 of the Companies Act, 1920, of England.The various transactions in respect of which books must be maintainedby a Company aro set out in detail, but thore is nothing in the sectionwhich gives any indication as to when the books of tho Company, ©vonthough they contain aocurate and complete information as to the requisiteitems, may nevertheless be regarded as not having been “ properly ”kopt. This omission is not without its significance, because I find thatSection 262 of the Ordinance {vide also the corresponding Section 274of the English Act of 1929) whioh imposes heavier penalties on directorsif “ it is shown that proper books of accounts wore not kept throughoutthe period of two years immediately before the commencement of the windingup ” of a Company, contains an express declaration as to tho circum-stances in which ''for the purposes of this Section ” proper books shall bedeemed not to have boen kept. Having regard to this importantdifference in the language of two sections of the same Ordinance, I aminclined to the view that there is a sufficient compliance with theprovisions of Section 120 if the books of a Company contain an accuraterecord of each and every transaction which the section requires to berecorded. It cannot, I think, be said that the books are not “ properbooks ” so long as they correctly embody at all relevant times suchinformation as is necessary to enable an auditor periodically to preparethe Company’s profit and loss account and balance sheet as required bythe Ordinance. In other words, Section 120 seems to lay down not acounsel of perfection, but only to prescribe the minimum standard ofreliable book-keeping which the Directors must observe at thoir peril.If, as I have said, this minimum standard is satisfied, the mere factthat it would take an auditor or mi official inspector gome little timeto ascertain the true financial position by a reconstruction of tho relevantfacts which are accurately revealed in the Company’s books, an offencepunishable under Section 120 (3) is not disclosed. In other words,the section is satisfied so long as a set of “ books of original ontry ” ismaintained in one or othor of which books every transaction is faithfullyrecorded at the time when it occurs.
Applying this test, I am not convinced that the guilt of the accusedhas boen brought home to him by the relevant evidence, and in thatstate of things I am constrained to hold that the reception of a volumeof inadmissible evidence at the trial vitiates his conviction. It may wellbe that if the only issue befoie the Court had been more satisfactorilyinvestigated, the result would have been different, and the accused woulddo well to realise that non-compliance with the strict requirements of astatute enacted for the protection of the shareholders of public companiescannot be lightly condoned. In the present case he has at any ratebeen acquitted by the learned Magistrate of fraud or bad faith. Forthis reason I am content not to order a retrial. I quash the convictionand acquit the accused.
Conviction gnashed.