051-NLR-NLR-V-69-S.-R.-MUTTIAHPILLAI-Appellant-and-W.-G.-ROBERT-DE-SILVAInspector-in-the-Desp.pdf
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Mtilliahpillai v. Robert de Silva
Present: Alles, J.
S. R. MUTTIAHPILLAI, Appellant, and W. G. ROBERT DE SILVA(Inspector in the Department of the Registrar of Companies),Respondent
8. C. 1381/1964—M. C. Colombo, 1056/A
Company law—Profit and loss account and balance sheet—Prosecution against Directorfor failure to hold general meeting—Burden of proof—-Companies Ordinance[Cap. 145), as. 121 (1) (2) (3), 262 (1)—Criminal Procedure Code, as. 168,169—Evidence Ordinance, as. 105, 106.
Where, in consequence of his failure to hold a general meeting of the Companywithin the prescribed period, a Director of a private Company which has beenregistered under the Companies Ordinance is prosecuted for failing to takeall reasonable steps to lay before the Company at a general meeting a profitand loss account, a balance sheet and the report of the Directors as requiredby subsections (1) and (2) of section 121 of the Companies Ordinance, theevidential burden of proving that he took all reasonable steps to comply withthe provisions of section 121 is on the accuesd. In such a case, the questionat issue is one that is peculiarly within the knowledge of the accused.
.A.PPEAL from a judgment of the Magistrate’s Court, Colombo.
H. V. Perera, Q.C., with N. Nadarasa and K. Kanthasamy, for theaccused-appellant.
Ranjit Abeysuriya, Crown Counsel, for the Attorney-General.
Cur. adv. vult.
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ALLES, J.—Muttiahpillai v. Robert de Silva
March 5, 1965. Axles, J.—
The accused, a Director of Muttiahpillai Estates Ltd., a privateCompany registered under the Companies Ordinance was charged asfollows :
That he being a Director of the said Company, having a share capitalin the calendar year 1962, did fail to take all reasonable steps to complywith the provisions of section 121 of the Companies Ordinance (Cap. 145)to wit :—
Lay before the Company in general meeting a profit and loss
account in accordance with section 121 (2) of the saidCompanies Ordinance.
Cause to be made out and laid before the Company in general
meeting a balance sheet in accordance with section 121 (2)of the said Companies Ordinance.
Attach to such balance sheet a report by the directors with
regard to the state of the Company’s affairs in accordancewith section 121 (2) and
thereby committed an offence punishable under section 121 (3) of thesaid Ordinance.
The accused pleaded not guilty to the above charge but after trial wasconvicted and sentenced to pay a fine of Rs. 50. The accused hasappealed to this Court from his conviction and sentence.
According to document P4 of 21st January, 1957, the accused and hiswife were the only two Directors of this Company. By letter P5 of9th April, 1962, addressed to the accused, the Registrar of Companiescalled for the annual return for the calender year 1961. The letter alsoindicated that it was presumed that an annual general meeting had beenheld. In reply to this letter the Company sent the annual return (P6)dated 14th January, 1962. Since the annual return has to be made upto fourteen days of the general meeting, it was presumed by the Registrarthat the general meeting in respect of this Company had been held on31st December, 1961 ; i. e. two weeks prior to 14th January, 1962.Similarly the return P7 was sent dated 14th January, 1963. Here tooit was presumed that the general meeting would have been held on 31stDecember, 1962. Since, however, there were a number of defects inP7, the Directors were requested to have it amended, but no action wastaken. Consequently, the Registrar wrote to the auditors of the Companyletter P8 of 12th November, 1963 and received reply P9 of 21st November,1963 stating that the accounts of this Company had been audited up to31st December, 1961 and that these accounts were certified by theauditors only on 18th June, 1963. In view of the provisions of theCompanies Ordinance, a general meeting has to be held not later thannine months after the date from which the last account is prepared. Inthe instant case since the last account was prepared up to 31st December,1961, according to P9, the general meeting should have been held within
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nine months of that date i.e. 30th September, 1962 ; but P9 showsthat the account referred to was certified by them only in June 1963.Since the account cannot be presented at the general meeting untilit is audited, it follows that the account could not have been presentedat any general meeting. Therefore this account could not have beenpresented at any general meeting before 30th September, 1962 and theaccount could not have been tabled till after it was audited in June, 1963.In view of these matters, the case for the prosecution is that no reasonablesteps were taken by the Directors to lay before the Company at a generalmeeting a profit and loss account, a balance sheet and the report of theDirectors as required by section 121(1) and 121(2) of the Ordinance.On 10/4/62, by the Registrar’s letter P5 the attention of the accusedwas pointedly drawn to the fact that he had failed to comply with theprovisions of sections 121(1) and 121(2) of the Ordinance, and warnedof a possible prosecution under section 121(3) of the Ordinance.
A representative of the Department of the Registrar of Companiesand the auditor of the Company gave evidence for the prosecution.The auditor’s evidence revealed that the books of the Company for therelevant period were received only on 31st August, 1962, and that theauditors took a further nine months up to June, 1963 to certify theaccounts as they had to raise a number of queries and obtain satisfactoryanswers. The auditor stated that in regard to this particular Companythey had always taken a long time to audit the accounts as the bookshad not been properly maintained.
The accused gave no evidence at the trial and the evidence for theprosecution has not been seriously challenged by the defence. Thereis therefore no doubt that the accused has failed to comply with theprovisions of sections 121(1) and 121(2) of the Ordinance.
The main question that was argued in appeal was the correctnessof the charge. Mr. H. V. Perera, Q.C. submitted that the charge wasdefective as the prosecution did not specify what reasonable steps theaccused had failed to take to comply with the provisions of the law.According to him it was only when the prosecution detailed these steps,that the burden was cast on the accused to satisfy the Court that he hadin fact taken all reasonable steps. He stressed the fact that the sectionpenalised the failure to take all reasonable steps and not the failure tocomply with the provisions of the section. Counsel also brought tomy notice the difference in the language of section 121 (3) and section262 (1). In the latter section the liability of the Director after a Companywas wound up for not keeping proper books of account was made punish-able, ‘ unless he-shows that he acted honestly or … . the default wasmade excusable ’. These words, he submitted, clearly cast the burdenof proving the circumstances of exculpation on the Director whereasunder section 121(3), it was not open to such a construction. Furtherhe submitted that as the proviso to section 121(3) provided for the imposi-tion of a term of imprisonment only when the accused’s failure to takereasonable steps was wilful it necessarily followed that the court should
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be in a position to decide whether the reasonable steps which the accusedfailed to take were done deliberately or not and therefore it was incumbenton the prosecution to mention the reasonable steps which the accusedfailed to take. This is however a matter for inquiry by the Magistrate atthe time of passing sentence and need not be considered by him at thetime the charge is read to the accused. Crown Counsel on the otherhand submitted, quite apart from the consideration that on the facts ofthis case the accused could not have been prejudiced, that the chargeconformed to the provisions of sections 168 and 169 of the CriminalProcedure Code and no further particulars other than that specified inthe charge was necessary. It seems to me that the correctness of thecharge is one that can be resolved from an examination of the particularsmentioned in the charge itself. The charge contains the provisions ofsection 121, which have not been complied with by the accused—thefailure to lay before the Company in general meeting the profit and lossaccount, the balance sheet and the report showing the state of the Com-pany’s affairs. The law casts the duty for compliance with these provisionson the Directors and if there is a non-compliance with these expressprovisions of the law, it must necessarily follow that the failure to do sowas because the Directors had not taken all the necessary steps to ensurethat a general meeting was held to enable the accounts, balance sheet andthe report to be tabled within the prescribed period. I do not thinksuch a construction of the provisions of section 121 (3) is unreasonable.An examination of the provisions of the Ordinance reveal that the res-ponsibility for the management of the company’s affairs rests on theDirectors. It is they who have to safeguard the interests of the share-holders and the authorities would look to them for a compliance with theprovisions of the law. In de Silva v. The Registrar of Companies1 it washeld that it was for the Directors of a Company to establish that no blamecould be attached to them for failing to carry out their statutory duties.In dealing with the duties of a Company Director, Lord Coleridge, C.J.said in Edmonds v. Foster 2 that ‘ no step can be taken and no omissioncan occur in its management without his having the power to raise anobjection. He is therefore prima facie responsible for any default onthe part of the Company and the burden of proof is upon him to showthat the failure to do what was required of the Company happened without. any blame attaching to him In Cumarasamy v. R. A. de Mel3 a Direc-tor was charged under section 111(1) of the Ordinance with the failureto hold a statutory meeting and thereby committed an offence undersection 111(9) of the Ordinance of knowingly and wilfully authorisingand permitting the default. Nagalingam, J. held that in such a prosecu-tion, ‘ the prosecutor cannot be expected to and need not do more thanplace before the Court a prima facie case against the accused ’. Theprosecutor had shown that no statutory report was delivered to theRegistrar of Companies as required by section 111 (5) which was a neces-sary prerequisite to the holding of a statutory meeting. In similar 1
1 [1955) 56 N. L. R. 519 at 522.* [1875) 45 L. J. M. C. 41.
* (1950) 52 N. L. R. 253.
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circumstances where the Registrar has not received the profit and lossaccount, the balance sheet and the Director’s report within the prescribedperiod and the correspondence indicates that these steps had not beentaken within that period to be presented at a general meeting, there isa prima facie case against the Directors that they had not taken allreasonable steps to comply with the provisions of the law and hence thedefault. Any other conclusion is likely to create an intolerable situation.For instance how is the prosecution able to lead evidence as to the stepswhich prevented the Directors from complying with the express provisionsof the law. This may have been due to a variety of causes—lack ofstaff, absence from the Island, delay on the part of the auditors, tomention a few, matters which must necessarily be within the peculiarknowledge of the Directors. Although the wording of section 121 (3)might have been framed in language which would clearly cast the burdenof proving these matters on the Directors by using such words as ‘ unlessthe Director is able to satisfy the Court that he took all reasonable steps ’—words similar to those found in section 262 (1) of the Ordinance—I donot think the section as presently framed could have intended to createthe well-nigh impossible task of casting the burden of proving thata Director failed to take all reasonable steps on the prosecutor. Itis reasonable to infer, that where the subject matter of the allegationlies peculiarly within the knowledge of one of the parties, that party mustprove it.
Crown Counsel also referred me to the provisions of sections 105 and 106of the Evidence Ordinance. Under section 105, inter alia, the burdenof proving any special exception on which the accused relies is on him.Thus where the words used were ‘ unless the contrary is proved ’ or‘not included in a reserved or village forest’ in a charge under section21 of the Forest Ordinance (Mudaliyar, Pitigal Korale North v. KiriBanda1) the burden of proving these exceptions would be on the accused.It seems to me however, that the wording of the charge in the presentcase must be considered having regard to the provisions of section 106of the Evidence Ordinance. The language of section 121(3) is in thenature of a statutory exception and the onu3 of proving such anexception is on the accused as it would be placing an impossible burdenon the prosecution to prove the negative. The question at issue in thepresent case is whether or not the failure of the accused to take reasonablesteps to comply with the provisions of the law is one that is peculiarlywithin the knowledge of the accused. The rule of law, in litigationconcerning the construction of statutes and agreements, has "been laiddown by Bayley, J. in the old case of R. v. Turner2 in the followinglanguage :
‘ If a negative averment be made by one party, which is peculiarlywithin the knowledge of the other, the party within whose knowledgeit lies, and who asserts the affirmative is to prove it, and not he whoavers the negative. ’
{1909) n N. L. R. 304.
{1816) 5 M. dk S. 206.
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'The principle laid down in if. v Turner has been adopted in later cases(R. v. Oliverl) and has been accepted as sound law (vide Cross on Evidence(1063) pp. 79-81). Commenting on R. v. Turner, which was a casewhere there were ten possible qualifications available to the accusedwho was charged with having pheasants and hares in his possessionwithout the necessary qualifications, Cross in his excellent treatise saysthat ‘ in the case of a statute containing a plurality of excuses it is notunreasonable to hold that the burden of adducing evidence with regardto any one of them should be borne in the first instance by the partyseeking to rely on the excuse.’ I am therefore of the view that oncethe prosecution has discharged its legal burden of proving that theaccused has not complied with the statutory requirements of sections121 (1) and 121 (2) of the Ordinance, the evidential burden of provingthat he took all reasonable steps to comply with these provisions isc 'ii the accused. Since the accused has not given evidence and dischargedthat burden, he is guilty of having contravened the provisions of section121 (3) of the Ordinance.
Counsel for the appellant also invited me to consider the provisionsof section 149 (1) of the Motor Traffic Act and cited in support the cases ofRerera v. Perera2 and Dorny v. Inspector oj Police, Dehiwela3. In Pererar. Perera the validity of a charge under section 151 (1) (which corres-ponded to section 149 (1)) was not directly in issue. This section requiresthe driver of any motor vehicle on a highway to take such action as maybe necessary to avoid an accident. In Doray v. Inspector oj Police,Dehiwala at p. 153, Basnayake, C.J. held that a charge under this sectionshould contain such particulars as are necessary to give the accusednotice of the allegation or allegations of the prosecution.’ The sectionwas not designed to penalise the driver of a motor vehicle because hemeets with an accident. It must be proved that the accident tookplace because he intentionally failed, in breach of his duty, to take suchaction as was necessary to avoid the accident in respect of which he ischarged. Mr. Perera submitted that by analogous reasoning, a prose-cutor under section 121 (3) of the Ordinance should specify the stepsthat the accused failed to take to make him culpable. I am unableto agree that there is an analogy between the two sections. Undersection 149 (1) of the Motor Traffic Act there is a general duty cast uponthe driver of a motor vehicle to avoid an accident and, if he fails to doso, he becomes liable under the section. It may be that he failed in hisduty to avoid the accident by doing some lawful act. It is thereforeunderstandable that in such a case he should be informed of what stepshe should have taken to avoid the accident. I do not think, therefore,that the decisions under section 149 (1) of the Motor Traffic Act are of anyassistance to the defence.
For the above reasons, I hold that the charge as framed by the prose-cution is in accordance with the provisions of the law and the appealis dismissed.
Appeal dismissed.
1 {1944) 1 K.B. 63 at 74.* (1957) 59 N.L.R. 64.
3 (1959) 61 N.L.R. 152.