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PETITIONER: H. P. GUPTA

       Vs.

RESPONDENT: HIRALAL

DATE OF JUDGMENT: 24/02/1970

BENCH: SHELAT, J.M. BENCH: SHELAT, J.M. MITTER, G.K.

CITATION:  1971 AIR  206            1970 SCR  (3) 788  1970 SCC  (1) 437  CITATOR INFO :  E&D        1985 SC1156  (28,36)

ACT:      Indian Companies Act (of 1956), s. 207-Jurisdiction  to try  complaint for failure to pay dividend-Whether at  place where   company’s   registered   office   or   shareholder’s registered address.

HEADNOTE: The  respondent  filed complaints before the  Magistrate  at Meerut under s.     207  of  the Companies Act, 1956  on  an allegation of failure on the part of appellant,the director- incharge of a Company whose registered office was at  Delhi, to  pay  the  respondent dividends on shares  held  by  him, although the dividends were declared by the company for  the respective   years.   The  appellant  contended   that   the Magistrate  at  Meerut  had  no  jurisdiction  to  try   the complaints  and  that  the Magistrate  at  Delhi  where  the registered  office  of  the Company  was  situated  had  the jurisdiction.   The  Magistrate  rejected  the   appellant’s contention-on  the  ground that as the dividends had  to  be paid  at the registered address of the respondent,Which  was at Meerut, the Court, at Meerut had jurisdiction.  This view \\,,as  upheld  in  appeal  by the  Sessions  Judge  and  in revision by the High ,Court.  In appeal on certificate, this Court      HELD  :  The-  Court at Delhi and  not  at  Meerut  was competent to try the     offenses.      It  is clear from s. 205(5) that the company could  pay dividend either in cash or by posting a cheque or a  warrant at the registered address of the respondent.  Article 132 of the  Articles of Association also authorises the Company  to pay  dividend  either in cash or by posting a cheque  or  it warrant  to the shareholder at his registered address.   The effect of Art. 132 is that when a dividend warrant is posted at  the registered address of the shareholder that would  be equivalent  to  payment.  Once a warrant is  so  posted  the company  is  deemed to have paid and  discharged  its  obli- gation.  The Articles of Association constitute an agreement between  the ,company and the shareholders, and  the  latter are  entitled to the payment of dividend in the manner  laid

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down in the Articles and in that manner alone.  Article  132 thus not only ’authorises the company to make the payment in the manner laid down therein but amounts to a request by the shareholders to be paid in, the manner so laid down.   When, therefore,  the  company posts the dividend warrant  at  the registered address of a shareholder, that being done at  the shareholder’s request, the post office becomes the agent  of the  shareholder and the loss of a dividend  warrant  during transit thereafter is the risk of the shareholder. [793 F]      That  being  the position, the place where  a  dividend warrant  would be posted, is the, post office at such  place being  the agent of the shareholder, is the place where  the obligation to pay the debt is discharged in the present case at  Delhi where the company has its registered  office.   It follows that the offence under s. 207 of the Act would  also occur  at  the  place where the failure  to  discharge  that obligation arises, namely, the failure to post the  dividend warrant   within  42  days.   The  venue  of  the   offence, therefore,  would  be Delhi -and not Meerut, and  the  court competent  to  try the offence would be  that  court  within whose jurisdiction the 789 offence takes place, i.e., Delhi.  This should be so both in law and common sense, for, if held otherwise, the  directors of  companies can be prosecuted at hundreds of places on  an allegation  by shareholders that they have not received  the warrant.   That cannot be the intention of  the  legislature when  it  enacted s. 207 and made failure to pay or  post  a dividend warrant within 42 days from the declaration of  the dividend an offence. [794 C]     Indore  Malwa  United  Mills  Ltd.  v.  Commissioner  of Income-tax, [1966] 59 I.T.R. 738, followed.     Hickman   v.  Kent  or  Rommey  Marsh  Sheep   Breeders’ Association,  [1951] 1 Ch. 881, Beattie v.  Beattie,  [1938] Ch.  708,  Thairlwall  v. The Great  Northern  Railway  Co., [1910]  2  K.B. 509, Norman v. Ricketts, 3  T.L.R.  182  and Regina v. James Milner, 175 E.R. 128, referred to.

JUDGMENT: CRIMINAL APPELLATE JURISDICTION : Criminal Appeals Nos.  225 to 232 of 1966.     Appeals from the judgment and order dated April 1,  1966 of  the Allahabad High court in criminal Revision Nos.  895, 894, 876, 877, 897, 899 and 898 of 1964.      H.  R.  Gokhale, K. K. Jain, Bishamber Lal  and  H.  K. Puri,. for the appellant (in all the appeals).      The respondent did not appear.      The Judgment of the Court was delivered by      Shelat, J. All those appeals, founded on a  certificate granted  by  the  High Court of Allahabad,  raise  a  common question  as  to  jurisdiction.   The  appeals  arise   from complaints  filed  by the respondent in the Court  of  First Class  Magistrate  at Meerut under S. 207 of  the  Companies Act,  1956  on an allegation of failure on the part  of  the appellant,  the  director-in-charge  of  M/s  Iron   Traders (Private)  Ltd., to pay to him dividends on shares  held  by him,  although  the dividends were declared by  the  company for  the respective years.  The question being  common,  all these appeals are disposed of by a common judgment.      The  appellant contended that the Magistrate at  Meerut had  no  jurisdiction to try the complaints,  and  that  the Magistrate  at Delhi, where the company’s registered  office is situate, who would have the jurisdiction.  The Magistrate

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rejected the contention and held that as the dividend had to be  paid at the registered address of the respondent,  which was  at  Meerut,  it  was the Meerut  Court  which  had  the jurisdiction.   The  Sessions Judge, on appeal,  upheld  the order  of  the Magistrate and in revision  the  High  Court, rejecting  the  appellant’s contention, confirmed  the  view taken by the Magistrate and upheld by the Sessions Judge The High Court in taking the aforesaid view observed :               "The  object behind the statute is  to  ensure               prompt  payment of dividend to a  shareholder.               That  payment may be, made to him directly  or               it may be made by sending a cheque or  warrant               to- his registered address.  If a 790               shareholder complains that he has not received               payment he is entitled to proceed against  the               company   and  its  Directors  by   filing   a               complaint  at  the  place  where  he   resides               because  the law demands that  payment  should               have been made to him there." The High Court’s reasoning was clearly based on the  premise that  payment of dividend has to be made at the place  where the shareholder resides, and therefore, it is the Magistrate within   whose  jurisdiction  the  shareholders   registered address is situate who has the jurisdiction.  The contention in these appeals is that ,such a view is not in accord  with sec.  207.  The question is of some importance, for, if  the view taken by the High Court is correct, it would mean  that directors  of companies would be liable to be prosecuted  at hundreds of places where the registered -addresses of  their shareholders are on allegations that dividends are not  paid to them.      Section  205  deals with dividends and the  manner  and time  of  payment  thereof.  Sub-sec.  I  provides  that  no dividend  shall  be declared or paid by a  company  for  any financial year except out of the company’s profits for  that year  arrived at in the manner therein set out.  Sub-sec.  3 provides  that no dividend shall be payable except in  cash. Sub-sec.  5  (b), however, empowers payment of  dividend  by cheque or dividend warrant sent through the post directed to the  registered address of the shareholder entitled  to  the payment of the dividend or in the case of joint shareholders to  the registered address of that one of them who is  first named  in  the register of members or to such person  or  to such  address as the shareholder or the  joint  shareholders may  in writing direct.  Sec. 206 provides that no  dividend shall  be paid by a company in respect of any share  therein except  to  the registered holder of such share  or  to  his order  or to his bankers, or where a share warrant has  been issued  to  the bearer of such warrant or  to  his  bankers. Sec.  207  lays down the penalty for failure  to  distribute dividends declared by the company and provides that where  a dividend  has  been declared by a company but has  not  been paid  or  a cheque or a warrant in respect thereof  has  not been  posted within 42 days from the date of declaration  to any  shareholder  entitled to the payment of  the  dividend, every  director  of  the  company,  its  managing  agent  or secretaries and treasurers shall, if he is knowingly a party to the default, be punishable with simple imprisonment for a term which may extend to 7 days and shall also be liable  to fine.   But  the section further provides  that  no  offence shall be deemed to have been committed within the meaning of the foregoing provision in the cases therein set out.      A  dividend  once  declared is a debt  payable  by  the company to its registered shareholders.  It is clear from s.

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205 that although 791 under sub-s. 3 no dividend shall be payable except in  cash, sub-s.  5  authorises  a company to pay the  dividend  by  a cheque  or  a warrant.  Therefore, dividend can be  said  to have  been  paid either when it is paid in cash  or  when  a cheque or a warrant is sent through the post directed to the registered  address of the shareholder entitled  to  payment thereof.  Indeed, sec. 207 itself lays down that the offence thereunder is committed when dividend is either not paid  or a cheque or a warrant in respect thereof has not been posted within  the time prescribed therefore.  Once,  therefore,  a dividend warrant is posted at the registered address of  the shareholder, dividend is deemed to have been paid.      The  section casts an obligation on the company to  pay the dividend, which is declared, to the shareholder entitled thereto  ,within 42 days from its declaration.  The  offence under  the section takes place when there is failure to  pay or  a  cheque or a warrant therefore is not ’posted  to  the registered  address of the shareholder.  It will be  noticed that  the  section  makes the failure  to  post  within  the prescribed period and not the non-receipt of the warrant  by the  shareholder an offence.  Therefore, the  obligation  to pay  within  the  prescribed period is  satisfied  once  the dividend is paid or a cheque or a warrant therefor is posted at the registered address of the shareholder.  Prima  facie, both  the  obligation to post the dividend warrant  and  the failure to satisfy that obligation would occur at the  place where  the obligation is to be performed and that  would  be the registered office of the company and not the address  at which the warrant is to be posted.      But the question is since the dividend, when  declared, becomes a debt payable by the company to the shareholder and the company becomes a debtor, does the common law rule  that the debtor must seek out the creditor apply?  There are  two considerations  which must not be lost sight of before  that rule is applied.  The first is that s. 207 does not make the non-receipt  of  the  dividend warrant  by  the  shareholder within  42  days an offence.  The offence  consists  in  the failure  to post the dividend warrant within the  prescribed period.   The  provisions  of  s.  205  empower  payment  of dividend by a cheque or a warrant and treat the posting of a cheque or a warrant as payment.  Therefore, payment in  cash or  the posting of a cheque or a warrant are equivalent  and the  obligation to pay is discharged when either of them  is done.   The  second consideration is that the power  to  pay dividend  by posting a cheque or a warrant provided in  sec. 205(5)  is- incorporated in the Articles of  Association  of the company by Art. 132.  That article reads               "Unless  otherwise directed by the company  in               General  Meeting any dividend may be  paid  by               cheque or farrant sent through the post to the               registered add- 792               ress of the member entitled or in the case  of               joint  holders  to the registered  address  of               that  one  whose  name  stands  first  on  the               register  in respect of the joint holding  and               every cheque so sent shall be made payable  to               the order of the person to whom it is sent."     Section  36  of the Act, which is in the same  terms  as sec.  20 of the English Companies Act, 1948,  provides  that subject  to  the provisions of the Act  the  Memorandum  and Articles  of Association, when registered, bind the  company and  the  members  thereof to the same  extent  as  if  they

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respectively  have  been signed by the company and  by  each member,  and  contained  covenants on its and  his  part  to observe  all  the provisions of the Memorandum  and  of  the Articles.   It  is  well established that  the  Articles  of Association constitute a contract between a company and  its members in respect,of their ordinary rights as members. [see Hickman   v.   Kent   or  Romney   Marsh   Sheep   Breeders’ Association(1)  ’and  Beattie v. Beattie(’)].   If  under  a contract,  a  promise  prescribes the manner  in  which  the promise  is  to be performed, the promisor can  perform  the promise  in  the  manner so prescribed. (see s.  50  of  the Contract Act).  Thus, if A desires B, who owes him Rs. 100/- to  send him a note for that amount ’by post, the  debt,  is discharged  as,  soon  as  B puts into  the  post  a  letter containing  the note duly addressed to A. (see  illustration (d)  to s. 50 of the Contract Act.) In this  connection  the decision in Thairlwall v. The Great Northern Railway  Co.(’) shows  how the problem is dealt with by the English  Courts. The  plaintiff  there,  who  held  certain  stocks  of   the defendant  company,  filed  an action  to  recover  dividend payable on those stocks.  The defence was that the  dividend was paid having been sent by post to the registered  address of the plaintiff.  The question was looked at from the point of view whether there was any agreement by or obligation  on the plaintiff to accept the dividend warrant as payment.  If there  was  any such agreement, the principle laid  down  in Norman v. Ricketts(’) would apply, namely, that a debtor  or a creditor can agree to make and accept payment of the  debt in some form other than cash and that when the creditor asks his  debtor to send the amount by post, then if  the  debtor sends  a cheque for the amount by post the risk of  loss  in transit falls on the creditor and the posting is  equivalent to  payment.   Further the stock certificates had  upon  the back  of  them a clause that dividend would  be  payable  by warrant  which  would be sent by post  to  the  proprietor’s registered address, or to any person duly authorised to give a  receipt for the same.  Sec. 9 of the Act of  1890,  under which the defendant-company was incorporated, also  provided that the (1)  [1915] 1 C.h. 881. (3)  [1910] 2, K.B. 509. (2)  [1938] Ch. 708. (4)  3 Times L. R. 182. 793 terms and conditions on which the stock was issued shall  be stated  on  the  certificate thereof.  In  the  six  monthly report  of  accounts issued by the directors to  the  stock- holders  there  was  a statement that  the  profits  of  the company had enabled the directors to declare a dividend  and there,  was  at the back of that report a  notice  that  the dividend  warrants  would be payable on a certain  date  and would  be sent by post to the stockholders on  the  previous day.   Under s. 90 of the Companies Act, 1845 it was  within the power of the directors to fix the date at which and  the mode in which dividends should be paid, subject of-course to the  control of a general meeting.  The stockholders of  the company at their general meeting had declared the amount  of dividend  as  proposed by the directors but  had  passed  no resolution  as to how payment was to be made.  It  was  held that   though   no  such  resolution  was  passed   by   the stockholders,  they-had  notice  as  to  how  the  directors proposed to pay the dividends and as no alteration was  made in  those  proposals,  the stockholders were  held  to  have decided  among  themselves by a proper resolution  that  the dividend  should be paid on a certain day and in the  manner

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proposed by the directors.  Such a conduct was equivalent to a  request, and therefore, the stockholders became  entitled to payment in that way and in that way alone.  Consequently, when the dividend warrant had been sent by post the dividend was   paid  and  the  company’s  obligation  to  pay   stood discharged.      It  follows, therefore, that once a mode of payment  of dividend  is  agreed to, namely, by posting a  cheque  or  a warrant, the place where such posting is to, be done is  the place of performance and also the place of payment, as  such performance in the manner agreed to is equivalent to payment and results in the discharge of the obligation.      It is clear from s. 205 (5) that the company could  pay dividend either in cash or by posting a cheque or a  warrant at  the registered address of the respondent.  Art.  132  of the  Articles of Association also authorises the company  to pay  dividend  either in cash or by posting a  cheque  or  a warrant  the  shareholder at his  registered  address.   The effect of Art. 132 is that when a dividend warrant is posted at  the  registered address of the  shareholder  that  would be,equivalent  to payment.  Once a warrant is so posted  the company   is  deemed  to  have  paid  and   discharged   its obligation.   As  aforesaid,  the  Articles  of  Association constitute   an  agreement  between  the  company  and   the shareholders, and the latter are entitled to the payment  of dividend in the manner laid down in the Articles and in that manner alone.  Art. 132 thus not only authorises the company to  make  the payment in the manner laid  down  therein  but amounts  to a request by the shareholders to be paid in  the manner so laid down.  When, therefore,  L 10  SupCI(NP)70-6 794 the  company  posts the dividend warrant at  the  registered address   of   a  shareholder,  that  being  done   at   the shareholder’s request, the post office becomes the agent  of the  shareholder, and the loss of a dividend warrant  during transit  thereafter  is  the risk of  the  shareholder.   In Indore  Malwa United Mills Ltd. v. Commissioner  of  Income- tax(’)  this  Court, on a question arising  whether  on  the facts there payment was made in taxable territory, held that if by an agreement, express or implied, between the creditor and the debtor, or by a request, express or implied, by  the creditor,  the  debtor is authorised to pay the  debt  by  a cheque  and to send the cheque to the creditor by post,  the post  office  is the agent of the creditor  to  receive  the cheque  and  the creditor receives payment as  soon  as  the cheque is posted to him.  That being the position, the place where  a dividend warrant would be posted, the  post  office being  the agent of the shareholder, is the place where  the obligation to pay the debt is discharged-in the present case at  Delhi where the company has its registered  office.   It follows  that  the offence under sec. 207 of the  Act  would also occur at the place where the failure to discharge  that obligation arises, namely, the failure to post the  dividend warrant   within  42  days.   The  venue  of  the   offence, therefore,  would  be Delhi and not Meerut,  and  the  court competent  to  try the offence would be  that  court  within whose  jurisdiction  the offence takes place,  i.e.,  Delhi. This should be so both in law and common sense, for, if held otherwise,  the directors of companies can be prosecuted  at hundreds  of  places on an allegation by  shareholders  that they  have  not received the warrant.  That  cannot  be  the intention  of the legislature when it enacted see.  207  and made  failure  to pay or post a dividend warrant  within  42 days from the declaration of the dividend an offence.     This view is also in accord with the principle laid down

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by Maule J. in Regina v. James Milner(2) that the felony  of not   surrendering  at  a  district  court  to  a  flat   in bankruptcy,  under  Stat.  5 and 6 Vict. c. 122,  S.  32  is committed at the place where the district court is  situate; and  an indictment for the offence cannot be sustained in  a different county from that in which the person was a  trader or in which he committed an act of bankruptcy.  On the  same principle  the  High  Court of Calcutta  has  also  held  in Gunanand  Dhone v. Lala Santi Prokash Nanley(3) that  it  is the court within the local limits of whose jurisdiction  the accused  is liable to render accounts and fails to do so  by reason of having committed a breach of trust alleged against him that has the jurisdiction. (1)   (1966) 59 I.T.R. 738.       (2) 175 E.R. 128. (3)  29 C.W.N. 432. 795    The  offence under s. 207 is the failure to pay  dividend or  to post a cheque or a warrant for the  dividend  amount. Since  the  obligation  to post the  warrant  arose  at  the registered office of the company, failure to discharge  that obligation  also  arose  at the  registered  office  of  the company.   Therefore,  the alleged offence must be  held  to have taken place at the place where the company’s registered office  is situate and not where the dividend warrant,  when posted, would be received.     In  that  view, the High Court was in error  in  holding that  the Magistrate at Meerut had the jurisdiction  to  try the  said  complaints.   The, appeals  must  accordingly  be allowed  and  the  High  Courts  orders  set  aside.   Order accordingly. Y.P.                            Appeals allowed. 796