' NAIMUDDIN, J.--This Criminal Appeal, by leave, is directed against the judgment of Lahore High Court dated 28-5-1975 passed in proceedings on an application under section 561-A, Cr.P.C., whereby the High Court quashed the order of the Magistrate summoning the respondents on a complaint under sections 408 and 420, P.P.C. Filed by the appellant in the Court of Raja Aqeel Ullah, M.I.C. Lahore, then pending before Mr. Nusrat Hayat, M.I.C., Lahore, and dismissed the complaint.
2. In the complaint under Sections 408 and 420, P.P.C. And in his statement under section 200 Cr.P.C. Before the Magistrate the appellant stated tht Muhammad Siddiq respondent No,1 had approached him for purchase of shares of their Company by the name of Chenab Industries Limited, Khanewal, and for advancement of a loan to which the appellant agreed and accordingly he purchased 150 shares of the face value of Rs,100 of the total amount of Rs,15,000 and gave a loan of Rs,8,000. He further stated that the respondents had been making secret profits and preparing bogus accounts and due to such fraudulent activities of the respondents the Company has become insolvent and the property. Of the Company was being squandered, wasted and misappropriated and that the respondents did not render any accounts nor did they distribute any profits and misappropriated the amount.
3. The learned Magistrate, after taking cognizance, issued notice to the respondents whereupon the respondents filed a petition in the Lahore High Court for quashment of the proceedings before the Magistrate which the High Court quashed as stated before. The reasons which weighed with the High Court in quashing the proceedings were that so far as the loan of Rs,.8,000 was concerned it was a debt and it could not be said that any offence under Sections 406 and 4Q8, P.P.C. Had been committed in respect of the amount. As regards the purchase of shares, it was observed that the appellant purchased the shares so that the Company might be able to run the business and since the amount was invested it was not an entrustment and if the amount had not -been paid back, it could not be said that any breach of trust had been committed and that the appellant was entitled to profit if the Company had made any profit and since the Company had gone into liquidation it was clear that the Company had not made any profit. Therefore, no question of payment of any profit arose. The High Court further observed that even if it could be said that the Company made any profit, the non-distribution thereof amongst the shareholders would not amount to the commission of any criminal offence under Section 408, P.P.C. And that the amount of profit was not entrusted to respondents and, therefore, no question of breach of trust regarding profit arose. It was also observed that in the complaint certain acts alleged to have been committed by the respondents which normally, if proved, may constitute an offence under the Factories Act but they did not constitute any offence under sections 408 and 420, P.P.C. The High Court further observed that since the capital invested by the complainant was meant to be used and spent in the business of the Company it was not an entrustment of money, and, therefore, by not maintaining accounts as alleged and by not returning the share capital, no criminal misappropriation appeared to have been committed. The High Court also held that the case was of a purely civil nature and for all these reasons quashed the proceedings.
4. By order dated 29-10-1979, leave was granted by this Court to consider the contention that the appellant's allegation was that the respondents had misappropriated the amount invested in the Chenab Industries Limited, Khanewal, of which the respondent No,1 was the Managing Director while respondent No,2 was a Director, and the further contention that the investment in a Company also amounted to entrustment by purchaser of shares with the Management of the Company. In support of the submissions reliance was placed on AIR 1963 Ca1.64 and AIR 1944 Mad.
410.
5. The appellant and his Advocate have remained absent. The appellant has sent an application seeking adjournment which we declined as the matter is very old and pending since 1979.
6. We have gone through the entire record and also heard the Advocate for respondent No,2 as respondent No,1 is reportedly died sometime in 1986 and the appeal against him has abated.
7. Now, in his complaint made under sections 408 an.d 420, P.P.C. And his statement recorded under section 200, Cr.P.C. By the Magistrate, we find that main grievances of the appellant are: first, he gave a loan of Rs,8,000 which amount was not returned; second that he purchased 150 shares of Rs,100 each and the respondents did not render any account nor they distributed any profit; third, they made secret profits and misappropriated the amount; and fourth, that the property of Chenab Industries Limited, which had started business with a nominal capital of Rs,one lac was squandered, wasted and misappropriated by not regularly maintaining the accounts and making bogus entries in the books of accounts of the Company.
8. Taking up the question of loan it may be observed the proper remedy for the appellant was to file either a suit for its recovery or if the Company was unable to pay its debts, to file a petition under section 162 read with section 163 of the Companies Act, 1913 which was then in force. In the absence of any allegation of cheating as defined by section 415, P.P.C. No case whatsoever under section 420, P.P.C. Was made out. The same will be true with regard to the purchase of shares as there is no allegation that the appellant was deceived or intentionally induced to purchase the shares of the Company. Non-payment of profit will not also bring the case within the purview of section 420, P.P.C. For the reason that the Company might have or might not have earned profit; even if it had earned the profit, it could have decided to retain the same as working capital of the Company. Further unless Company earns profit and declares dividend in accordance with the Articles of Association and law no shareholder is entitled to receive the same. Moreover, respondents were not liable to render any accounts to the appellant. They had to submit annual balance sheet alongwith profit and loss account, and Directors Report at the Annual General Meeting of the Company. If this was not done, the appellant had his remedy under the Companies Act 9.. As regards the third and fourth grievances, the acts complained of are of two classes, (1) which constitute criminal offences, (2) which constitute misfeasance. As regards the alleged acts which constituted offences we may observe that we find from the record that the Company went into liquidation and a Liquidator was appointed on 15-6-1966 and Managing Director (respondent No,1) as per report of the Liquidator, had handed over the possession of the entire record as well as assets of the Company to him. The appellant filed the complaint on 2-6-1973 almost after seven, years of the Company had gone into liquidation, therefore, if the respondents were guilty of any offence in relation to the Company for which they were criminally liable, the appellant could move the Court for a direction to the Liquidator either to prosecute himself the respondents or to refer the matter to the Registrar, Joint Stock Companies as provided in section 236 of the Companies Act then in force, but the appellant could not himself file a complaint under sections 408 and 420, P.P.C.
This disposes of grievance concerning criminal offences.
10. As regards the acts of misfeasance or breach of trust by a Managing Director or Director etc. While a Company is in liquidation it is for the Liquidator or any of the creditors or contributors to apply to the Court which appointed the Liquidator and in which the winding-up proceedings are pending to compel the Managing Director or Director or Manager, as the case may, to repay or restore the money or property or any part thereof or to contribute such sums to the assets of the Company by way of compensation in respect of misapplication, retainer, misfeasance or breach of trust as the Court thinks fit as provided in Section 235 of the Companies Act, 1913, and not for a shareholder or member of a Company to move the Court. The appellant as creditor, however, could move such a Court for relief in this behalf. It may be useful and convenient if Section 235 is quoted below. It reads as follows:- "235.-- (1) Where in the course of winding up a company it appears that any person who has taken part in the formation or promotion of the company, or any past or present director, manager or liquidator, or any officer of the company has misapplied or retained or become liable or accountable for any money or property of the company, or been guilty of any misfeasance or breach of trust in relation to the liquidator, or of any creditor or contributory, made within three years from the date of the first appointment of a liquidator in the winding up or of the misapplication, retainer, misfeasance or breach of trust, as the case may be, whichever is longer, examine into the conduct of the promoter, director, manager, liquidator or officer, and compel him to repay or restore the money or property or any part thereof respectively with interest at such rate as the Court thinks just, or to contribute such sum to the assets of the company by way of compensation in respect of the misapplication, retainer, misfeasance or breach of trust as the Court thinks just.
(2) This section shall apply notwithstanding that the offence is one for which the offender may be criminally responsible."
11. In any case on the demise of respondent No,1, who is staled to have died in 1986, the application abated. For the reason that the appellant and hiss' counsel are absent we may also deal with the two cases referred in the leave granting order. We may observe that in the case of In re: M.K.Srinivasan (AIR 1944 Mad. 410) persons who had agreed and issued the prospectus and induced the persons to purchase the shares of the Company had suppressed material facts. On these facts it was held that fraud was committed. This case has, therefore, no application to the facts of the present case.
12. In the case of Indra Narayan Roy v. The State (AIR 1963 Cal. 64) it was held that the Director of the Company was trustee in respect of the funds of the Company which were under his control. Where the control over the funds of the Company is vested in the Board of Directors, in fact, it is the Chairman of the Board of Directors who exercises the effective control over the .Funds of the Company. In such a case it is the Chairman and not the Board of Directors who will be in a position of a trustee and if he deals with the funds of the Company in a manner which is beyond his power.
He will be guilty of offence of criminal breach of trust. This case is also distinguishable on facts.
Further, as stated above, if the respondent No,1 was guilty of any offence in relation to the Company it was for the Winding Court to direct the Liquidator either to himself prosecute the offender or to refer the matter to the Registrar, Joint Stock Companies.
13. Now so far as respondent No,2 is concerned, the allegations made against him, do not disclose any case under Sections 408 and 420, P.P.C. We, therefore, find no merits in this appeal and accordingly dismiss it.
' These are the reasons for the short order passed earlier.