# H.P.GUPFA v. HIRALAL

- **Citation:** [1970] 3 S.C.R. 788
- **Court:** Supreme Court of India
- **Decided:** 1970-02-24
- **Bench:** J. M. Shelat, G. K. Mitter
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/h-p-gupfa-v-hiralal-4966
- **Pages:** 8

## Headnote

B
Jndian Companies ~t (of 1956). s. 201-Jurisdiction to t? co~p/aint
Jor failure to pay dividend-Whether at place where cumpany s registered
.-0ffice or shareholder's registered address.
The respondent filed. complaints before the Magistrate ~t Meerut under
s. 207 of the Companies Act, 1956 on an allegation of failure on the part
of appellant, the director-i0rcharge of a Company whose registered office
C
was at Delhi, to pay the respondent dividends on shares held by h•_m,
although the dividends were declared by tire 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 pel~1 '."'~ere
1he registered office of the Company was situated had the
1unsd1cllon.
The Magistrate rejected the appellant's contenllon on the ground that as
the dividends had to be paid at the registered address of the respondent,
·\vhich was at Meerut, the Court, at Meerut had jurisdiction.
This view
D
was 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 offences.
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 aJdrcss of
E
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
a warrant IQ the shareholder at his registered address. The effect of Art.
132 is that when a dividend warrant is posted at the registered address of
th.e shareholder that would be equivalent to payment.
Onoe "' 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
F
company and the shareholders, and the latter are entitled to the -payment of
dividend in the manner ]aid do\\1n in the' Articles and in that
manner
alone.
Arlicle 132 thus not only authorises the company to make the
payn1cnt in the manner laid down ther-cin 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 sh-areholdeT, and the Joss of z. dividend warrant
G
cduring transit thereafter is the risk of the shareholder. [793 Fl
That being the position, the place where a dividend warrant would be
posted, is the post offioe a1 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, n.amely, the
H
failure
to post the dividend warrant within 42 days. The .venue of the
offence, therefore. would be Delhi and not Moerut, and the court compeAent to try the offence would be that court within whose jurisdK:tion the
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H. p, GUPTA v. HIRALAL (She/at, J.)
789
offence takes place, i.e., Delhi. This should be so both in law and common sense, for, if held otherwisc1 the directors of compaines can be prose~
cute<l at hundreds of places on an allegation by shareholders that they
ha\'e not received the warrant.
That cannot be the intention of the legis~
lature 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 CJ
lndore Malwa United Mills Ltd. v. Co1n1nissioner of lncome~tax, [1966]
59 l.T.R. 738, fOllowed.
Hickn1an v. Kent or Ro1n111ey Marsh Sheep Breeders' Association, (1951]
! Ch. ~81, Beattie v. Beattie, [1938] Ch. 708, Thair/wall v. The Great
Sorthern Railway Co., [1910] 2 K.B. 509, Nor.man v. Rickett&, 3 T.L.R.
18.2 and Regina' v. Ja111es Milner,

## Text

788
H.P.GUPFA
v.
HIRALAL
February 24, 1970
A
[J. M. SHELAT AND G. K. MITTER, JJ.]
B
Jndian Companies ~t (of 1956). s. 201-Jurisdiction to t? co~p/aint
Jor failure to pay dividend-Whether at place where cumpany s registered
.-0ffice or shareholder's registered address.
The respondent filed. complaints before the Magistrate ~t Meerut under
s. 207 of the Companies Act, 1956 on an allegation of failure on the part
of appellant, the director-i0rcharge of a Company whose registered office
C
was at Delhi, to pay the respondent dividends on shares held by h•_m,
although the dividends were declared by tire 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 pel~1 '."'~ere
1he registered office of the Company was situated had the
1unsd1cllon.
The Magistrate rejected the appellant's contenllon on the ground that as
the dividends had to be paid at the registered address of the respondent,
·\vhich was at Meerut, the Court, at Meerut had jurisdiction.
This view
D
was 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 offences.
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 aJdrcss of
E
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
a warrant IQ the shareholder at his registered address. The effect of Art.
132 is that when a dividend warrant is posted at the registered address of
th.e shareholder that would be equivalent to payment.
Onoe "' 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
F
company and the shareholders, and the latter are entitled to the -payment of
dividend in the manner ]aid do\\1n in the' Articles and in that
manner
alone.
Arlicle 132 thus not only authorises the company to make the
payn1cnt in the manner laid down ther-cin 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 sh-areholdeT, and the Joss of z. dividend warrant
G
cduring transit thereafter is the risk of the shareholder. [793 Fl
That being the position, the place where a dividend warrant would be
posted, is the post offioe a1 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, n.amely, the
H
failure
to post the dividend warrant within 42 days. The .venue of the
offence, therefore. would be Delhi and not Moerut, and the court compeAent to try the offence would be that court within whose jurisdK:tion the
A
B
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E
F
G
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H. p, GUPTA v. HIRALAL (She/at, J.)
789
offence takes place, i.e., Delhi. This should be so both in law and common sense, for, if held otherwisc1 the directors of compaines can be prose~
cute<l at hundreds of places on an allegation by shareholders that they
ha\'e not received the warrant.
That cannot be the intention of the legis~
lature 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 CJ
lndore Malwa United Mills Ltd. v. Co1n1nissioner of lncome~tax, [1966]
59 l.T.R. 738, fOllowed.
Hickn1an v. Kent or Ro1n111ey Marsh Sheep Breeders' Association, (1951]
! Ch. ~81, Beattie v. Beattie, [1938] Ch. 708, Thair/wall v. The Great
Sorthern Railway Co., [1910] 2 K.B. 509, Nor.man v. Rickett&, 3 T.L.R.
18.2 and Regina' v. Ja111es Milner, 175 E.R. 128, referred to.
(RIMINAL 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 appeal§, 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 Mis 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 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, uph~l~ !he order of the l\;lagistrate .and in revision the High Court,
re1echng the appellant s content10n, 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 sendinj! a cheque or warrant to his registered address. If a
790
SUPREME COURT REPORTS
[1970] 3 S.C.R
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 Jaw 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 th~ 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. 1 provides that 1no 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.
Suti..ec. 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 thllrein 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 declaratiop 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 exiend 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 bv the company
1o its registered shareholders. It is clear from s. 205 that although
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H. p. GUPTA v. HIRALAL (She/at, J.)
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
wa1rant is sent through the post directed to the registered address
of the shareholder entitled to payment thereof.
Indeed, sec. 207
itse1! 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 therefor.
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 therefor ·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 w,ould 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 w'arrant 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
off.ence.
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
SUPREME COURT REPORTS
[1970] 3 S.C.R.
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 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' Associaticn (') and
Beattie v. Beattie(")]. If under a contract, a promisee 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 Thairlwa/l v.
The Great Northern Railway Co.(3 )
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
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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
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the posting is equivalent to payment.
Further the stock certificates had upon the back of them a clause that dividend would be
payable by wan:ant 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
(I) [1915J I, Ch. 881.
(3) [1910] 2, K.B. 509.
(2) [1938J Ch. 708.
(4) 3 Times L. R. 182.
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793
terms and conditions on which the stock was issued shall be stated
on the certificate thereof. In the six m0nthly 1eport of accounts
issued by the directors to the stock-holders there was a statement
that ili~ 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 withm 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 Qf a
general meeting. The stockholders of the company at their general meeting had declared the amount of dividend as proposeJ by
the directors but had passed no resoiution 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 shollld be
paid on a certain day and in the manner 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.
Con&~quently, 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.
F
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
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dividend warrant is posted at the registered address of the shareholder that wollld 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 irrthe manner laid
H
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 share·
holders to be paid in the manner so laid down. When, therefore,
LIOSupCI(NP)7C-6
;94
SUPREME COURT REPORTS
[1970) 3 S.C.R.
the company posts the dividend warrant at the registered address
of a shareholder, that being done at the shareholder's request,
th.~ post otnce becomes the agent of the shareholder, and the loss
of a dividend warrant during transit thereafter is the lisk 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 terdtory,
held that if by an agreement,, express or implied, between the
creditor and the debtor, or by a requeat, 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 cht-..que 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 wllere 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 warra11t within 42
days. The venue of the offence, therefor.~. 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 sec. 207 and made failure to pay
or post a dividend warrant within 42 davs from the declaraiion
of the dividend an offence.
·
This view is also in acx:ord with the principle laid down by
Maule J. in Rt!gina v. James Milner(') that the felony of not
surrendering at a district court to a fiat in bankruptcy, under Stat.
5 and 6 Viet. c. 122, s. 32 is committed at the place where the
district court is situate; and an indictment for the offence cannot
be sustaiined 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 Prakash Nanle.v(') that it is
the court within the local limits of whose jurisdiction the accused
is liable to render accomtts and fails to do so bv reason of having
committed a breach of trust alleged against him that has the
jurisdiction.
co (1966) 59 I.T.R. ns.
(2) 175 E.R. 128.
(3) 29 C.W.N. 432.
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The offenef under s. 207 is the failure to pay dividend or
to post a cheque or a warrant Jor 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 all<JWed.