DAVID ANNOUSSAMY


This revision petition is against the conviction. A prosecution was launched by the Registrar of Companies, Tamil Nadu, for the violation of the provisions of section 295 of the Companies Act. Accused No. 1 is a private limited company. Accused Nos. 2 to 4 are the directors of the company. Accused No. 5 is the beneficiary of the loan. She happens to be the wife of accused No. 2, the managing director.


The case of the prosecution is that an advance of Rs. 5, 000 was given to accused No. 5 by the directors of the company and that the advance was recoverable from her at the rate of Rs. 200 per mensem from her salary. Since accused No. 5 is related to the second accused as a wife, provisions of section 295 of the Companies Act were violated and the accused were guilty of an offence punishable under section 295(4) of the Act. The factum of the advance was not disputed by the accused. Their contention was only that the advance cannot be construed as a loan within the meaning of section 295 and that they have not committed any offence. The trial court, placing reliance on the definition of "loan" as per Black's Law Dictionary and taking into account the four ingredients of loan as per that definition, came to the conclusion that the advance paid to accused No. 5 amounted to a loan and accordingly convicted the accused for an offence punishable under section 295(4) of the Act and sentenced them to pay a fine of Rs. 25 each by its judgment dated July 19, 1983. As against that judgment, all the accused have preferred this criminal revision petition.


The only point urged before me is that the advance given to the employee cannot be construed as a loan within the mischief of section 295 of the Act. As far as the ingredients are concerned, the salary advance and the loan are in all respects similar. Therefore, for the operation to be characterised as a loan or salary advance, it is the capacity of the person receiving the amount that will count. In this case, the beneficiary of the amount, namely, accused No. 5, happens to be the wife of a director and also an employee. For the sole reason that she is the wife of one of the directors, one cannot jump to the conclusion that an offence has been committed. If the amount was given to accused No. 5 in her capacity as the wife of the second accused, it would amount to a loan and if it was given to the fifth accused in her capacity as an employee, it would amount to a salary advance. In other words, the court will have, in such cases, to find out whether the alleged salary advance is a genuine salary advance or a loan disguised as salary advance. For that purpose, it would be necessary to consider whether the beneficiary is a bona fide employee, whether the advance falls within the general scheme of advances given by the company to other employees, whether the amount given is disproportionate to the salary of the employee, whether the conditions of repayment or the other conditions of the loan like the rate of interest are exorbitant, whether there was laxity in the recovery of the advance, etc. It is in taking into consideration all the circumstances surrounding the operation that the court can reach the correct conclusion. In this case, the prosecution has been put on notice that accused No. 5, who is the wife of the director, is also an employee and that she was given the amo

unt as salary advance. In order to establish that the amount given as salary advance is a disguised loan, no evidence whatsoever is available on any aspect disclosing that there has been a circumvention of law. In the absence of any such evidence, the case of the prosecution cannot be accepted. Hence, the revision petition is allowed and the conviction and sentence are set aside.