I.B. Rao vs Registrar Of Companies on 6 June, 2006

JUDGMENT

B. Seshasayana Reddy, J.

1. In these three criminal petitions, the petitioner is one and the same and the issue involved is also one and the same. Therefore, they were heard together and are being disposed of by this common judgment.

2. The petitioner is A1 in C.C. Nos. 297, 298 and 299 of 2002, on the file of the Special Judge for Economic Offences, Hyderabad.

3. The facts of the case, in brief, are:

M/s. Royce Marine Products Ltd., is a company registered under the Companies Act, 1956.I.B. Rao (petitioner in these petitions), Y. Ratnagiri Rao, D. Nageswara Prasad and P.V. Rao are directors/officers of M/s. Royce Marine Products Ltd. The company came out with a public issue of 59,50,000 equity shares of Rs. 10 each for cash at par aggregating to the tune of Rs. 5,95,00,000 by issuing a prospectus dated 26-7-1994. The said prospectus was registered in the office of the Registrar of Companies (complainant) on 4-8-1994. It was stated in the prospectus that the company was proposing to acquire one more 30 metre Tuna Longliner-cum-Stern Trawler at a cost of Rs. 495 lakhs (US $ 15,59,000 approx.) with fishhold capacity of 7,200 cubic feet from Sea Tech International, Inc., U.S.A. having experience in fishing vessel operations and the vessel would be delivered initially with sufficient quantity of spares and the delivery of the vessel was expected in October, 1994, and the company would commence its commercial operations by November 1994, as per the schedule of implementation of project as given in the prospectus. The public issue opened for subscription on 31 -8-1994, and closed on 5-9-1994, and was subscribed about 1.2 times. It is alleged that the company has not acquired the Tuna Longliner-cum-Stern Trawler from M/s. Sea Tech International, Inc., U.S.A. as promised in the prospectus and thereby contravened the requirement under Section 628 of the Companies Act. A show-cause notice dated 12-6-2002, came to be issued to the company and its directors including the petitioner. D.N. Prasad (A3), on behalf of the company, issued a reply on 26-6-2002, stating that there was no deliberate intention on their part to contravene the requirement under Section 628 of the Companies Act.

4. Three separate complaints came to be presented by the Registrar of Companies for the offences under Sections 68, 63(1) and 628 of the Companies Act. The learned special judge for economic offences took the complaints on file as C.C. Nos. 297,298 and 299 and issued process. Hence, these three criminal petitions.

5. Heard learned Counsel for the petitioner and learned standing counsel, for the Registrar of Companies – first respondent.

6. Learned Counsel appearing for the petitioner submits that prosecution of the petitioner for the offences under Sections 63, 68 and 628 of the Act is barred by limitation since criminal proceedings have been initiated against the petitioner after lapse of nearly eight years of the issuance of the prospectus. A further submission has been made by him that the petitioner is the ordinary director and not promoter of the company and therefore he is not liable for any lapses on the part of the managing partner of the company who is looking after its affairs. During the course of arguments, he refers to Sections 63,68,628,210,220 and 234 of the Companies Act and relies on the following decisions in support of his submissions:

(1) Hafez Rustom Dalai v. Registrar of Companies [2005] 128 Comp. Cas. 883 : 59 SCL 265 (Guj.);

(2) ITC Agro-Tech Ltd v. Registrar of Companies [1996] 86 Comp. Cas. 170 : 7 SCL 178 (AP);

(3) Kreba Biochemicals Ltd v. Registrar of Companies [2003] 116 Comp. Cas. 43 : [2002] 39 SCL 190 (AP);

(4) Asstt. Registrar of Companies v. H.C. Kothari [1992] 75 Comp. Cas. 688 (Mad.);

(5) Progressive Aluminium Ltd v. Registrar of Companies [1997] 89 Comp. Cas. 147 : 14 SCL 177 (AP).

7. In the first cited decision, the Gujarat High Court held that even if the view is taken that the law of limitation is not applicable to the proposed action the same is clearly barred by delay and laches and the court would be reluctant to take cognizance of alleged defaults after the expiry of period of more than ten years.

8. In the second cited decision, our High Court observed that the Registrar being an authority enjoined under the Companies Act to see that the provisions of the Act are properly followed by the companies, was expected to scrutinise the accounts filed before him, with the assistance of his competent officers, and find out the irregularities committed by the petitioner-company, at least from the date of filing of the balance sheets. At least from the date of receipt of the reply to the notice, the knowledge of the commission of offence could be presumed, if not from the date of notice. Knowledge is an inferential fact from the facts established.

9. In the third cited decision, our High Court observed that once limitation begins to run it cannot be stopped. Paragraph 13 of the judgment needs to be noted and it is thus:

13. Sub-section (2)(a) of Section 468 makes if the offence is punishable with fine only, the period of limitation is six months. In the present case, the offence under Section 205A(8) of the Act is punishable with fine only. The complaint has to be filed within six months. The inspection of the company took place on 29-9-1997. The first respondent-complainant has filed the complaint on 15-4-1998. It is beyond the six months period. When once the limitation begins to run it cannot be stopped. Hence, I am of the considered opinion that the complaint is filed beyond the period of limitation. I see considerable force in the contention of learned Counsel for the petitioners that the proceedings have to be quashed. Hence, by virtue of the inherent powers vested in this Court, I quash the proceedings against the petitioners in STC No. 61 of 1998 on the file of Special Judge for Economic Offences, Andhra Pradesh, Hyderabad, as the averments made in the complaint do not constitute an offence under Section 205A(8) of the Act and it is barred by limitation.

10. In the fourth cited decision, the Madras High Court held that limitation for filing complaint runs from the date of receipt of the balance-sheet by the Registrar of Companies.

11. In the fifth cited decision, our High Court held that no mala fide intention to defraud can be attributed in respect of statement in prospectus when delay caused by events beyond the control of promoters.

12. Learned standing counsel appearing for the first respondent the Registrar of Companies submits that the prospectus contains a statement with regard to the acquisition of 30 metre Tuna Longliner-cum-Stern Trawler at a cost of Rs. 495 lakhs and admittedly the said machinery has not been acquired and thus the statement appearing in the prospectus can be characterised as untrue statement in which case every person who is authorised to issue prospectus shall be punishable under the provisions of the Companies Act, 1956. In support of his submissions, reliance has been placed on the following decisions:

(1) State of Haryana v. Ch. Bhajan Lal ;

(2) State of A.P. v. Golconda Linga Swamy [2004] 6 SCC 522;

(3) Rank Industries Ltd. v. Registrar of Companies [2007] 135 Comp. Cas. 601 (AP);

(4) Dantuluri Ranga Devi v. Registrar of Companies [2007] 135 Comp. Cas. 599 (AP);

(5) Midwest India Industries Ltd. v. State of A.P. [2007] 135 Comp. Cas. 597;

(6) Thummala Pradeep Reddy v. Registrar of Companies [2007] 135 Comp. Cas. 586 : 75 SCL 447 (AP).

13. In the first cited decision, the Supreme Court has issued certain guidelines with regard to quashing of FIR, Paragraph 108 of the judgment needs to be noted and it is thus:

In the backdrop of the interpretation of the various relevant provisions of the Code under Chapter XIV and of the principles of law enunciated by this Court in a series of decisions relating to the exercise of the extraordinary power under article 226 or the inherent powers under Section 482 of the Code which we have extracted and reproduced above, we give the following categories of cases by way of illustration wherein such power could be exercised either to prevent abuse of the process of any court or otherwise to secure the ends of justice, though it may not be possible to lay down any precise, clearly defined and sufficiently channelised and inflexible guidelines or rigid formulae and to give an exhaustive list of myriad kinds of cases wherein such power should be exercised.

(1) Where the allegations made in the first information report or the complaint, even if they are taken at their face value and accepted in their entirety do not prima facie constitute any offence or make out a case against the accused.

(2) Where the allegations in the first information report and other materials, if any, accompanying the FIR do not disclose a cognizable offence, justifying an investigation by police officers under Section 156(1) of the Code except under an order of a Magistrate within the purview of Section 155(2) of the Code.

(3) Where the uncontroverted allegations made in the FIR or complaint and the evidence collected in support of the same do not disclose the commission of any offence and make out a case against the accused.

(4) Where, the allegations in the FIR do not constitute a cognizable offence but constitute only a non-cognizable offence, no investigation is permitted by a police officer without an order of a Magistrate as contemplated under Section 155(2) of the Code.

(5) Where the allegations made in the FIR or complaint are so absurd and inherently improbable on the basis of which no prudent person can ever reach a just conclusion that there is sufficient ground for proceeding against the accused.

(6) Where there is an express legal bar engrafted in any of the provisions of the Code or the concerned Act (under which a criminal proceeding is instituted) to the institution and continuance of the proceedings and/or where there is a specific provision in the Code of the concerned Act, providing efficacious redress for the grievance of the aggrieved party.

(7) Where a criminal proceeding is manifestly attended with mala fide and/or where the proceeding is maliciously instituted with an ulterior motive for wreaking vengeance on the accused and with a view to spite him due to private and personal grudge.

14. The offences alleged against the petitioner are under Sections 63, 68 and 628 of the Companies Act (‘the Act’). Under Section 63, a criminal liability is fastened for mis-statements in prospectus. Under Section 68, any person who either by knowingly or recklessly making any statement, promise or forecast which is false, deceptive or misleading, or by any dishonest concealment of material facts, induces or attempts to induce another person to enter into, or to offer to enter into any agreement for, or with a view to acquiring, disposing of, subscribing for, or underwriting shares or debentures, or any agreement the purpose or pretended purpose of which is to be secure a profit to any of the parties from the yield of shares or debentures, or by reference to fluctuations in the value of shares or debentures, shall be punishable with imprisonment for a term which may extend to five years, or with fine which may extend to ten thousand rupees, or with both. Under Section 628 any person makes a statement, which is false in any material particular, knowing it to be false; or which omits any material fact, knowing it to be material, shall, save as otherwise expressly provided the Act, be punishable with imprisonment for a term which may extend to two years, and shall also be liable to fine.

15. The learned standing counsel appearing for the first respondent submits that the first respondent-complainant came to know of the offences through the Regional Director’s letter dated 20-5-2002, and therefore prosecution of the petitioner for the offences alleged are not barred by limitation. He refers to paragraph 9 of the complaints. It would be suffice paragraph 9 of the complaint in C.C. No. 299 of 2002, is extracted and it is thus:

9. That the subject offence is well within time and is not barred by limitation as the complainant has come to knowledge about the offence through the Regional Director’s letter No. 2/AP.5955/1989, dated 20-5-2002, which was received in this office on 29-5-2002. Hence, the knowledge of offence starts from 29-5-2002.

16. Undisputedly, a show-cause notice came to be issued to the company as well as its directors including the petitioner herein on 12-6-2002.

17. Learned Counsel appearing for the petitioner strenuously contends that the respondent-complainant had knowledge even much prior to 29-5-2002, since copies of the balance sheet were submitted to the Registrar of Companies every year.

18. Per contra, learned standing counsel appearing for the respondents submits that the company did not submit balance-sheet and the complainant came to know of the company not acquiring one more 30 metre Tuna Longliner-cum-Stern Trawler when the letter has emanated from the regional director in the year 2002 through letter No. 2/AP.5955/1989, dated 20-5-2002, which was received in the office of the first respondent of 29-5-2002.

19. This is a disputed question of fact, which is to be adjudicated upon on full trial.

20. Section 482 of the Criminal Procedure Code does not confer any new powers on the High Court. It only saves the inherent power, which the court possessed before the enactment of the Code. It envisages three circumstances under which the inherent jurisdiction may be exercised, namely, (i) to give effect to an order under the Code, (ii) to prevent abuse of the process of court, and (Hi) to otherwise secure the ends of justice.

21. In R.P. Kapur v. State of Punjab, this Court summarised some categories of cases where inherent power can and should be exercised to quash the proceedings, (i) where it manifestly appears that there is a legal bar against the institution or continuance, e.g., want of sanction; (ii) where the allegations in the first information report or complaint taken at its face value and accepted in their entirety do not constitute the offence alleged; (Hi) where the allegation constitute an offence, but there is no legal evidence adduced or the evidence adduced clearly or manifestly fails to prove the charge.

22. The scope of exercise of power under Section 482 of the Code and the categories of cases where the High Court may continue exercise its power under it relating to cognizable offences to prevent abuse of process of any court or otherwise to secure the ends of justice were set out in some detail by the Supreme Court in Ch. Bhajan Lal’s case (supra). A note of caution was, however, added that the power should be exercised sparingly and that too in the rarest of rare cases.

23. The power possessed by the High Court under Section 482 of the Code are very wide and the very plenitude of the power requires great caution in its exercise. The court must be careful to see that its decision in exercise of this power is based on sound principles. The inherent power should not be exercised to stifle a legitimate prosecution. The High Court being the highest court of a State should normally refrain from giving a prima facie decision in a case where the entire facts are incomplete and hazy, more so when the evidence has not been collected and produced before the court and the issues involved, whether factual or legal, are of magnitude and cannot be seen in their true perspective without sufficient material. Of course, no hard and fast rule can be laid down in regard to case in which the High Court will exercise its extraordinary jurisdiction of quashing the proceeding at any stage.

24. Keeping in view the principles of law as enunciated above, with regard to quashing of complaint in exercise of powers under Section 482, Criminal Procedure Code, I proceed to consider the various contentions raised by the parties.

25. The principal contention of the petitioner is that the complaints are barred by limitation. In a way he would submit that the offences under Sections 63 and 628 of the Companies Act, 1956, are punishable with imprisonment for a term which may extend to two years and thus the complaints ought to have been filed within three years and since the complaints as such are filed after eight years of the offences, the same are barred by limitation under Section 468 of the Criminal Procedure Code. The submission appears to be sound on the first blush, but on close scrutiny of the averments of the complaint, I do not detain myself long to reject the same. It is specifically averred in the complaints that the complainant came to know of the mis-statements with regard to the acquisition of one more 30 metre Tuna Longliner-cum-Stern Trawler on receipt of letter from the regional director in the year 2002 vide letter No. 2/AP.5955/1989, dated 20-5-2002. Under Section 469(1)(6) of the Criminal Procedure Code, the period of limitation would commence from the date on which such offence first came to the knowledge of a person aggrieved by the offences or any police officer, whichever is earlier. It is averred in the complaint that the complainant came to know of the commission of the offences on 29-5-2002. The complaint came to be filed on 29-7-2002. It cannot be said that the complaints are barred by limitation.

26. It is nextly submitted that the petitioner is not the managing director and therefore he cannot be termed as officer in default within the meaning of Section 5 and thus the prosecution initiated against him for the offences under Sections 63,68 and 628 of the Act so far as he is concerned is liable to be quashed. He refers to Section 5 of the Act in support of his submission. Section 5 of the Act deals with the meaning officer who is in default. The definition is an inclusive once, which reads as under:

5. For the purpose of any provision of this Act which enacts that an officer of the company who is in default shall be liable to any punishment or penalty, whether by way of imprisonment, fine or otherwise, the expression ‘officer who is in default’ means all the following officers of the company, namely:

(a) the managing director or managing directors;

(b) the whole-time director or whole-time directors;

(c) the manager;

(d) the secretary;

(e) any person in accordance with whose directions or instructions the board of directors of the company is accustomed to act;

(f) any person charged by the board with the responsibility of complying with that provisions:

Provided that the person so charged has given his consent in this behalf to the board;

(g) where any company does not have any of the officers specified in Clauses (a) to (c), any director or directors who may be specified by the board in this behalf or where no director is so specified, all the directors:

Provided that where the board exercises any power under Clause (f) or Clause (g), it shall within thirty days of the exercise of such powers, file with the Registrar a return in the prescribed form.

27. As seen from the averments of the complaints, a show-cause notice has been issued to all the directors. A reply came to be issued to the show-cause notice by D.N. Prasad, who has been arrayed as A3, not only on his behalf but also on behalf of the petitioner and other directors. There seems to be no stand taken by the petitioner in the reply that he is not the officer in default as enumerated in Section 5 of the Act. A specific averment has been made by the complainant in the complaints that all the directors are responsible for the mis-statements made in the prospectus which induced the public to subscribe equity shares of the company. In that view of the matter, I do not see any merit in the contention of learned Counsel for the petitioner.

28. In view of the above discussions, I find that there is no abuse or misuse of the process of law in launching the prosecution against the petitioner herein. Accordingly, these criminal petitions are dismissed.