2004 (12) TMI 399 - HC - Companies Law

Summary

Issues Involved:
1. Liability of Ex-Directors/Directors for alleged false statements in the prospectus.
2. Applicability of penal action under sections 63, 68, and 628 of the Companies Act, 1956.
3. Consideration of delay and latches in issuing the notices.
4. Determination of whether the company was a vanishing company.
5. Evaluation of the Registrar of Companies' handling of the applicants' submissions.

Issue-wise Detailed Analysis:

1. Liability of Ex-Directors/Directors for Alleged False Statements in the Prospectus:
The applicants, Ex-Directors/Directors of Bahuma Polytex Ltd., sought a declaration from the Court to be excused from liability arising from notices issued by the Registrar of Companies alleging false, deceptive, and misleading statements in the prospectus dated 8-5-1992. The applicants contended that the project was fully implemented as stated, supported by a Project Completion Certificate from IFCI, and that sales projections were achieved or exceeded.

2. Applicability of Penal Action under Sections 63, 68, and 628 of the Companies Act, 1956:
The Registrar of Companies issued notices alleging breaches under sections 63, 68, and 628 of the Act, which pertain to misstatements in the prospectus, fraudulent inducement to invest, and false statements, respectively. The applicants argued that the statements in the prospectus were made in good faith and based on prevailing facts. They also highlighted that the company had indeed implemented the project and achieved sales targets.

3. Consideration of Delay and Latches in Issuing the Notices:
The Court noted that the prospectus was issued on 8-5-1992, and the notices were issued on 21-6-2002, a delay of over ten years. Despite the argument that the law of limitation might not apply, the Court considered the delay significant and found it unjustifiable to take cognizance of alleged defaults after such a long period.

4. Determination of Whether the Company was a Vanishing Company:
The applicants demonstrated that Bahuma Polytex Ltd. did not meet the criteria for a vanishing company, which includes non-compliance with legal requirements for two years, lack of correspondence with the Stock Exchange, and unavailability at the registered office. The Court found that the company was not a vanishing company and that the action against the applicants was based on a mistaken identity.

5. Evaluation of the Registrar of Companies' Handling of the Applicants' Submissions:
The Court observed that the Registrar of Companies did not adequately consider the detailed submissions made by the applicants. The communication dated 4-2-2003 was found to be mechanical and lacking in consideration of the applicants' explanations. The Court also noted that the Registrar failed to address the applicants' claims that they had ceased to be directors and had no control over the company's affairs during the relevant period.

Conclusion:
The Court allowed the applications, quashing the impugned notices and excusing the applicants from liability. The Court concluded that the applicants acted bona fide, and there was no deliberate intention to defraud the public. The delay in issuing the notices, the mistaken identity of the company as a vanishing company, and the inadequate consideration of the applicants' submissions by the Registrar of Companies were key factors in the judgment.