1991 (10) TMI 205 - HC - Companies Law

Issues Involved:

1. Limitation period for filing the prosecution.
2. Classification of the company as an investment company under Section 372(10) of the Companies Act, 1956.

Issue-wise Detailed Analysis:

1. Limitation Period for Filing the Prosecution:

The primary issue is whether the prosecution was barred by limitation. The offence under Section 372 read with Section 374 of the Companies Act, 1956, is punishable only with a fine, and under Section 468(2)(a) of the Criminal Procedure Code, the period of limitation is six months. According to Section 469(1)(b) of the Criminal Procedure Code, the period of limitation commences from the first day on which the offence comes to the knowledge of the person aggrieved or to any police officer, whichever is earlier.

The appellant argued that the Registrar of Companies gained knowledge of the offence only on August 28, 1984, when the inspection report by PW-1 was received. Thus, the complaint filed on February 2, 1985, was within the limitation period. Conversely, the respondents contended that the limitation period started when the balance sheets (Exhibits P-1 to P-3) were received by the Registrar of Companies on June 9, 1981, May 12, 1982, and May 30, 1983, respectively.

The court held that the Registrar of Companies is deemed to have knowledge of the contents of the balance sheets upon their receipt. Therefore, the limitation period started from the dates the balance sheets were received. The complaint, filed on February 2, 1985, was beyond the six-month limitation period for the offences related to the financial years 1980, 1981, and 1982. The court emphasized that the Registrar cannot ignore the contents of the balance sheets to circumvent the law of limitation. Consequently, the trial court's decision that the prosecution was barred by limitation was upheld.

2. Classification of the Company as an Investment Company:

The second issue was whether the company qualified as an investment company under the exemption provided in Section 372(13) of the Companies Act, 1956. The appellant contended that the company had diversified its activities beyond investments in shares, engaging in hire-purchase and leasing, and thus could not be classified as an investment company. The respondents argued that the company's principal business remained the acquisition of shares, stocks, debentures, and other securities, as evidenced by the balance sheets and the memorandum and articles of association.

The court noted that an investment company is defined as a company whose principal business is the acquisition of shares, stocks, debentures, or other securities. The court found that despite the diversification, the company's primary business continued to be the acquisition of shares and securities. The balance sheets showed significant investments in shares, and the company's memorandum and articles of association supported this classification. Additionally, the company was listed as an investment company in official directories.

Therefore, the court concluded that the company was indeed an investment company and was entitled to the exemption under Section 372(13). The trial court's decision to acquit the respondents on this ground was found to be legally and factually sustainable.

Conclusion:

The appeal was dismissed on both grounds. The court upheld the trial court's decision that the prosecution was barred by limitation and that the company qualified as an investment company entitled to the exemption under Section 372(13) of the Companies Act, 1956. The appeal against respondents Nos. 4 and 5 was dismissed as the charge had abated due to their deaths.

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