1995 (12) TMI 288 - HC - Companies Law

Summary

Issues Involved:
1. Criminal liability under Section 63(1) of the Companies Act, 1956 for misstatements in the prospectus.
2. Relief under Section 633(2) of the Companies Act, 1956 from liability for the directors of the company.
3. Jurisdiction of the High Court to entertain the petitions.

Issue-Wise Detailed Analysis:

1. Criminal Liability under Section 63(1) of the Companies Act, 1956:
The petitioners were prosecuted under Section 63(1) of the Companies Act, 1956, for allegedly making untrue statements in the prospectus issued by the company. The specific statements in question were that Progressive Constructions Ltd. (PCL) had a proven track record in the construction industry for two and a half decades and that the company was expected to commence commercial production in November 1990. The petitioners argued that PCL's experience was derived from its promoters who had been involved in the construction business through a partnership firm since 1966. The delay in commencing production was due to unforeseen circumstances, such as delays in shipping machinery from Japan and the reluctance of Japanese engineers to travel due to the Gulf War.

2. Relief under Section 633(2) of the Companies Act, 1956:
The petitioners sought relief under Section 633(2) of the Companies Act, 1956, which allows the court to relieve officers of a company from liability if they acted honestly and reasonably. The court noted that the petitioners had acted without any mala fide intention and had taken reasonable care in issuing the prospectus. The court found that the statements in the prospectus were not made with the intention to mislead the public and that the delays in production were due to circumstances beyond the petitioners' control. The court cited previous judgments, such as East India Hotels Ltd. and Ashok Bhatia v. Registrar of Companies, to support the argument that directors could be relieved from liability if they acted honestly and reasonably.

3. Jurisdiction of the High Court:
The respondent argued that the High Court did not have jurisdiction to entertain the petition under Section 633(2) once the prosecution had been launched. However, the court held that the petitioners had a legitimate apprehension of prosecution when they filed the petition, and the subsequent launching of prosecution did not invalidate their right to seek relief under Section 633(2). The court also addressed the procedural aspect, noting that the Chief Justice had directed the criminal petition to be heard along with the company petition, thus consolidating the matters for judicial efficiency.

Conclusion:
The High Court allowed both the company petition and the criminal petition, quashing the proceedings in C.C. No. 16 of 1993 on the file of the Special Judge for Economic Offences, City Criminal Courts, Hyderabad. The court found that the petitioners had not made any untrue statements with a mala fide intention and had acted honestly and reasonably, thereby entitling them to relief under Section 633(2) of the Companies Act, 1956.