1997 (1) TMI 440 - HC - Companies Law

Summary

Issues Involved:
1. Validity of the petitioner's summoning as an accused under Section 372 of the Companies Act, 1956.
2. Applicability of amended Section 372 to the investments made by the DIL in its subsidiary in Nepal.
3. Abuse of the process of the Court by continuing criminal proceedings against the petitioner.
4. Limitation under Section 468 of the Code of Criminal Procedure.

Detailed Analysis:

1. Validity of the Petitioner's Summoning as an Accused:
The petitioner challenged the order dated 17-11-1995, where the learned trial Magistrate rejected the petitioner's application against his summoning as an accused under Section 372 of the Companies Act, 1956. The petitioner argued that the investments in the subsidiary company in Nepal were made before the amendment of Section 372, which came into effect on 17-4-1989. Therefore, the act was not an offence under the unamended provisions of Section 372.

2. Applicability of Amended Section 372:
The relevant facts reveal that Dalmia Industries Ltd. (DIL) set up a subsidiary in Nepal with the requisite approval of the Central Government under Section 27(3) of the Foreign Exchange Regulation Act, 1973 (FERA). The investments were made before the amendment of Section 372, which came into force on 17-4-1989. The amended Section 372(14) withdrew the exemption for making investments by the holding company in its subsidiary. The Court noted that the act of investment made by a holding company in its subsidiary, which was not an offence under Section 374 prior to the amendment, was made an offence by and under the Amendment Act of 1988 with effect from 17-4-1989. The Court emphasized that a penal provision imposing penalty or punishment should be subjected to strict construction and should not have retrospective effect.

3. Abuse of the Process of the Court:
The petitioner contended that the pendency and continuance of the criminal proceedings amounted to gross abuse of the process of the Court. The Court observed that the balance-sheet ending 31-3-1988 was duly submitted to the complainant, making him aware of the investment in the Nepal Company. The complaint filed did not mention this fact, which clearly made the amended provisions of Section 372(4) inapplicable. The Court found that the complaint was filed with unsatisfactory and negligent drafting, which attracted disapproval. The Court held that the order of taking cognizance by the Magistrate and the impugned order refusing to cancel that order were bad in law and facts, amounting to abuse of the process of the Court.

4. Limitation under Section 468 of the Code of Criminal Procedure:
The petitioner also prayed for the cancellation of the proceedings on the ground of limitation under Section 468 of the Code of Criminal Procedure. The Court noted that the discretion vested in the Magistrate by Section 473 to condone the delay was not exercised. However, the Court did not express any opinion on this objection.

Conclusion:
The petition was allowed, and the orders passed by the learned Magistrate on 20-1-1994 and 17-11-1995 were set aside. The complaint was dismissed, and the proceedings in the case were cancelled and dropped accordingly.