1997 (2) TMI 429 - HC - Companies Law

Prospectus - Registration of, Accounts Annual accounts and balance sheet, Board s report, Loans to companies under same management

Issues Involved:
1. Exceeding power vested in directors under Section 291 of the Companies Act.
2. Failure to hold the annual general meeting and present balance-sheet and profit and loss account under Sections 166 and 210 of the Companies Act.
3. Granting loans in contravention of Section 370(1) and Rule 11B of the Companies (Central Government's) General Rules and Forms.
4. Non-compliance with Sections 56 and 60 of the Companies Act regarding private placement of shares.
5. Non-compliance with Section 217(2A) of the Companies Act regarding particulars of employees.

Detailed Analysis:

1. Exceeding Power Vested in Directors under Section 291 of the Companies Act:
The company was alleged to have conducted business beyond its authorized scope by dealing in shares, debentures, and securities without proper authorization in its memorandum of association. The petitioners argued that the business activities were within the limits of the memorandum. However, the court noted that the company had filed a petition to alter the objects clause, indicating the need for such an amendment. The court found that the allegations were not baseless and required trial to determine the petitioners' involvement. The decision in Ravindra Narayan v. Registrar of Companies was cited, but the court concluded that the directors' involvement needed to be established through trial.

2. Failure to Hold the Annual General Meeting and Present Balance-Sheet and Profit and Loss Account:
The company failed to hold the annual general meeting by the extended deadline and did not present its balance-sheet and profit and loss account. The petitioners argued that the meeting could not be held due to the appointment of a custodian and seizure of records. The court referred to Assistant Registrar of Companies v. Mati Begum Safaran Khatoon, holding that directors cannot avoid liability by not calling the meeting. The court determined that whether the failure was willful or due to sufficient cause was a matter for the trial court to decide.

3. Granting Loans in Contravention of Section 370(1) and Rule 11B:
The company was alleged to have granted loans exceeding the permissible limits. The petitioners argued that specific pleadings were absent in the complaint. However, the court found that the complaint contained sufficient details and prima facie evidence of continuous violations. The court rejected the petitioners' contention and held that the matter required trial to determine the directors' knowledge and involvement.

4. Non-Compliance with Sections 56 and 60 Regarding Private Placement of Shares:
The company was accused of issuing shares without complying with the provisions of Sections 56 and 60. The petitioners argued that the shares were issued privately to friends, relatives, and business associates, not to the public. The court noted that the issue of whether the shares were publicly or privately placed required trial. The court emphasized that directors are responsible for the company's overall policy and affairs, and neglecting to check fraudulent activities is an offence.

5. Non-Compliance with Section 217(2A) Regarding Particulars of Employees:
The company was alleged to have furnished the particulars of employees in a detachable annexure to the balance-sheet, contrary to Section 217(2A). The court found that the balance-sheet was produced, and the particulars were furnished, albeit in a detachable annexure. The court held that this technical non-compliance did not constitute an offence. The court quashed the proceedings in C.C. No. 678 of 1993, as the allegations did not disclose any offence.

Order:
(a) Criminal Petitions Nos. 1151 of 1993 and 1464 of 1993 are allowed, and the entire proceedings in C.C. No. 678 of 1993 are quashed.
(b) Criminal Petitions Nos. 551 of 1993, 552 of 1993, 595 of 1993 to 598 of 1993, 607 of 1993, 608 of 1993, 626 of 1993, 646 of 1993, 662 of 1993, 663 of 1993, and 1064 of 1993 are dismissed.

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