2006 (6) TMI 214 - HC - Companies Law

Issues Involved:
1. Relief from prosecution under section 633(2) of the Companies Act, 1956.
2. Alleged violations under sections 63, 68, and 628 of the Companies Act, 1956.
3. Delay in project implementation and non-declaration of dividends.
4. Petitioner's role and liability as a Non-Executive Independent Director.
5. Barred by limitation due to the delay in issuing the show-cause notice.

Issue-wise Detailed Analysis:

1. Relief from prosecution under section 633(2) of the Companies Act, 1956:
The petitioner sought relief from prosecution under section 633(2) of the Companies Act, 1956, for alleged violations under sections 63, 68, and 628. The petitioner argued that he acted honestly and reasonably as a Non-Executive Independent Director and had no control over the day-to-day operations of the company. However, the court found that the petitioner failed to provide sufficient evidence and material to substantiate his claims and to prove that the statements in the prospectus were not false, deceptive, or misleading.

2. Alleged violations under sections 63, 68, and 628 of the Companies Act, 1956:
The company issued a prospectus declaring specific dates for trial production, commercial production, and dividend declaration, which were not adhered to. The petitioner, as a signatory to the prospectus, was held responsible for these declarations. The court noted that the company failed to commence trial production and commercial production as per the declared schedule and did not declare any dividends until the date of inspection. The court found that the petitioner, being a signatory to the prospectus, could not be relieved of his obligations and liabilities, even though he resigned from the directorship.

3. Delay in project implementation and non-declaration of dividends:
The petitioner explained that unforeseen circumstances caused inevitable delays in project implementation and that market conditions underwent drastic changes, affecting profitability and dividend declaration. However, the court found the explanations vague and unsupported by any relevant material. The court emphasized that the petitioner did not provide a detailed explanation or evidence to substantiate the reasons for the delays and non-declaration of dividends.

4. Petitioner's role and liability as a Non-Executive Independent Director:
The petitioner argued that he was a Non-Executive Independent Director and had no control over the company's affairs. The court, however, held that being a signatory to the prospectus, the petitioner had equal responsibility and obligation to comply with the terms of the prospectus. The court rejected the petitioner's claim that he could be excused from liability due to his non-executive role, stating that all directors, including non-executive ones, are equally responsible for the declarations made in the prospectus.

5. Barred by limitation due to the delay in issuing the show-cause notice:
The petitioner contended that the show-cause notice was issued 19 years after the prospectus, and thus, the prosecution was barred by limitation. The court, however, rejected this argument, stating that the delay in initiating action was justified as the facts came to light during the inspection conducted under section 237 of the Act. The court held that the petitioner had ample opportunity to produce evidence and prove his innocence before the Economic Offences Court.

Conclusion:
The court dismissed the company petitions, holding that the petitioner failed to provide sufficient evidence to justify relief under section 633(2) of the Companies Act, 1956. The petitioner was advised to adduce necessary evidence before the court where the prosecution, if launched, would take place to prove his innocence. The court emphasized that the petitioner, being a signatory to the prospectus, could not be relieved of his obligations and liabilities, despite his resignation and non-executive role.

← Previous Next →