2009 (12) TMI 506 - HC - Companies Law

Whether the allegations made in the complaint prima facie make out offences under sections 63, 68 and 628 of the Companies Act? Whether any of the complaints is barred by limitation in view of section 468 of the Code of Criminal Procedure, 1973? Held that - As the basic requirements of sections 63, 68 and 628 of the Companies Act are not made out by the first respondent/complainant in all these cases. When there is no prima facie case made out by the first respondent/complainant and when two of three cases are barred by limitation, this court will certainly quash the proceedings in all the three cases pending in the lower court. Also it is pertinent to note that A10 company cannot be termed as vanishing company . Even before going for public issue, the business was being run in partnership and the manufacturing was closed by March 31, 1998, after about 8 years. This is not a company which did not start its business or manufacture after collecting share value from the shareholders after going for public issue.

Summary

Issues:
Quashing of proceedings under sections 63, 68, and 628 of the Companies Act, 1956 based on misstatements and false promises in the prospectus and letter of offer; Applicability of sections 63, 68, and 628 of the Companies Act to the facts of the case; Limitation under section 468 of the Code of Criminal Procedure, 1973 for prosecuting the accused for offences under sections 63 and 628 of the Companies Act.

Analysis:
The petitions sought to quash proceedings under sections 63, 68, and 628 of the Companies Act, 1956, concerning misstatements and false promises in the prospectus and letter of offer. The complaints alleged that the accused induced investment through misleading information. The accused directors of a company faced charges after its closure due to losses. The Regional Director's letter prompted the complaints, leading to the legal dispute (para. 2-3).

The petitioners argued that the penal sections were inapplicable and prosecution barred by limitation under section 468 of the Criminal Procedure Code. The respondents contended that the complaints were within the limitation period as per section 469(1)(b) of the Code. The court analyzed the scope of section 482 of the Criminal Procedure Code and the guidelines set by the Supreme Court for such cases (para. 4-6).

The court examined the offences under sections 63, 68, and 628 of the Companies Act. It determined that the complaints were time-barred under section 468, noting the commencement of the limitation period from the date of the offence or its knowledge. The court found the complaints filed belatedly, deeming them barred by limitation (para. 8).

Regarding the allegations of misstatements and false promises in the prospectus and letter of offer, the court analyzed sections 63, 68, and 628 of the Companies Act. It concluded that the complaints lacked prima facie evidence of offences, especially considering the optimistic nature of future projections. The court quashed the proceedings due to insufficient evidence and limitation issues (para. 9).

The court clarified that the accused company was not a "vanishing company" and had operated as a partnership before the public issue. The judgment allowed the petitions, quashing the proceedings against the petitioners in the lower court cases (para. 10-11).