2012 (3) TMI 202 - HC - Companies Law

Criminal liability for misstatements in prospectus and Penalty For False Statements - the directors of the company did not utilize the funds from the public issue for the purpose mentioned in the prospectus - funds for leased assets and the purchase of office space have not been used but have been diverted to investments for their own purposes - the company shifted registered office to another leased premises with no intimation to RBI, DSE and Income Tax Office - petitioners contented that office could not be purchased because the deal failed due to volatility in the property market - petitioners have resigned from the directorship of the company before filling of the complaint and hence no liability on them - complaint lodged by the ROC is barred by time and is filed after the expiry of the limitation period - Held that - period of limitation in such offences will begin not from the date of filling of prospectus,but from the date of filling the balance sheet on which the complaint has been based,i.e prescribed limitation period of three years - whether the directors have resigned or not is a question of fact which cannot be gone into by this court and only the trial court, during trial can decide this issue - the onus of notifying the various agencies about the change of address lied on the petitioners which they have not been able to discharge petitioners cannot shift their liability arising out of their own inaction by stating that there was lack of communication - No illegality in order and petition is dismissed.

Issues Involved:
1. Quashing of the complaint under sections 63 and 628 of the Companies Act, 1956.
2. Allegation of misuse of public issue funds.
3. Limitation period for filing the complaint.
4. Resignation of directors and their liability.
5. Notification of change of address.
6. High Court's power to quash the complaint and summoning order.

Issue-wise Detailed Analysis:

1. Quashing of the complaint under sections 63 and 628 of the Companies Act, 1956:
The petitioners sought to quash the complaint lodged by the respondents under sections 63 and 628 of the Companies Act, 1956, which was pending in the Court of Metropolitan Magistrate, Delhi. The complaint alleged that the directors made false statements in the prospectus by not disclosing the true purpose of the funds raised from the public issue.

2. Allegation of misuse of public issue funds:
The complaint alleged that the directors did not use the funds from the public issue for the purposes mentioned in the prospectus. Instead, the funds were diverted to investments for their own purposes, which constituted making false statements in the prospectus.

3. Limitation period for filing the complaint:
The petitioners contended that the complaint was barred by time, as it was filed beyond the limitation period of three years under section 468(2) Cr.P.C. The prospectus was issued on 10.09.1996, and the complaint was filed on 13.11.2002. However, the court held that the limitation period begins from the date of knowledge of the breach, not from the date of the prospectus issuance. The court cited previous judgments, including Ajay Jain v. Registrar of Companies and Manjit Jaju v. Registrar of Companies, which affirmed that the limitation starts from the date of filing the balance sheet. Since the Registrar of Companies learned about the false statements after the filing of the balance sheet for the year 1999-2000, the complaint filed in 2002 was within the limitation period.

4. Resignation of directors and their liability:
The petitioners argued that they had resigned from the directorship before the filing of the complaint and hence could not be held liable. The court dismissed this contention, stating that whether the petitioners had resigned or not is a question of fact to be decided by the trial court during the trial.

5. Notification of change of address:
The petitioners claimed that they had notified all relevant authorities, including RBI, DSE, and Income Tax Office, about the change of address. However, the court found no merit in this argument, noting that the only correspondence regarding the change of address was made to the Registrar of Companies. The court held that the petitioners failed to discharge their onus of notifying all relevant agencies.

6. High Court's power to quash the complaint and summoning order:
The court emphasized that it would not be proper for the High Court to analyze the case to determine whether a conviction would be sustainable. The complaint must be read as a whole, and if it discloses the ingredients of the offense and is not mala fide, frivolous, or vexatious, there would be no justification for interference by the High Court. The court cited the Supreme Court's decision in Zandu Pharmaceutical Works Ltd. v. Mohd. Sharaful Haque, which held that the High Court should not ordinarily embark upon an inquiry into the reliability of the evidence.

Conclusion:
The court found no illegality in the impugned order of the trial court and dismissed the petition, stating that a prima facie case had been made out against the petitioners, and there was no reason to interfere with the order of the Metropolitan Magistrate.

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