2010 (9) TMI 888 - HC - Companies Law

False statement in the prospectus - petitioner s company while issuing prospectus made a statement to intending investors that it would undertake the business of leasing and wanted people to subscribe to the shares for this purpose. It gave projections of profits and business of the company of only in the field of leasing. One can understand that the surplus funds of the company are deployed by the company in a businesslike and wise manner but one cannot understand that the business of the company is not even undertaken and the entire funds of the company are either invested in shares or in the firms and companies of the directors Held that - Registrar of Companies learnt about making of false statement after filing of balance sheet in the year 1999-2000, therefore, limitation would start only after the date of filing of balance sheet and not from the date of issuing prospectus and this plea, therefore, is not tenable. Whether the directors had resigned or not which is a question of fact which cannot be gone into by this Court and only the trial court, during trial can decide whether the directors had resigned or they continued to be the directors, petition is dismissed

Issues:
1. Quashing of proceedings initiated under Sections 63 and 628 of the Companies Act, 1956 for making false statements in a prospectus in 1995.
2. Allegation of utilizing funds for purposes other than stated in the prospectus.
3. Claim of offense under Section 406 IPC instead of Sections 63 and 628 of the Companies Act.
4. Argument regarding the period of limitation in filing the complaint.
5. Resignation of directors and change in company management.
6. Allegations of false and misleading statements to investors in the prospectus.

Analysis:
1. The petitioner sought to quash the proceedings initiated under Sections 63 and 628 of the Companies Act, 1956, for allegedly making false statements in a prospectus issued in 1995. The complaint highlighted discrepancies between the stated business activities in the prospectus and the actual deployment of funds by the company. It was contended that the funds were diverted for purposes other than those disclosed, leading to misleading statements to investors.

2. The petitioner argued that the offense, if any, should fall under Section 406 IPC rather than Sections 63 and 628 of the Companies Act. However, the court observed that deliberately making a false statement, as in this case where the company did not intend to carry out the stated business activities, constitutes a false statement under the Companies Act. The intention was deemed to mislead investors, indicating a prima facie case of deliberately making a false statement.

3. Regarding the period of limitation for filing the complaint, the court clarified that the limitation for offenses under Sections 63 and 628 of the Companies Act starts from the date of knowledge of the false statement. As the Registrar of Companies became aware of the false statement after the filing of the balance sheet in 1999-2000, the plea based on limitation from the date of issuing the prospectus was deemed untenable.

4. The petitioner also raised the issue of director resignations and a change in company management. The court held that the determination of whether directors had resigned or continued in their roles was a factual matter to be decided during the trial. This issue was considered beyond the scope of the current petition.

5. The court concluded that the statements in the prospectus were misleading, as the company did not engage in the business activities as projected to investors. The deliberate intent to collect funds under false pretenses for personal gain was evident, leading to a dismissal of the petition. The court found no merit in the arguments presented and dismissed the petition without issuing any costs.

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