2011 (6) TMI 1 - HC - Companies Law

Penalty - wrong information in column 3 of Form No. 23AC - balance-sheet was signed by two of the directors only, but in Form No. 23AC, it was shown to have been signed by all the four directors Held that - ingredient of section 628 are not fulfilled, Instead of initiating the prosecution, it would have been sufficient to ask the directors to correct Form No. 23AC by deleting the names of two directors who had not signed the balance-sheet. Petition allowed

Issues Involved:
1. Validity of the proceedings initiated against the directors for alleged contravention of section 628 of the Companies Act, 1956.
2. Applicability of section 633(2) of the Companies Act, 1956, in quashing the proceedings.
3. Whether the misstatement in Form No. 23AC constitutes an offense under section 628.
4. The necessity of motive and knowledge for an offense under section 628.
5. The appropriateness of the show-cause notice issued to the directors.

Detailed Analysis:

1. Validity of the Proceedings:
The petitioners, directors of M/s. Auberge Hotels P. Ltd., filed a petition under section 633(2) of the Companies Act, 1956, to quash the proceedings initiated against them for the alleged contravention of section 628. The allegation was that wrong information was provided in column 3 of Form No. 23AC, indicating that the balance-sheet was signed by all four directors when it was signed by only two.

2. Applicability of Section 633(2):
The petitioners argued that the proceedings should be quashed as the alleged misstatement does not constitute an offense under section 633(2). They contended that section 633(2) allows the High Court to assume the power and jurisdiction of the criminal court to acquit or exonerate the accused if no offense is found.

3. Misstatement in Form No. 23AC:
The court noted that there was no allegation of any misstatement or misleading information in the balance-sheet itself. The only issue was the incorrect mention of the directors who signed the balance-sheet in Form No. 23AC. The court observed that this typographical error does not fulfill the ingredients of section 628, which requires a misleading statement in the balance-sheet itself.

4. Necessity of Motive and Knowledge:
The court emphasized that for an offense under section 628, there must be a false statement known to be false by the directors with a motive to mislead the public. The petitioners argued that the error occurred due to a misunderstanding of the form requirements and not with any intent to deceive.

5. Show-Cause Notice:
The respondent contended that the petitioners could have approached the Registrar of Companies with an explanation and that the petition was premature. However, the court found merit in the petitioners' argument that the proceedings were initiated without any specific allegation of misstatement with due knowledge.

Conclusion:
The court concluded that the proceedings initiated under section 628 were not justified as the alleged misstatement was a typographical error and did not constitute an offense. The show-cause notice and subsequent proceedings were quashed, and it was suggested that the directors could have been asked to correct the error in Form No. 23AC instead of initiating prosecution. The petition was allowed with no order as to costs, and Company Application No. 38 of 2011 was closed.

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