2019 (10) TMI 545 - HC - Companies Law

Initiation of action against the petitioners for the alleged offences punishable under section 97(1) and read with Section 97(3) of Companies Act, 1956 - Petitioners have assailed the said action on the ground that proceedings initiated against them are barred by limitation - HELD THAT - In terms of Section 97, the offence gets completed on expiry of 30 days from the date of passing the resolution or from the date of subsequent resolution. Since action has been initiated against the petitioner beyond the period of 30 days, prosecution launched against the petitioner is barred by limitation and therefore cannot be sustained. Proceedings initiated against the petitioners are quashed - Petition allowed.

Issues involved:
Violation of Section 97(1) of the Companies Act, 1956; Interpretation of Section 97 regarding the timeline for prosecution initiation; Whether the offence under Section 97(1) is a continuing offence.

Analysis:

Violation of Section 97(1) of the Companies Act, 1956:
The petitioners, a company and its key officials, were issued a show-cause notice for alleged violations of Section 97(1) of the Companies Act. The respondent initiated action against them for failing to submit required resolutions within the specified timeline. The petitioners challenged this action on the grounds of limitation.

Interpretation of Section 97 regarding the timeline for prosecution initiation:
The primary contention raised was regarding the timeline for initiating prosecution under Section 97 of the Companies Act. The petitioners argued that as per the Code of Criminal Procedure, prosecution should have been instituted within six months from the date of the offence. However, the prosecution was launched beyond this period, leading the petitioners to claim that the action against them was illegal and should be quashed.

Whether the offence under Section 97(1) is a continuing offence:
The respondent argued that the offence under Section 97(1) is a continuing offence, justifying the prosecution initiated against the petitioners. It was contended that since the petitioners failed to comply with the requirements of Section 97, they were liable for prosecution. This argument was supported by a previous court decision.

Detailed Analysis:
The Court examined Section 97 of the Companies Act, which mandates filing notice of increase of share capital within 30 days of passing the resolution. The Court clarified that the offence under Section 97(1) is completed after the expiry of 30 days from the resolution date. The provision for a fine of ?50 per day for default does not transform the offence into a continuing one. Citing a relevant case, the Court emphasized that a default with continuing effects does not constitute a continuing offence, and the penalty provision aims to ensure timely compliance.

Based on the interpretation of the law and the facts of the case, the Court found merit in the petitioners' argument. It held that the prosecution initiated against the petitioners was time-barred as it was launched beyond the 30-day period specified in Section 97. Consequently, the Court allowed the petition, quashing the proceedings initiated against the petitioners. However, it clarified that this decision did not impede authorities from taking lawful action to recover any due fine amount from the petitioners.

In conclusion, the judgment centered on the correct interpretation of Section 97 of the Companies Act, determining the timeline for prosecution initiation and establishing whether the offence under Section 97(1) constitutes a continuing offence. The Court's analysis provided clarity on these legal aspects, leading to the quashing of the prosecution against the petitioners due to the bar of limitation.

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