2009 (11) TMI 1036 - HC - Companies Law

Summary

Issues:
1. Quashing of criminal complaint no. 20/S/2000 pending in the Court of Addl. Chief Metropolitan Magistrate, Esplanade, Mumbai.
2. Allegations of untrue statements in the prospectus leading to offences punishable under the Companies Act.

Analysis:
Issue 1: The petitioner sought the quashing of a criminal complaint pending in the Court of Addl. Chief Metropolitan Magistrate, concerning allegations related to the issuance of a prospectus by a company. The complaint was filed by the Securities and Exchange Board of India (SEBI) against the company and its directors, including the petitioner, for offences under sections 63 and 68 of the Companies Act. The petitioner argued that he had resigned from his position as a non-executive Director before the alleged offences took place. However, the court emphasized that at the stage of issuance of the process, the Magistrate's role is to determine if there is prima facie material supporting the averments in the complaint. As such, the petition for quashing the criminal complaint was dismissed, and the trial was directed to be completed expeditiously.

Issue 2: The complaint alleged that the statements in the prospectus were untrue, false, and misleading. The specific false statements included the location and ownership details of the company's facility, the existence of a firm contracted for equipment supply, and the misappropriation of funds raised through the public issue. The court highlighted the legal provisions under section 63(1) of the Companies Act, which imposes liability on those authorizing the prospectus if it contains untrue statements. It was noted that the burden of proving reasonable belief in the truth of the statements lies on the accused. In this case, the petitioner's reliance on a due diligence certificate was deemed insufficient to absolve liability. The court held that the prosecution should proceed, as prima facie evidence indicated the statements in the prospectus were untrue, emphasizing the burden on the accused to prove reasonable belief in the statements' accuracy.

In conclusion, the judgment dismissed the petition for quashing the criminal complaint, emphasizing the need for the trial to be completed promptly after a prolonged delay. The analysis underscored the legal principles governing liability for untrue statements in a prospectus and the burden of proof on the accused to establish a reasonable belief in the statement's accuracy to avoid liability under the Companies Act.