1930 (7) TMI 14 - Commissioner - Companies Law

Summary

Issues: Application under Section 237 of the Indian Companies Act for direction to prosecute directors, auditors, and manager for offenses under Section 282 of the Act.

In this judgment, the court analyzed an application under Section 237 of the Indian Companies Act of 1913, where the official liquidators of a bank sought direction to prosecute the directors, auditors, and manager for offenses under Section 282 of the Act. The false statements in question were found in the bank's balance sheet for the year 1927. The court examined the alleged overvaluation of assets, underestimation of bad debts, and the false profit declaration of the bank. The court noted that while the overvaluation of assets was not strongly argued, the underestimation of bad debts was based on conflicting estimates by the bank's directors and an external examiner, Mr. Jamshed Mehta. Despite the conservative approach taken by Mr. Mehta, the court was not convinced that the bad debts were under-estimated. However, the court found the declaration of profit in the balance sheet to be a serious and prima facie false statement, as it included an amount in suspense for bad debts as profit, which had not been received by the bank.

Regarding the willful intent behind the false statement, the court examined the knowledge and actions of the directors, manager, and auditors. It was established that the manager, despite certain pleas, had signed the balance sheet and was aware of its contents, making him liable for prosecution under Section 282. The directors were also held accountable, with the court emphasizing that ignorance of banking methods did not absolve them of responsibility for signing a false balance sheet. The court differentiated the case of a nominal director who may have signed without knowledge due to illness. The auditors, despite objections to the directors' methods, were found to have willfully made a false statement by signing the report attached to the balance sheet, which did not present a true and correct view of the company's affairs.

As a result, the court directed the official liquidator to prosecute the managing director, manager, auditors, and certain directors for offenses under Section 282, while exempting the nominal director from prosecution. The court also ordered the implicated parties to bear the official liquidator's costs for the inquiry.