2013 (4) TMI 365 - HC - Companies Law

Prospectus containing untrue statements - Petitioners seek quashing of the complaint under Section 63 r.w.s. 628 of the Companies Act, 1956 filed against them by ROC on the premise that they being signatory to the prospectus which contained untrue statements - Held that - The certified copy of the prospectus obtained from Delhi Stock Exchange Association Ltd. shows that the three Petitioners were the directors and signatories of the prospectus. Thus, it cannot be said that the ACMM while taking cognizance and issuing the process was misled by the averments made in para 2 of the complaint or that the averments were false. It has to be borne in mind that at the stage of issuing the process, the Magistrate is not required to record detailed reasons. Moreover, it is very well settled that inherent powers under Section 482 of the Code though very wide have to be invoked sparingly and with circumspection only (i) to give effect to an order under the Code, (ii) to prevent abuse of the process of the Court and (iii) otherwise to secure the ends of justice. At this stage, the prospectus deposited with the Delhi Stock Exchange Association Ltd. has to be presumed to be meant for the public at large which was signed by the Petitioners. Thus, the order dated 07.06.2002 taking cognizance of the offence under Sections 63 and 628 of the Act of 1956 against the Petitioners cannot be faulted. The observations made above were necessary for disposal of the instant Petition and shall not be taken as expression of any opinion on merits of the case.

Summary

Issues:
1. Quashing of complaint under Sections 63 and 628 of the Companies Act, 1956 based on untrue statements in the prospectus.

Analysis:
The petitioners sought to quash the complaint against them under Section 63 read with Section 628 of the Companies Act, 1956, alleging that they were signatories to a prospectus containing untrue statements. The petitioners argued that the complaint was factually incorrect as they had no business interest in the company. The respondent contended that although the prospectus deposited with the Registrar of Companies was not signed by the petitioners, the prospectus in circulation at the time of the public issue was signed by all directors, including the petitioners. The court noted the distinction between civil liability under Section 62 and criminal liability under Section 63 of the Act, emphasizing that Section 63 holds every person authorizing the prospectus criminally liable for misstatements.

The court observed that the certified copy of the prospectus obtained from the Delhi Stock Exchange Association Ltd. confirmed the petitioners as directors and signatories. It held that the magistrate was not misled while taking cognizance, as the prospectus in circulation was signed by the petitioners. Citing the Supreme Court's decision in Satish Mehra v. State, the court highlighted that inherent powers under Section 482 of the Code should be sparingly used to prevent abuse of the court's process. Consequently, the court presumed the prospectus to be for the public at large and upheld the order taking cognizance of the offense under Sections 63 and 628 of the Act against the petitioners.

The court clarified that its observations were for the current petition's disposal and did not reflect any opinion on the case's merits. The issue of the limitation period was not raised during this stage. Ultimately, the court dismissed the petitions, stating that they had to fail based on the discussions provided. Pending applications were also disposed of as part of the judgment.