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TMI Blog1995 (12) TMI 288X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings is the same, the same are being disposed of by this common order. 4. The facts in brief are as follows: Petitioner No. 1, Progressive Aluminium Ltd., was incorporated under the Act, and petitioner Nos. 2 to 10 are its directors. Petitioner No. 1-company applied to the Central Government and obtained its consent for issuing equity shares to the public. The company also obtained industrial licence for establishment of a new industrial undertaking at Kallakal Village, Medak District, Andhra Pradesh, for manufacture of aluminium extrusions with annual capacity of 5,000 metric tons. The company proposed to issue shares to the public to an extent of Rs. 1,43,00,000 divided into 14,30,000 equity shares of Rs. 10 each for cash at par. After obtaining the necessary sanction and approval, the company issued a prospectus to the public, which according to the company was strictly in accordance with the requirements of the Act. 5. Petitioner No. 1-company was promoted by M. Rajendra Prasad, A. Seshagiri Rao and Progressive Constructions Limited ('PCL'). In regard to one of the promoters, it had been stated in the prospectus that: "Progressive Constructions Ltd. is a large ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was indicated only as a probable date. 9. The respondent-Registrar of Companies issued a notice dated 17-2-1993, to the company stating that in terms of section 63(1), there were untrue statements, and that, therefore, every person who authorised the issue of prospectus had incurred the liability of being punishable with imprisonment for a term which may extend to two years or with fine which may extend to Rs. 5,000 or with both. The company was called upon to show cause why penal action should not be initiated against every person who authorised the issue. Similar notices were issued to all other petitioners. In reply to the show-cause notice, it was pointed out that due to circumstances beyond the control of the company, the production could not be commenced in the month of August 1990. The letter of credit for import of 1,600 tons hydraulic extrusion press, which was the heart of the plant and machinery for the manufacture of aluminium extru- sions, was established in October 1989. After inspection taken by the company, the packing of the machine was completed by the manufactur- er at Japan and was sent to Kobe Port in Japan in the month of August 1990, for shipment to Madr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing regard to all the circumstances of the case, including those connected with his appointment, he ought fairly to be excused, the Court may relieve him, either wholly or partly, from his liability on such terms as it may think fit: Provided that in a criminal proceeding under this sub-section, the Court shall have no power to grant relief from any civil liability which may attach to an officer in respect of such negligence, default, breach of duty, misfeasance or breach of trust. (2) Where any such officer has reason to apprehend that any proceeding will or might be brought against him in respect of any negligence, default, breach of duty, misfeasance or breach of trust, he may apply to the High Court for relief and the High Court on such application shall have the same power to relieve him as it would have had if it had been a Court before which a proceeding against that officer for negligence, default, breach of duty, misfeasance or breach of trust had been brought under sub-section (1). (3) No Court shall grant any relief to any officer under sub-section (1) or sub-section (2) unless it has, by notice served in the manner specified by it, required the Registrar and suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1990, and commence commercial production immediately thereafter. The issue highlights also included the statement that 'no gestation period: Commercial production to begin in November 1990'. 16. On behalf of the petitioners, the learned counsel submitted that the firm, Progressive Engg. Co., was established as a partnership firm in the year 1966, and had subsequently undergone changes in its constitution, and, therefore, the statement made in the prospectus was indicative of the fact that the business of construction itself spanned over a period of two and a half decades. Further, according to the learned counsel, in case of corporate bodies, whether a limited company or a statutory body or a partnership firm, the business fell or flourished, according to the experi-ence and wisdom of the persons manning such corporate bodies, viz., the directors or secretaries or partners or managers, as the case may be. The corporate body itself could not claim actual physical experience in any field. Whatever it claims by way of experience had to be attributed to the persons manning the organisation and not to the corporate body itself. Further, according to the learned counsel, the promot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,600 tons of hydraulic extrusion press from Japan, which was the heart of the project for manufacture of aluminium extrusions was opened in October, 1989, and after inspection, the supplier from Japan, packed the press and sent the same to Kobe port, Japan, in the month of August, 1990, for shipment to Madras port. However, due to circumstan- ces beyond the control of the company and the supplier, due to non-availability of a suitable ship from Kobe port to Madras port, the press could not be shipped till 30-10-1990. The press finally arrived during December, 1990, at the Madras port, and it was installed at the factory site during January, 1991. It was further explained that on account of reluctance on the part of Japanese engineers to travel to India due to the Gulf crisis during January and February, 1991, the erection and commis-sioning of the press could be done only from 17-2-1991, and 27-3-1991. The erection and commissioning of two other imported equipment, viz., casting machine and extrusion puller, was also done simultaneously with the erection and commissioning of the extrusion press. Thus, it was for these reasons, the delay took place in commissioning of the extrusio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d negligence. It is further observed that the company had acquired an international repu- tation and was running a chain of five-star hotels in India, which naturally involved large sums of money, and for raising adequate finance the company had to accept such deposits. The company had foreign collaborations and acquired technical know-how and expertise for run- ning big hotels, both in India and abroad, and thereby earning large amount of foreign exchange through tourism and otherwise. It also transpired that the petitioner had taken all reasonable and possible steps, including making an application before the RBI being dated 5-5-1977, inter alia, for granting exemption under section 58A(7)( a )( ii ), and the same was only rejected by letter dated 21 -5-1977, by the RBI. It is further observed that the company by letter dated 25-5-1977, asked for personal hearing and also there were other prayers in the same application for exemption before the RBI dated 5-5-1977, which had not been dealt with by the RBI. It is further observed that after rejection of the application for exemption by the RBI, the company took the opinion of eminent jurists and lawyers and also made the applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to bodies corporate in excess of the limits prescribed under section 370( 1). The company replied that it was under the bona fide belief, having taken a legal opinion, both before and after the amendment of the Act in 1988, that the exemption under section 370(2)( a )( v ) and section 370(2)( b )( v ) was available to it since one of its main objects was the financing of industrial enterprises. The Regional Director, however, did not accept the explanation of the company. The company and its direc- tors moved the High Court for relief under section 633(2). The respon- dents objected that the petition was premature. 21. With the above facts and circumstances in view, the Delhi High Court held that since the clear conclusion of the respondents was that the company had contravened the provisions of section 370(1), the petition- ers' apprehension of prosecution was not baseless, moreover an applica- tion to the High Court under section 633(2) would not lie after prosecu- tion had been launched when section 633(1) alone was applicable. The petition, was, therefore, maintainable and not premature. The High Court further held that the directors had acted with ordinary prudence and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the prospectus were made with any dishonest intention of practising fraud upon the subscribers of the company. Of course, the liability of being prosecuted cannot be viewed lightly from subsequent developments. However, in the face of our finding that the intentions were not mala fide, which stands corroborated by the subsequent developments, the prosecution loses its force and substance, more particularly so because this could be categorised as an economic offence, where wrongful pecuniary gains is the main consideration, which is conspicuous by its absence in this case. 23. It was argued on behalf of the respondent-Registrar of Companies that this Court was deprived of its jurisdiction to entertain the petition under section 633(2) on account of the fact that the apprehension of launching prosecution against the petitioners had in fact become a reality, because the prosecution had already been launched against petitioners Nos. 2 to 10 by the time when the High Court's orders restraining the respondent-Registrar of Companies from launching prosecution was received. This argument, however, does not hold good, having regard to the fact that on the date on which the company pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he body corporate itself. I am, therefore, not in agreement with the submis- sions made by the learned counsel for the Registrar of Companies that any cause existed to believe that the statements in question made in the prospectus were untrue statements so as to believe that the offence punishable under section 63 had been committed, and for that matter, the petitioners had become liable to be prosecuted for the alleged offence. In that view of the matter, therefore, not only are the petitioners entitled to protection under section 633(2), but they can also not be treated as having incurred any liability for the offence punishable under section 63. Therefore, the prosecution deserves to be quashed at the threshold. 25. An argument was also advanced on behalf of the respondent- Registrar of Companies that this Court had no jurisdiction to entertain the criminal petition for quashing the proceedings under section 63(1) under original jurisdiction having regard to the fact that under the Act, the same ought to have been moved by the Court having criminal jurisdiction. A note in this regard is required to be taken of the fact that by an order passed on 12-9-1995, by the Hon'ble Chi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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