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TMI Blog2006 (6) TMI 214X X X X Extracts X X X X X X X X Extracts X X X X ..... s private limited on 16-10-1984 with the main objects of manufacturing of various types of silk fabrics. The Company was converted into a public limited company and a fresh certification of Incorporation was issued on 19-9-1985. Then the Company issued a prospectus to the public, inviting subscriptions to its shares after obtaining necessary permission from the Controller of Capital Issues. Government of India, New Delhi. The prospectus was issued on 23-8-1986, inviting subscriptions from the public for its share capital and accordingly, received the public subscriptions. But, however the Company failed to adhere to the schedules as issued, which was given under the heading of Project implementation Schedule and profitability and Dividend. This fact of non-compliance of the projections and the declaration of dividend has come to light during the inspection conducted by the Inspector of the Company s Department, therefore, show-cause notice was issued to all the Directors, including the petitioner, who was shown as Director and the Chairman of the Company. It is stated by the petitioner that while conducting investigation under section 237 of the Act, the Inspecting Officer has noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary statement "barring unforeseen circumstances." There was delay in commissioning the plant. Meanwhile the market conditions underwent a drastic change in the Industry, and as a result the profitability went haywire, which were totally unforeseen at the time of issue of the prospectus and due to factors beyond the control of the management. In the absence of any profits, the Company could not have declared any dividend under the provisions of the Act. The statements made with good intentions could not be treated as a fraudulent or mischievous statements, therefore, sought for appropriate relief from being prosecuted under the above referred provisions. 4. The learned counsel relied upon the observations made by the Supreme Court, in Rabindra Chanarua v. ROC [1992] 72 Comp. Cas. 257 and the decision of this Court Progressive Aluminium Ltd. v. ROC [1997] 89 Comp. Cas. 147 1 and the decision of the Bombay High Court in Jagijivan Hiralal Dosh v. ROC [1989] 65 Comp. Cas. 553 and also the decision of the Supreme Court in Municipality of Bhiwandi Nizampur v. Kailas Sizing Works AIR 1975 SC 529. It was also stated that since the present show-cause notice is issued a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 237 of the Act when these facts have come to know of the company department, therefore, immediate action was initiated by issuing a show-cause notice, therefore, the petitioner cannot take shelter under the guise of the delay in initiating the action. It is stated that the petitioner has got ample opportunity before the Economic Offences Court, where he can produce his evidence to prove his innocence if he is innocent and is not liable for being visited with any punishment for the violation of the provisions under sections 63, 68 and 628 of the Act. 6. An additional counter is also filed on behalf of the respondents, bringing to the notice of this Court that along with the petitioner, show-cause notices were issued to other Directors as well, and the reply submitted by the petitioner was not satisfactory and therefore, there is no case to relieve the petitioner from being prosecuted for the violation of the provisions referred to above as the petitioner had approached this Court only to stall the proceedings. 7. Sri L.V.V. Iyer, learned counsel appearing for the petitioner in all three company petitions, reiterated the averments that are made and contended th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er is only that due to unforeseen circumstances inevitable delays were caused in project implementation over which the petitioner as a non-executive independent Director had no control whatsoever. This clearly shows that there is no proper explanation at the first instance and at the second instance the petitioner seeks to excuse himself, claiming that he is only a non-executive independent Director, and therefore, he had no control. It is not known how he can seek such excuse, especially when he is one of the signatories to the prospectus. The prospectus was signed by all the Directors and not by the Managing Director alone, who is looking after the day-to-day affairs, therefore, the said excuse claimed by the petitioner is clearly devoid of merit. 12. With reference to the dividends, the petitioner has stated that the statement made in the prospectus was a forward looking statement, followed by a cautionary statement "barring unforeseen circumstances". It is stated that the market conditions underwent drastic change in the industry, as a result of which, the profitability went haywire, which were totally unforeseen at the time of issue of the prospectus. Therefore, due to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidering the provisions of the section 448 of the English Companies Act, 1948 and section 372 of the English Companies Act, 1929, which are the sections therein equivalent to section 633 of the present Act. In that judgment, Buckley, J. said that section 448 enabled the Court to grant relief where three circumstances are shown to exist. First of all, the position must be such that the person to be excused is shown to have acted honestly. Secondly, he must be shown to have acted reasonably. And, thirdly, it must be shown that, having regard to all the circumstances of the case, he ought fairly to be excused. The learned Judge dealt with the question of reasonableness of action thus; he said that a man would be shown to have acted reasonably if he was acting in the way in which a man of affairs dealing with his own affairs with reasonable care and circumspection could reasonably be expected to act in such a case, for, such an imaginary character would take pains to find out all the relevant circumstances. 15. Though the learned Company Judge in that case granted relief in respect of some of the Directors and by the Division Bench in respect of all the Directors, but the said dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not commence the production. The Company had proposed to establish a unit for manufacture of aluminium extrusions with annual capacity of 5,000 metric tons and in the prospectus it was mentioned that the production will be commenced in the month of August, 1990. The explanation given by the petitioners in that case was that a letter of credit for import of 1,600 tons of hydraulic extrusion press was issued in October, 1989. After inspection has taken by the Company, the packing of the machine was completed at Japan and was sent to Kobe Port in Japan in the month of August, 1990 for shipment to Madras Port. As there was no suitable ship available till 30-10-1990, the machine could not be shipped and finally the machinery arrived at Madras in December, 19 and was received by the Company in the month of January, 1991. The Japan Engineers were reluctant to come to India in view of the Gulf war and eventually the Engineers of Japan came and erection of press was undertaken between 17-2-1991 and 27-3-1991. Therefore, under those circumstances it was stated that the delay was beyond their control. In those circumstances, the Court while allowing the petition, made the following obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is could be categorized as an economic offence, where wrongful pecuniary gains is the main consideration, which is conspicuous by its absence in this case." (p. 188 of SCL) 19. In Hafez Rustom Dalal v. ROC [2005] 59 SCL 265 , a learned Judge of the Gujarat High Court, while considering the scope of section 633 of the Act vis-a-vis, the misstatements in the prospectus, held that the Company was not included in the list of vanishing companies, therefore, penal action against the Directors/Promoters initiated on the basis that the company is a vanishing company, not justifiable. The Court also made the following observations with reference to the delay and laches : "29. The action is unsustainable also on the ground of delay and laches as admittedly, the prospectus was issued by the company way back on 8-5-1992 and the notice under reference was issued by the opponent on 1-6-2002, i.e., after more than ten years. Even if one takes the view that law of limitation is not applicable to the proposed action, the same is clearly barred by delay and laches and the Court is certainly reluctant to take cognizance of alleged defaults after the expiry of period of more than ten yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eking relief under section 633 of the Act, but the explanation that was brought on record is so vague. According to the petitioner, the petitioner admitted that the trial production as well as commercial production did not commence as declared in the prospectus, similarly even the dividend also was not declared not only for the first year ending 31-12-1987, but till 7-6-2004, when the Inspector of the Department had inspected the records of the Company. Therefore, it is clear that the schedules were not adhered as was declared in the prospectus, to which the petitioner is one of the signatories. 23. The explanation that is put forward by the petitioner is due to unforeseen circumstances inevitable delays were caused in project implementation over which the petitioner had no control. The petitioner did not elaborate what are the said inevitable circumstances under which the Company could not adhere to the schedules. The other explanation for non-declaration of dividend is also equally so vague and is not substantiated by any facts and figures. 24. Though the petitioner claimed that he had resigned from the Directorship on 26-4-1988, immediately after the commencement of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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