9911796707
TMI Blog2006 (6) TMI 222X X X X Extracts X X X X X X X X Extracts X X X X ..... ctor, tiller, thresher, dryer, two wheelers and three wheelers and motor vehicles of all kinds, ships, boats, submarines and all kinds of ocean going vessels, aircrafts, helicopters and all kinds of air-borne carriers; to carry on the business of hire purchase of immovable and movable properties of any kind and to institute enter into, carry on, subsidise, fine or assist in subsidising or financing the sale and maintenance of any goods, article or commodities of all and every kind and description and to import, export or otherwise deal in goods, produce, articles and merchandise ; to carry on and undertake the business of financiers, in particular, the business of financing industrial enterprises. In short, a perusal of the memorandum of association shows that the activities extended were on large area including the funding and advancing money. It is submitted that originally the authorised capital of the company is Rs. 4,00,00,000 fully divided into 40,00,000 equity shares of Rs. 10 as on March 31, 1997. On January 11, 1995, the private limited company became a public limited company. On March 20, 1995, the company decided to make a public issue of 15 lakhs equity shares of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated that the said Bhaskar also enclosed copy of the documents including the letter dated July 11, 1997, of Mr. N. Subramanian, wherein it has been specifically stated that the management had been taken over by N. Subramanian with effect from November 14, 1996. In the light of the above statement, the petitioner submits that he was under the bona fide impression that the petitioner had provided the respondent with all the relevant information and necessary details required by the respondent. It is also seen that the petitioner had co-operated in the questioning of the affairs of the company. Further, for a lapse of seven years, the petitioner received a show-cause notice from the respondent herein alleging that the company did not take any steps to implement the business plans referred to in the prospectus and had thus failed to fulfil the promises made by it to the public while offering the shares through the prospectus issued by the company. The company has not filed the balance-sheets and annual reports since its incorporation. The statements made by the company in the prospectus, referred to above were, therefore, not true and the same were made with the intent to defraud the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed before the Additional Chief Metropolitan Magistrate (Economic Offences) Egmore, Chennai-8, in EOCC Nos. 751 to 756 of 2002 and EOCC Nos. 40 to 42 of 2004. He further submits that narration of events and the documents filed in support demonstrate that the erstwhile directors had nothing to do with the company. Apart from this, it is also stated that for the purpose of proceedings under sections 63, 68 and 628, what is relevant is mens rea, a culpable mind that there must be a statement lacking in material particulars made knowingly to be false. It is further stated that the petitioners acted as per the norms of the prospectus and that they could not be proceeded against. It is further stated that for want of material particulars in the notice indicating specific allegations as regards the alleged offences, the notice deserves to be rejected for its vagueness too. Learned counsel brought to my attention the provisions of sections 63, 68 and 628 of the Companies Act to impress on the fact that non-fulfilment of the promise made by the company in the prospectus or non-filing of the balance-sheets and annual reports are the concern of the company of which, viz., N. Subramanian, D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the pretext of change of management effected after a lapse a of 1 years of the date of issue of the prospectus. He also referred to a civil suit in O.S. No. 6581 of 2004, before the XVI City Civil Court, Chennai, and the same was withdrawn on February 3, 2006. Learned counsel for the respondent brought to my attention the prospectus as well as the balance-sheet for the year ended March 31, 1996. It is stated that the company has granted loans and advances on the basis of the security by way of pledge of shares and debentures. It is also stated that the company could have no huge investment in furniture and office equipment greater than as stated in the public issue prospectus. In the context of the same, it is submitted that the show-cause notice is sustainable on facts and in law. The show-cause notice shows extract from the statements given in the prospectus and their intention to defraud the public was clear from the materials. It is admitted by the respondent that there are no complaints from any public as regards the utilisation of funds nor from any shareholder. There are no materials placed in the show-cause notice substantiating the allegations that the public ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eet details as regards the investment thereon without any reference to the finances of the company in the year under consideration. The respondent had not anywhere stated that the company is not a going concern. By mere adverting to the asset addition in the form of furniture, it is not known how the respondent presumed the diversion of funds for the purpose other than one stated in the prospectus. The counter throws the burden of proof on the petitioners to prove that they had acted honestly and reasonable to relieve one from the proceedings initiated under section 633 of the Act a view totally unsustainable, more so in the context of the very basis of the notice unexplained. It is further seen that the allegations contained in paragraph 7 runs contra to what had been admitted in page 4. In the above circumstances, the allegations cannot be sustained solely on what had been relied on in the notice issued to the petitioners. It is a fundamental principle of any jurisprudence that where a notice proposes any corrective action and more so in a case of punitive action, the materials forming the basis of an opinion need to be disclosed thereby their nexus, so that the opportunity gra ..... 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