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TMI Blog2007 (1) TMI 270X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue were not utilised in the leasing business as stated or promised in the prospectus and, thus, the petitioners had made false statement in the prospectus, which act was punishable under sections 63 and 628 of the Act. The public issue was of 24,00,000 equity shares of Rs. 10 each aggregating to Rs. 240 lakh and the following objects were mentioned in the prospectus for this public issue : "( a )To augment the long-terms resources for the working capital requirement for leasing and investments. ( b )To get shares of the company listed on stock exchange ; and ( c )To meet the expenses of the public issue." Thus, primarily the purpose was to utilise the funds collected for leasing and investment. Instead of utilising the money in leasing business, the company made huge investments in unproductive shares and securities amounting to Rs. 3.13 crore and Rs. 7.18 crore during 1995-96 and 1996-97 respectively, which was much beyond the limit of Rs. 90 lakh and Rs. 100 lakh set out for this purpose in the prospectus. This investment remained blocked till 31-3-2001 and yielded very meagre income and hardly any return by way of dividends. The company did not undertake any leasing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the promoters and risk factors were indicated. It was specifically stated in the prospectus that the petitioners, who were promoters, did not have any experience in leasing business, which would be the main activity of the company with many other facts as to the risks involved. It was also stated that the petitioners as promoters did not make substantial investments in the share capital, which fact was specifically stated in the prospectus of the company and as the petitioners are not having major shareholding, they were forced to resign and, therefore, have no control over the business of the company. ( c )It is also contended that leasing was one of the object mentioned in the prospectus and the other business object was investment. The company had admittedly utilised the funds in the investment business and, therefore, there was no misutilisation of funds as the funds were invested in one of the activities mentioned in the prospectus. ( d )It is also submitted that the non-commencement of the leasing business cannot amount to making of any false statement in the prospectus, amounting to inducement or misleading any person especially when in the prospectus it was specificall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... true or which statement in the prospectus had induced the public to invest or whether any shareholder had made a complaint. 7. Learned counsel for the complainant, on the other hand, submitted that the facts mentioned and allegation made in the complaints prima facie made out the offence, the violation whereof was imputed against the petitioners. It was submitted that statement in the prospectus was that the funds were proposed to be deployed for leasing business and for making investments and further for purchasing miscellaneous fixed assets for which Rs. 206 lakh and Rs. 10 lakh respectively were earmarked in the prospectus for the year 1995-96. However, contrary thereto, the company made huge investment in unproductive shares and securities amounting to Rs. 3.13 crore and Rs. 7.18 crore during 1995-96 and 1996-97 respectively, much beyond the limit of Rs. 90 lakh and Rs. 100 lakh set out for this purpose in the prospectus. It resulted in much less profitability than projected. It was submitted that whether false statement is made in the prospectus or not could be proved only from the utilisation of the funds which would naturally happen on a subsequent date. It is only whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contended that the funds were ultimately utilised by making huge investments in unproductive shares and securities and as the funds were utilised for a purpose other than what was stated in the prospectus, it should be inferred that statement made in the prospectus was false. The case is, therefore, not for misutilising the funds. The case set up is that by the manner in which the funds were utilised, which was not the same as that stated in the prospectus, it is clear that the statement made in the prospectus was not true as there was no intention to utilise the funds for the purpose stated in the prospectus. It was contended by learned counsel for the complainant that the allegation that misstatement was made in the prospectus could be proved only by showing that the funds were utilised for some other purpose, which event would naturally take place in subsequent years. The investments were made in unproductive shares and securities amounting to Rs. 3.13 crore and Rs. 7.18 crore during 1995-96 and 1996-97, respectively, which remained blocked till 31-3-2001. Once we look into the complaint from this angle, as rightly projected by learned counsel for the complainant, most of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he income shown in the annual accounts of the company for the year 1998-99. However, the events which took place between 1994 and 1998 and which were well within the knowledge of the complainant are totally ignored in the process. 7. It could not be denied that the extraordinary general meeting of the company was held on 25-3-1998 and the company changed its business from leasing to infotech. For this purpose not only the name of the company was changed to Cyber Space Infosys Ltd. but alteration in the object clause was also made by including Infotech business. This change was specifically approved by the Department of Company Affairs. The change was notified with the RoC as well. Obviously, after such a change in the object clause if the company started infotech business as well and earned the income from software business, it cannot be said that statement made in the prospectus in the year 1994, while making the public issue, was false. There may be various reasons for changing the object clause and the line of business. It is a matter of common knowledge that the leasing, finance which was lucrative in the early 1990s was not so in the late 1990s. It is also a matter of common ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany, the following persons shall be liable to pay compensation to every person who subscribes for any shares or debentures on the faith of the prospectus for any loss or damage he may have sustained by reason of any untrue statement included therein that is to say - ( a )every person who is a director of the company at the time of the issue of the prospectus ; ( b )every person who has authorised himself to be named and is named in the prospectus either as a director, or as having agreed to become a director, either immediately or after an interval of time ; ( c )every person who is a promoter of the company; and ( d )every person who has authorised the issue of the prospectus : Provided that where, under section 58, the consent of a person is required to the issue of a prospectus and he has given that consent, or where, under sub-section (3) of section 60, the consent of a person named in a prospectus is required and he has given that consent, he shall not, by reason of having given such consent, be liable under this sub-section as a person who has authorised the issue of the prospectus except in respect of an untrue statement, if any, purporting to be made by him as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alse, deceptive or misleading statement or dishonest concealment of material facts of the nature mentioned in section 68 and ( b ) by such false statement, etc., any person is induced or attempted to be induced into doing any of the acts mentioned therein, including subscribing for shares or debentures. 15. In the complaint No. 699/2002 filed by the complainant, there is not even a whisper of such an inducement given to the persons, except making the following averments : "As such the person named above being the persons who authorised the issue of the prospectus are liable for penalty on two counts, namely, for paying compensation to every person who subscribed or any shares or debentures on the faith of the prospectus suffered losses and secondly for fraudulently inducing persons to invest money and accordingly they are liable for penalty as contemplated under sections 62 and 68 of the Companies Act, 1956." It is not at all stated that there was any complaint received by the RoC or the Department of Company Affairs from any persons who alleged that they were induced to buy the shares on the basis of misstatement/ representation in the prospectus. It is also not stated tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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