Bangalore District Court
The Registrar Of Companies vs T.V.Raja Reddy on 10 December, 2015
1 CC.No.613-02
BEFORE THE SPECIAL COURT FOR ECONOMIC OFFENCES: AT
BANGALORE.
Dated this the 10th day of December 2015.
Present: Smt.PUSHPAVATHI V., B.A.L., LL.B.,
Presiding Officer, Special Court
for Economic Offences, Bangalore.
CC.No.613-2002.
Complainant: The Registrar of Companies,
2nd Floor, "E" Wing, Kendriyasadan,
Koramangala, Bangalore.
. vs .
Accused: 1.T.V.Raja Reddy,
No.2/268, Colony, Madanpalle.
2.D.V.Kapur,
No.405, "Aradhana Apartments"
Sector B, R.K.Puram, New Delhi.
3.H.A.B.Parpia,
Suryakanti, 333, Hinkal, Mysore.
(A.3 is abated vide order dt:20.7.2013)
4.J.Mathan,
No.7, Papanna Street, St.Marks Road,
Bangalore.
5.R.Anand,
No.10/326, Kamma Street, Madanpalle.
6.Dr.N.S.Randhava,
EA - 220, Maya Enclave,
New Delhi.
(A.6 is abated vide order dt:7.3.2003)
JUDGEMENT
1. This complaint is filed u/s.200 of Cr.P.C by the complainant/ Registrar of Companies, Bangalore against A.1 to 6 with a prayer to punish the accused for the offence punishable u/s.628 of Companies Act, 1956. 2 CC.No.613-02
2. The brief facts of the complainant's case is that M/s.Ready Foods Limited was incorporated on 20.5.1988 originally as a Private Limited Company under the Companies Act 1956.The company was converted into a public limited company with effect from 3.1.1991.
3. The Registered Office of the company is situated at No.1332, Double Road, Indiranagar, II stage, Bangalore, A.1 was Managing Director & A.2 to 6 were the Directors of the company at the relevant time as per the documents filed by the company in the office of the complainant.
4. A.1 to 6 are the persons who were authorized to issue prospectus dated:22.12.1992 inviting the general public to subscribe for shares in the company.
5. The company went in for a public issue of its shares during March-1993 by offering Rs.1,96,00,000/- equity shares of Rs.10/- each for cash at par aggregating of Rs.19.60 crores. Before making this public issue the company had filed a prospectus dated:22.12.1992 in the office of the complainant as required under S.60 of the Act and the said prospectus was registered by the complainant on 13.1.1993. The public issue of share as per the prospectus was opened on 11.3.1993 & closed on 22.3.1993.
6. In the said prospectus dated:22.12.1992 in Page No.11, A.1 to 6 being Directors of the company had committed to project implementation 3 CC.No.613-02 programme that the construction work at the factory is complete, the plant and machinery has already been installed under the guidance and advise of the German Technicians, the trial runs will commence by January-1993 and the commercial production will begin soon thereafter, i.e., by February-1993.
7. They had also stated in the prospectus that the company is a 100% Export Oriented Unit for processing and freezing fruits, vegetables and Indian delicacies for export and that it has modern and sophisticated technology from Rheinhold & Mahla Germany. As per the prospectus, the company had entered into marketing tie-ip with Frigotrade GmbH of Germany and that it will be setting up a marketing outfit in UK, USA & Gulf to market its products, the company would achieve break even in the first year of operation. The statements made in the prospectus gave an impression to the prospective investors in the shares of the company, that the company has got adequate technical and marketing support.
8. However, in the directors report attached to the Balance Sheet as at 30.9.1995, 30.9.1996, 30.9.1997, 30.9.1998 & 30.9.1999 it is observed that the Directors of the company i.e., accused have made the schedule of implementation in the prospectus without assessing the ground realities and the company was unable to stick to the schedule. It is mentioned in the directors report above said that the operations of the company were suspected. This shows due to the company has not 4 CC.No.613-02 managed properly to fulfil the promises and assurances given in the prospectus, the operations of the company resulted in a total loss of Rs.1,87,11,36,332/- upto 30.9.1999 and the company's network has completely eroded. Thus, the statement made in the prospectus by the accused about the implementation of the project & its success are untrue.
9. It is also case of the complainant that under the head 'Risk Factors', the accused had not listed out any specific risks concern to the project other than the usual ones, they have not made a realistic and scientific assessment of the risk factor to ascertain the probable risk area which is resulted in the failure of the project, the projections & estimations have been made in the prospectus without any feasible ground for accomplishments with reckless manner no reasonable ground to believe that the said statements made in the prospects were true. The general public or prospective subscribers to the public issue were not adequately informed about the potential pitfalls in the project envisaged. A deceptive & a rosy picture was portrayed to induce the investors. So the accused have been knowingly made false statements in the prospectus and also omitted to disclose material facts which ought to be included in the Risk Factors in the prospectus. Therefore, the accused made statements in the prospectus which were false in material particulars knowing them to be false. The acts on the part of the accused attract the penal provisions of S.628 of the Act. 5 CC.No.613-02
10. The show cause notice was issued by the complainant to all the accused on 3.6.2002, replies were received from A.3, 4 & 5, but found not satisfactory. The Central Government conveyed sanction for the prosecution on 1.4.2002 through the Regional Director, Southern Region, Department of Company Affairs, Chennai on 6.5.2002 to the complainant. Therefore the complainant became aware about the commission/ knowledge of offence on 6.5.2002. Hence, it is within the limitation. With this, the complainant has prayed to take cognizance of the offence, issue process & try the accused in accordance with law and punish them for the offence punishable u/s.628 of the Act. They have also prayed to pass an order as to the costs of the complainant u/s.626 of the Act. Hence this complaint is filed.
11. On this complaint, the case has been registered, secured accused, A.1 to 5 have been enlarged on bail, the case against A.3 & 6 abated vide orders dated:20.7.2013 & 7/3/2003. Thereafter, plea has been recorded for the offence punishable u/s.628 of the Companies Act, 1956. A.1 to 5 pleaded not guilty and claimed to be tried, hence case was posted for complainant's evidence. The Sr.Technical Assistant of ROC Sri.Kanchan Sanyal has appeared before the court & gave evidence on behalf of the Registrar of Companies as P.W.1 & got marked Ex.p.1 to 5, he has been cross-examined. The complainant closed their evidence. Thereafter, the statements of A.1, 2 & 5 u/s.313 of Cr.P.C were recorded. The A.1, 2 & 5 denied incriminatory evidence read over to 6 CC.No.613-02 them and as they were intending to give evidence, opportunity was given to them. Hence, the matter was posted for defence evidence, where A.2, A.1 & A.5 gave evidence as D.w.1 to 3 & got marked Ex.D.1 to 11, D.W.1 has been cross-examined by the complainant's counsel. D.W.2 & 3 have not been cross-examined by the complainant's counsel.
12. Thereafter heard the arguments, perused the entire records, the points that arise for my consideration are :
Point No.1: Whether the complainant proves beyond all reasonable doubt that accused persons being the Directors of M/s.Ready Foods Limited had made false statement in the prospectus dated: 22.12.1994 filed before ROC and thereby committed an offence punishable u/s.628 of the Companies Act, 1956.?
Point No.2: Whether the complainant proves that complaint is within limitation.?
Point No.3: What order.?
13. My findings on the above said points are as under:
Point No.1: In the Negative, Point No.2: In the Negative, Point No.3: As per the final orders for the following:
REASONS
14. Points No.1 & 2: Here there is no dispute as to M/s.Ready Foods Limited was established as private limited company on 20.5.1988, subsequently company got converted into public limited with effect from 3.1.1991, that the business of the company was exporting vegetables and fruits to the 7 CC.No.613-02 Foreign Countries, that the accused company is 100% Export Oriented Unit. There is also not in dispute as to address of the registered office of the company that the company had issued prospectus dated:
22.12.1992, in page No.18 of the prospectus, it was promised that the building construction is completed, plant and machinery has already been installed under the guidance and advise of the German Technicians, trial run will commence by January-1993, commercial production will be commenced in March-1993 with offer of Rs.1,96,00,000/- equity shares of Rs.10/- each for cash at par aggregating of R.19.60 crores. It is also not in dispute that the public issue of share as per the prospectus was opened on 11.3.1993 & closed on 22.3.1993
15. The offence alleged in this case is u/s.628 of the Companies Act, 1956, Penalty for false statements in prospectus which reads as follows:
Sec.628: If in any return, report, certificate, balance sheet, prospectus, statement or other document required by or for the purpose of any of the provisions of this Act, any person makes a statement:-
a) Which is false in any material particular knowing it to be false, or
b) Which omits any material fact, knowing it to be material, he shall, save as otherwise expressly provided in this Act, he punishable with imprisonment for a term which may extend to two years, and shall also be liable to fine.
16. But the specific allegations in this case is that the accused No.1 being the Managing Director and other accused being the Directors have made the schedule of implementation in the prospectus without assessing the ground realities and the company was unable to stick to the schedule. In 8 CC.No.613-02 the Directors report, they had stated that the company had suspended the operations of the company resulted in a total loss of Rs.1,87,11,36,332/- upto 30.9.1999, this is because the company has not managed the business properly and not fulfilled the promise and assurance given in the prospectus. Thus the statement made in the prospectus by the accused about the implementation of the project and its success false. It is specific allegation of the complainant that under the head 'Risk Factors' they did not listed out any specific risks concern to the project. This is how they issued prospectus with false statements inducing public to invest money.
17. P.w.1-Sri.Kanchan Sanyal, Sr.Technical Assistant, ROC, Bangalore during in his chief examination has stated that the accused No.1 to 6 are the Directors of the said company, they issued prospectus as per Ex.P.3 dated: 22.12.1992, the Public issue was opened on 11.3.1993 and closed on 22.03.1993. In the prospectus, the Accused No.1 to 6 have made a statement in the prospectus at page 18 that the factory is ready for production by Jan-1993 and commercial Production by Feb-1993. The company did not act as per the assurance given in the prospectus. The accused did not start the production and commercial production. The accused have mentioned the general risk and not mentioned any particular risk relating to the project of the company. They had given mis-leading statement that the factory work is completed, the commercial production will commence by Feb-1993, they had 9 CC.No.613-02 collaboration with Germany company, break even point will reach within one year. But the accused in the Directors Report and Comparative statement of accounts of company as at 31.3.1989, 31.3.1990, 31.3.1991, 31.3.1992 and 31.3.1993 and as at 30.9.1992 attached to the B/S of the Company (certified copy of extract of the same is Ex.p.4) stated that, subsequently, the company went sick and running shortage of fund and suffered a loss of Rs.187,11,66,000/-., the commercial production did not begin. This shows project is not completed & there is misleading statement. He has also stated that the risk factors are not specific but general. But during the cross examination, P.W.1 has admitted at Page No.5 in Para No.7 line 7 that - "In Ex.p.5 Directors report, the date of trial production is shown as 21st Sept-1993. In Ex.p.6 the commercial production has been started on 7th April 1994, it was shown at schedule implementation that trial run will commence at Feb- 1993 & commercial production will commence by Marh-1993, there is about gap/delay of 7 months for commencing trial run & 13 months to commence commercial run. But whether this amounts to false statement misleading & induce public to invest money is the question that has to be decided here. But P.W.1 during the cross examination has admitted at Page No.6 & 7 that - "no idea about any complaints by the investors." Again at Page No.13 in Para No.16 he has admitted that - "I have to look into the document to depose particularly as to which statement is false." This shows the complainant is not sure about statements made in 10 CC.No.613-02 the prospectus are false or not. The fact that there is no complaints from public also weakens their case.
18. In addition to which as to the allegations non completion of building, existence of machinery, capability of production equipment. P.w.1 during his cross examination admits at Page No.8 in Para No.10 that - "I am not aware in International Contract 5 to 10% will be retained till completion of contract work and the same is certified by the International Certifying Agencies. I am not aware that whether remaining 5% contract consideration/amount paid by Industrial Development Bank of India to Tern Key Contractor, Germany after completion of construction work & due to certification by SGS".
19. Again at Page No.9 in Para No.11 it is admitted as follows - "It is true to suggest that on the basis of document produced by A.1 the construction work was completed as early as Jan-1990".
20. In the same paragraph, it is further admitted that - " I am not aware whether A.1 was having valid licence for the export orientated unit till 2014 & it has been extended by Vishakapatanam Export Processing Zone. I am not aware even today after issuance of prospectus issued in the year 1992, the Ready Foods process technology adopted by the company is sophisticated, I am not aware M/s.Ready Food Company is having such equipments which is not installed in any where in country. On the basis of loss incurred by the company to the tune of 187 crores 11 lakh 36 thousand 332/-, they came to conclusion/assertion that the 11 CC.No.613-02 company has not assessed the ground realities while issuance of prospectus."
21. Further at Page No.10 in Para No.13 he has admitted that - "we have no technical person in ROC. I have never visited the M/s.Ready Food Factory Premises. I have not having idea whether ROC has sent any Technical Agency or person to visit the company premises to know the feasibilities and capabilities of the technique adopted by the company. When technical problem crept up we won't have normally sent technical persons. It is true to suggest that we have filed the complaint on the provisions and documents without idea of ground realities. We are not assessing the machineries and other technical aspects".
22. Further, at Page No.13 in Para No.16 he has admitted as follows - "In Para No.8 of the complaint it is alleged that the Directors have not assessed the ground realities while making statement in prospectus. The prospectus does not speak about the profit that the company is likely to make in future. The prospectus contains statement regarding the building, machinery, capability of production as well as the future projected sale figures."
23. In Para No.17 of the same page, it is admitted as follows - "The ground realities are the building, machinery, the date of production, I am not sure whether future projected sale figure is a ground reality."
24. In the same page, para, he has further admitted that in the complaint they have stated that "the company has not properly managed post 12 CC.No.613-02 1995." He has in the same para further admitted that - "It is not their case that the company had no building, machinery equipment to start production."
25. At Page No.18 in Para No.23 P.W.1 has specifically admitted that - "the construction of the factory building of Ready Foods Limited was completed by 22.12.1992. It is true to suggest that the plant & machinery was installed under the guidance of German Technicians. The plant was ready for trial run as on the date of prospectus".
26. It is also admitted as follows-"Personally I am not aware what are the other ground reality other than the one stated in the prospectus as on the date of issuance of prospectus. The allegation is made against the company in the complaint and it is in Para No.8 i.e., reasons for doubting the correctness of the statement made in the prospectus. I am not a technical person to state whether the equipment used in the company is modern and sophisticated in technology. We are not having any technical person to assess the technology adopted by the company. Further at Page No.20 in Para No.27 he has admitted that the reference made in the Para No.8 of the complaint as to the mismanagement is subsequent even after issuance of prospectus". This shows the ROC has not made proper investigation as to completion of building existence of equipments, machinery & capability of the company for production. Actually, it is not their case that the company was not having building, machinery and equipment to start production. In fact, P.W.1 has 13 CC.No.613-02 specifically admitted that the construction of the company was completed on 22.12.1992, the plant & machinery was installed under the guidance of German Technicians, the plant was already for trial run as on the date of issuance of the prospectus. Thus it is clear that the case of prosecution that the building was not ready, the equipments were not ready is not proved.
27. As to the allegations of complainant that the risk factors mentioned in the prospectus were not specific. P.W.1 at Page No.6 & 7 stated that "no idea about any complaints by the investors." Actually it is not the case of complainant that any investors complained about the risk factors mentioned in the prospects are not proper. Further admittedly, the prospectus is approved by ROC with the same Risk factors before its issuance to public.
28. Further P.W.1 at Page No.19 in Para No.25 has admitted that - " he is not aware about the accused company M/s.Ready Foods Limited has got contracted to sale his products to Overseas Companies. He is not aware whether the company has exported its products. At page No.19 in Para No.25 has admitted that apart from the risk mentioned in the prospectus, he is not aware of any other risk that they have to mention in prospectus as on the date of the issue of prospectus since he is not the technical person." This show the allegation that the risk factors mentioned in the prospectus are not specific is also false. 14 CC.No.613-02
29. As to the allegations that the company had no collaboration with German Company, P.W.1 during his cross examination has admitted at Page No.19 at Para No.25 that - " I am not aware whether the accused company has got contracted to sale his products to Overseas Companies. I am not aware whether the company has exported its products. Based on the prospectus, I can say that the company had marketing tie up with Frigotrade GmbH of Germany."
30. Further in Page No.18 at Para No.24, he has admitted that - "The Ready Foods Limited is having technical collaboration with German Company M/s.Rheinhold & Mahla as per the statement in the prospectus. I have not personally checked & verified the records of the company regarding correctness of the statement".
31. This apart A.2, 4 & 5 have taken a contention that they have not been authorized to issue prospectus. But P.w.1 at Page No.17 in Para No.21 of his cross examination admits that - "he is not aware as to which meeting of the Board of Directors of Ready Foods Limited approved the prospectus, he is not aware whether the Board of Directors Meetings was held. Ex.p.3 prospectus is singed by A.1-Raja Reddy only. Though, he says power of attorney is issued to A.1-Raja Reddy, he says that he is not aware as to whether ROC enquired as to existence of power of attorney. But it is admitted fact that A.2, 4 & 5 were directors as on the date of issuance of prospectus. So, the burden shifts on A.2, 4 & 5 to show that they were not authorized to sign prospectus. But not placed 15 CC.No.613-02 any materials. Of course, Ex.p.3 is signed by only A.1. But it is admitted facts that he is M.D. & hence signed on behalf of the company. A.2, 4 & 5 being the directors liable for the offence committed by the company u/s.5 of the Companies Act. Thus, they cannot be escape on the ground not signed to prospectus.
32. In addition, A1-T.V.Raja Reddy has given his evidence as D.w.2 in his chief examination is that he is A.1 in this case, he know facts of this case, thought he is from agricultural family, he studied food processing science, he has got degree of M.Sc., in Food Processing Science. Before starting this business, he was traded in Frozen Foods for 17 years, he was qualified to start the business referred in this case, the prospectus was issued on 22.12.1992, the plant and machinery was erected in 1989 - 1990 by Rheinhold and Mahla Germany company one of the top 4 chemical companies in the world, the plant was ready on 15.1.1990, the completion certificate was issued by SGS of India located in Mumbai on the same day, based on the said certificate IDBI has released balance payment as stipulated in the suppliers contract, they had mentioned all the risk factors, they had started production on 26.9.1993 as promised, he met with an accident on Oct-1993 while coming from Thirupathi, his mother expired in the accident, he was bed ridden for 1 ½ years, he was mentally disturbed, hence he could not take care of business during those days, in addition to which they got electricity power in the month of Aug-1993, due to his ill-health and for 16 CC.No.613-02 the reason they got the electricity power late they started Commercial production on April-1994, they exported first consignment on 12.6.1994, they had to stop production as they did not have working capital due to loss of more than half of the company's network for the reason foreign currency depreciation. Thereafter, they referred the matter to BIFR seeking declaration that their company as a Sick Industry, the orders passed as declaring their company as a sick industry, due to these factors company could not raise working capital. Thereafter, he approached many companies to participate in the company and revive the company, but unfortunately no company forwarded to help them, he has not given any false statement in the prospectus, due to unavoidable circumstances, he could not keep up the promise made in prospectus.
33. A.1 has also filed Written arguments where he has put forth that the plant was constructed more or less in time with the latest imported equipment and the same was witnessed by holding board meetings number of times at the site all was well as by the visits of media at the time of issuance of prospectus. Ex.D.5 is the Annual Report for 1992-93 which contains the Directors report dated: 30.6.1994 wherein it is stated that the trial production was commenced from 21.9.1993 and commercial production has already commenced recently, this confirms that the statements made in the prospectus was correct. Otherwise, the production could not have commenced. Therefore, the allegation that the 17 CC.No.613-02 directors recklessly & knowingly made statement to induce persons to invest money is not correct.
34. Further all the equipments installed were of the latest technology and imported. The progress made in construction at the time of issuance of prospectus was more than satisfactory. The financial institution lead by IDBI releasing necessary funds after carrying out detailed study of the report clears that the construction was completed. The prospectus also evidences that the directors at the time of issuance of the prospectus were confident were implementing the project and at that point of time, no one would have doubted or predicated the future out comes of the project & no recklessness nor unreasonable or culpable carelessness was present when such statement was made. This fact is admitted by the P.W.1 during his cross examination dated:02.02.2012 at Page No.14. Hence, the basic requirements of S.628 of the Act is not made out by the accused much less against A.1. Simply because the company expected to give more dividend and expected to earn more profit which the company could not achieve in future years, it cannot be said that the contents of the prospectus were full of false promises and false inducements & made with dishonest intention and to induce people to invest. P.W.1 further in the cross examination admitted that the prospectus contains statements regarding the building, machinery capability of production etc., the company is not properly managed post 1995 & the company had building, machinery, equipment to start of 18 CC.No.613-02 production. It is not their case that the company was not having building, machineries, equipments. It is also argued that the complainant has not produced the balance sheets as at 30.09.1996, 30.09.1997, 30.09.1998 30.09.1999 to show that the work is suspended. But the complainant has not produced those documents.
35. A.2-D.V.Kapur has given his evidence as D.W.1 during his chief examination has stated that he is shown as A.2 in this case, one among two allegations made against them by the complainant is that the directors have not assessed ground realities for schedule of implementation in the prospectus, his response to this allegation is ground realities were fully assessed and which is confirmed by Annual report of 1992-93 ending March-1993 which is 3 months after the prospectus is filed. According to the Annual report more than 98% of the fixed assets i.e., machinery and equipments etc., were already installed at site, most of the construction was progressing very well as reflected in the expenditure of the annual report, it was also said in the Annual report that trial production had started in Sept-1993 which could not have been possible if the assessment in the prospectus was not correct.
36. D.W.1 has further stated in his chief examination that the second allegation was that for the period 1995-99 during which very huge loss had taken place, because operation had been suspended, he had resigned from the company as a part time director in the month of Aug- 1994 due to non-reply from Mg.Director to his written suggestion to 19 CC.No.613-02 attend board meeting and the implement the operations, he got a letter from the Ministry of Company affairs that he had discharged his role as a director fully in the interest all investor and share holders, based on that ROC dropped his name from the list of accused in the FIR which was registered in the office of the Commissioner of Police in the month of Oct-2008, the letter addressed by ROC to the Commissioner of Police is as per Ex.D.1, the reports of 1992-93 & 1994-95 are at Ex.D.2 & 3, the letter dated:21.9.07 from the Ministry of Corporate Affairs to A.2 is as per Ex.D.4.
37. A.2 has also filed written arguments that his name is not found in the annual return made upto 5.3.1996, 14.3.1997, 4.3.1998 & 9.3.1999 the last Annual return filed by the company. Same is admitted in the objections filed by the complainant to the application filed u/s.633(1) of the Companies Act before the ROC. Further the complainant admits that the annual returns should bear the names of all directors, it is a statutory requirements, if the names are not mentioned in the Annual returns they are not the directors. So, it becomes clear that he was not part of the company & for the period during which the complainant alleges the acts committed by the accused. The Ministry of Company Affairs has felt and communicated that he has discharged his role as a director of the company through a letter dated:21.9.2007 as per Ex.D.4. At that time, the complainant was satisfied that he has discharged his duties as a director, the complaint filed against him before the Commissioner of 20 CC.No.613-02 Police is withdrawn. The Regional Director Company Affairs has made a communication to the ROC as per Ex.D.4 in this regard. He was not the director of the company from the date of issuance of the prospectus in 22.12.1992 till 1995, the production was in force and company was functioning, he has discharged his duties and responsibilities as a director to the best of his knowledge and ability and all reasonable care was taken by him at the time of issuance of prospectus.
38. It is also his arguments that he was a part time non-executive director of the company, he was required to attend normally one meeting of the board every quarter to deliberate and oversee the operations of the company & to obtain a certificate from the whole time management for complying with the requirements of the Act & other connected laws. However, he was not involved in the day to day affairs of the company, issuance of the cheques etc., the plant was constructed more or less in time with the latest imported equipment and the same was witnessed by holding board meetings number of times at the site, all was well by the time media visited at the time of issuance of prospectus. Ex.p.5 is the Annual Report for 1992-93 which contains the Directors report dated:30.6.1994 which clears that the trial production was commenced from 21.9.1993 and commercial production has already commenced recently, this confirms that the statements made in the prospectus was correct. Therefore, the allegations that the directors authorized false information to be included in the prospectus is not correct. Further all the 21 CC.No.613-02 equipments installed were of the latest technology and imported. The progress made in construction at the time of issuance of prospectus was more than satisfactory. It is clear that the same was possible due to financial institution lead by IDBI releasing necessary funds after carrying out detailed study of the report. In the prospectus, it is evident that the directors at the time of issuance of the prospectus were confident of implementing the project and at that point of time, no one would have doubted or predicted the future out comes of the project. The said fact is admitted by the complainant during the cross examination of P.W.1 dated:17.12.2009 at Page No.13. Hence, the basic requirements of S.628 of the Act are not made out against the he. Simply because the company expected to give more dividend and expected to earn more profit which the company could not achieve in future years, it cannot be said that the contents of the prospectus were full of false promises and false inducements. Hence, on this ground alone he deserves to be acquitted.
39. It is also put forth in the written arguments that though he was a part time director felt that there were some financial and operational lapses in managing the company. Therefore, he addressed letters dated:
14.11.1993, 28.04.1994, 01.08.1994 and 24.08.1994 to A1 pointing out the lapses and suggesting remedial measures. The said information was also brought to the knowledge of IDBI, the lead institution. In the absence of any positive response, the he resigned from the Board of 22 CC.No.613-02 Directors of the company with effect from 24.08.1994. However, he due to his age and ill health suffered from a massive heart attack and was instructed by his doctors to change his place of residence and take complete bed rest. Hence, he could not follow up the acceptance of his resignation and the submission of Form No.32 with the Registrar of companies. Therefore, it is clear that the he was not a director of the company with effect from 24.8.1994 and as such the annual returns filed by the company for the years 1994-95 does not mention his name in the place of Director.
40. It is further put-forth that, during the cross examination of P.W.1 dated:17.12.2009 at Page No.13, he has admitted that the prospectus contains statements regarding the building, machinery capability of production etc., the company is not properly managed post 1995 & the company had building, machinery, equipment to start of production. It is not their case that the company was not having building, machinery, equipment to start of production.
41. He has further argued that prior to receiving the show cause notice, he has learnt that himself & other directors of the company were arrayed as accused on the complaint filed by the Registrar of companies. So he had submitted a representation to the concerned authorities explaining his role as a vigilant independent director and how A.2 as a whistleblower, diligently raised issues regarding lapses of the company, the Ministry of Corporate Affairs after consulting Ministry of Law issued a letter 23 CC.No.613-02 dated:21.9.2007, stating that he had fully discharged the role as a director of the company in such a way as to protect the interest of the investors. This is admitted by Pw1 during cross examination. Further, objections filed by the complainant in response to the application by A2 U/s.633(1) of the Act, the complainant has clearly stated at Para No.13 that on a careful consideration of the said representation supported by documents, the Ministry of Company Affairs felt that the A2 had discharged his role as a director of the company by raising objections to the manner in which the company was transacting its business and repeatedly raising the issue of mismanagement of the company's affairs by the full time management under the control of the Managing Director and also formally bringing to the notice of the lead financial institution, viz., IDBI, about the unsatisfactory state of affairs since only the lead Financial Institution could exercise authority to issue appropriate directives to the Management.
42. The letter dated:21.9.07 issued by the Ministry of Corporate Affairs to him clearly states that he had fully discharged the role as a director of the company in such a way as to protect the interest of the investors. Hence, it is clear that he has discharged his duties as director till his resignation effective from 1994, the complainant has failed to show that the alleged statement in the balance sheet was made with dishonest intention of making a wrongful gain or to deceive the public. In the light of absence of mens-rea the provision u/s.628 of the Act cannot be 24 CC.No.613-02 invoked or is not attracted. As per the admissions of the complainant during the cross examination of P.W.1 dated:17.12.2009 at page No.15, the complainant had filed a complaint before jurisdictional police & subsequently a FIR was registered against the company & its directors for giving false information in the prospectus for inducing public to invest funds in the company. It is also admitted by the complainant that Ex.D.1 which is the representation issued by ROC to the Commissioner of Police wherein the ROC states that the representation given by A2 to the Ministry of Corporate Affairs has been carefully examined and has decided to drop proceeding against A2. As such the ROC has clearly conveyed & requested the Commissioner of police to refrain from proceedings against him.
43. A.4 has not given evidence before the court, but during the cross examination of P.w.1, his counsel suggesting has taken a contention that the complainant had not made any enquiry in respect of Ready Foods Ltd., Ex.P.3 the prospectus was approved by ROC Before issuance to the Public, Ex.p.3 is in accordance with Part-1 & II of Schedule-II of the Companies Act, only Mr.Raja Reddy has signed the prospectus Ex.p.3, the construction of the factory building of Ready Foods Ltd., was completed on 22.12.1992, plant and machinery was installed under the guidance of German Technicians, the plant was ready for trial run as on the date of the issuance of prospectus, the company was set up for processing and freezing fruits, vegetables and Indian Deliquesces, the 25 CC.No.613-02 company is an 100% export oriented company, the Ready Foods Ltd., is having technical collaboration with German Company M/s.Rheinhold and Mahla, the equipment used in the factory is modern & sophisticated in technology, the company has exported its products to the Overseas Companies & German, all the risk factors are mentioned in the prospectus, A4 is the Chairmen of LIC of India, A.4 is expert in Food Technology, he was the Director of Food Technological Research Institute, he as represented the Government of India in United Nation Food and Agricultural Organization, the role of A4 is to given suggestion and advice as technical person to the Ready Foods Ltd., there was no mis-statement in the prospectus.
44. A.5-R.Anand has given his evidence as D.w.3 where he has stated that at the time of incorporation he was not the director, he became director only on 5.5.1990, this is shown in Ex.p.2, the relevant entry is in Page No.19 of the said document in the handwriting under the head name of the director, date of appointment and date of resignation, the company incorporated in 1988 by that time as he was not director, he was not participated in the process of incorporation, the allegations made against him are false, the trial production commenced on 20.9.1993, same is shown under the head project in director's report enclosed to annual report for the year 1992-93 is as per Ex.D.5, the company commenced commercial production on 7.4.1994 as said under the Head Project in Director's Report enclosed to Annual Report 1993-94 is as per Ex.D.6. 26 CC.No.613-02 According to this document under the Head Project it is stated that the 1st export consignment as been shipped on 12.6.1994 he exit the company between trial production and commercial production and when the company was operating as per prospectus. The fact that the company commenced trial and commercial production shows that he has sufficient reasons to believe that whatever stated in the prospectus are true, he resigned to the company on 16.12.1993, the said resignation letter is at Ex.D.7, the company issued confirmation letter as per Ex.D.8, his resignation is recorded in Form No.32 by ROC as per Ex.D.9. The operations of the company suspended from 30.9.1995 i.e., almost after two years he resigned, he is not responsible for whatever happened after his resignation, himself Mr.A.B.Parpia & Mr.Matthan had filed application for discharge in CC.No.559/S/1995 before the Hon'ble Addl. Chief Metropolitan Magistrate, 37th Court, ESPLANADE, Mumba, for non-issuance of share certificates showing them as directors and responsible for business affairs of A.1 company. But the said application is allowed and they have been discharged on the grounds that they were not responsible for business affairs of the company, the certified copy of the said order is at Ex.D.10. This order was challenged by SEBI before the Hon'ble Court of Session's Mumbai where its orders in Ex.D.10 is confirmed, the certified copy of the said order is as per Ex.D.11.
45. In this way, the A.5 has taken defence that the building construction was almost completed before issuance of prospectus, trial production was 27 CC.No.613-02 commenced on 21st September 1993, the commercial production started on 7.4.1994, he resigned on 16.12.1993. i.e., even before commercial production commenced, the company was running when he resigned.
46. As to the defence of A.5 that he has resigned on 16.12.1993, P.W.1 during his cross examination though stated that he is not aware whether A.5 is retired on 16.12.1993, admits Ex.p.5 directors report shows A.5 is resigned from the Board of Directors. Even in Ex.D.5 the Form No.32 the document of ROC it is clear that A.5 has resigned with effect from 16.12.1993. As to his another defence that he was not promoter also, P.W.1 admits that his name is not shown in the column list of number of shares allotted to promoters.
47. As to the defence of A.4 that he was only an advisor, P.W.1 during his cross examination admitted that it may be true that the role of A.4 is to give suggestion & advice as technical person to Ready Foods Limited.
48. He has also admitted that as A.2, A.4 also discharged his duties & responsibilities as Director to the best of his knowledge & all reasonable care was taken at the time of issuance of prospectus.
49. As to the defence of A.2 that he is not the director during the offence committed, that he has discharged his duties and responsibilities, the Ministry of Company Affairs communicated the same to ROC & A.2, ROC inclined to withdrew allegations made against A.2 before the commissioner of police, P.W.1 admitted at Page No.14 in Para No.18 that in the objections filed to application u/s.633(1), at Para No.11, the 28 CC.No.613-02 complainant had admitted name of A.2 is not forthcoming in the returns for the year 30.9.1999, if annual returns do not bear the names of all the directors, they are not directors, Ministry of Company Affairs communicated that A.2 has discharged his role as director of the company through a letter dated:21.9.2007 Ex.D.4. ROC was inclined to withdrew allegations made against A.2 before the Commissioner of Police, A.2 was not director as at 30.9.1999. He has also specifically admitted that A.2 has taken all duties, responsibilities as a director to the best of his knowledge & abilities & all responsible care was taken at the time of issuance of prospectus.
50. It is further not disputed that A.1 was met with an accident & bed ridden for 1½ years & lost his mother in the year 1993. This shows the loss referred which is of the year 1995 might have due to this reason. No sufficient evidence before the court showing the A.1, 2, 4 & 5 have recklessly responsible for above said loss. This leads to doubt the case of prosecution as to any of the accused persons given false statement in the prospectus. It appears from the cross-examination of Pw1 that the complainant without proper scrutiny of the facts & circumstances has filed this case.
51. The learned counsel for the accused has further putforth his arguments that the complaint is barred by limitation. In support of his arguments, the learned counsel for the accused refers Sec.468 & 469 of Cr.P.C., which reads as follows:
29 CC.No.613-02
S.468:Bar to taking cognizance after lapse of the period of limitation:-
1) Except as otherwise provided elsewhere in the Code, no Court shall take cognizance of an offence of the category specified in sub- section(2), after the expiry of the period of limitation.
2) The period of limitation shall be:-
a) Six months, if the offence is punishable with fine only;
b) One year, if the offence is punishable with imprisonment for a term not exceeding one year;
c) Three years, if the offence is punishable with imprisonment for a term exceeding one year but not exceeding three years.
3) For the purposes of this section, the period of limitation, in relation to offences which may be tried together, shall be determined with reference to the offence which is punishable with the more severe punishment or, as the case may be, the most sever punishment."
Sec.469 Cr.P.C., which reads as follows:
Sec.469: Commencement of the period of limitation:
1) The period of limitation, in relation to an offence, shall commence:-
a) on the date of the offence or
b) where the commission of the offence was not known to the person aggrieved by the offence or to any police officer, the first day on which such offence comes to the knowledge of such person or to any police officer, whichever is earlier or
c) where it is not known by whom the offence was committed, the first day on which the identity of the offender is known to the person aggrieved by the offence or to the police officer making investigation into the offence whichever is earlier.
2) In computing the said period, the day from which such period is to be computed shall be excluded.
Sec.469 Cr.P.C., which reads as follows:
Sec.469: Commencement of the period of limitation:
3) The period of limitation, in relation to an offence, shall commence:-
d) on the date of the offence or
e) where the commission of the offence was not known to the person aggrieved by the offence or to any police officer, the first day on which such offence comes to the knowledge of such person or to any police officer, whichever is earlier or
f) where it is not known by whom the offence was committed, the first day on which the identity of the offender is known to the person aggrieved by the offence or to the police officer making investigation into the offence whichever is earlier.
2) In computing the said period, the day from which such period is to be computed shall be excluded.
52. According to Sec.468 of Cr.P.C., if the offence is punishable with imprisonment for a term exceeding one year but not exceeding three years, the limitation is three years. According Sec.469 of Cr.P.C., the limitation commences from the date of offence, where if date of offence 30 CC.No.613-02 is not known to aggrieved persons, from the date of knowledge, if it is not known by whom the offence was committed, the first day on which the identity of the offender is known to the person aggrieved by the offence or to the police officer making investigation into the offence which ever is earlier.
53. On the other side, the learned counsel for the complainant argues that In this case, in the balance sheet as at 30.9.1995, 30.9.1996, 30.9.1997, 30.9.1998 & 30.9.1999 reveals that the operations of the company resulted in a total loss of Rs.1,87,11,36,332/- up to 30.9.1999. This lead them to come to conclusion that the accused have made false statement, hence, the show cause notice is issued on 3.6.2002 from that date the limitation commences.
54. Contrary to this, the learned counsel for accused No.2 has relied upon the case law reported in (2010) 158 Comp Cas 21 (AP) in case between Hemendra Prasad Nag Chowdary & Ors., Vs. Registrar of Companies & Anr., wherein it is held as follows:
"In so far as offences u/s.63 & 628 of the Companies Act are concerned, they are punishable with imprisonment which may extend to two years and so as per S.468(2)© of the Cr.P.C., the period of limitation for filing complaint for the said offences is only three years. As per S.469 of Cr.P.C., the period of limitation commences on the date of offence or where commission of the offences was not known to the person aggrieved by the offences the first date on which such offence comes to the knowledge of such person, which ever is earlier. In the cases on hand, the prospectus was published on June 14, 1990 and the letter of offer was given on dated: May 16, 1993. If any false statement or misstatement occurred in the prospectus or the letter of offer, then the first respondent should have filed complaints in the lower court within three years thereof ....... Until the letter dated July 12, 2002, of the Regional Director, the first respondent, Viz., the Registrar of Companies, Hyderabad was sleeping over the matter and it is only after the Regional Director 31 CC.No.613-02 poked, the Registrar of Companies, Hyderabad woke up and filed the complaints in the lower court in August, 2003. Thereafter the first respondent wants this court to reckon the starting of period of limitation from July 12, 2002. In my considered opinion, the first respondent cannot take benefit under section.469(1)(b) of the Cr.P.C., Para.8 @.Pg.3: "The only allegation against the company is that the company had given a rosy picture in the prospectus and in the letter of offer attracting the public & shareholders to subscribe for shares and debentures in the company, by mentioning expected future results. One has to be optimistic in life and cannot be expected to be pessimistic. No One can expect future gloomy picture in the prospectus or letter of offer. At the same time, the subscribers will decide on subscribing for shares and debentures having regard to market instabilities and other risks involving in the subscription. Simply because the company expected to give more dividend and expected to earn more profit which the company could not achieve in future years, it cannot be said that the contents of the prospectus and letter of offer were full of false promises and false inducements. Para.9 @. Pg.4.
55. The learned counsel for accused No.2 has further relied upon the case law reported in 2009 (111) DRJ 204 in a case between Dr.L.B.Singh Vs. Registrar of Companies NCT of Delhi & Harayana & Anr. wherein it is held as follows:
"In the present case, the respondents have submitted that it is only when a balance sheet was filed by the petitioners for the year ending 31.3.2001 that they came to know that the statement made in the prospectus was not correct and accordingly they gave a show cause notice which was given on 21.5.2002 and then they have filed a complaint dated:14.1.2004. It is submitted that the delay had been caused because of obtaining sanction etc., from the department concerned.
Para.11 @. Pg.11 "However, when in the complaint it is not stated as to from which date the limitation starts so as to bring the complaint within limitation not it is stated as to when they applied for obtaining sanction of the competent authority to file the complaint and when the sanction was granted, it does not lie in the mouth of the respondents to submit that the complaint was within limitation."
Para.12 @. Pg.11
56. The learned counsel for accused No.2 has further relied upon the case law reported in 2009 (110) DRJ 205 in a case between Rajiv Kumar & Ors. Vs. Registrar of Companies Not of Delhi & Anr. wherein it is held as follows:
32 CC.No.613-02
"In the present case, the respondents have submitted that it is only when a balance sheet was filed by the petitioners for the year ending 31.3.2001 that they came to know that the statement made in the prospectus was not correct and accordingly they gave a show cause notice which was given on 21.5.2002 and then they have filed a complaint dated:14.1.2004. It is submitted that the delay had been caused because of obtaining sanction etc., from the department concerned.
Para.6 @. Pg.18 "Even if one takes the case of the respondents at the highest and apply the provision of S.473 of the Cr.P.C., to the facts of this case, then also once the respondents having come to know about the violation, i.e., on filing of the balance sheet, no where it is stated as to when the said balance sheet was filed, it is also not stated as to whether prior to 31.3.2001 any balance sheet was filed by the petitioner or not and in case such balance sheet was filed then what was the status shown in that balance sheet. It is hard to believe that the petitioner had not filed any balance sheet prior thereto though balance sheet as per the petitioners was filed on year to year basis. Moreover, it is nowhere stated in the complaint as to from which date the limitation starts so as to bring the complaint within limitation. As a matter of act, the averments made in the response by the respondents are not even forming part of the complaint."
Para.7 @. Pg.18 and argues that there is no limitation in this case, the limitation commences from the date of the prospectus or from the date of knowledge of the offence, but no pleadings as to when the limitation commences in this case.
57. In the Judgement reported in (2010) 158 Comp Cas 21 (AP) in case between Hemendra Prasad Nag Chowdary & Ors., Vs. Registrar of Companies & Anr., on the facts of the casr that, the prospectus was published on June 14, 1990 & the letter of offer was given on dated: May 16, 1992, the complainant had claimed that the Regional Director had issued directors to prospectus against July12, 2001. Thus the limitation starts from that day, the Hon'ble High Court of Andhra Pradesh has held that the complainant should have filed complaint within 3 years from the date of the letter of offer i.e., May 6th 1992, until the letter dated July 12, 33 CC.No.613-02 2002, the complainant was sleeping over the matter and it is only after the Regional Director poked, the Registrar of Companies, Hyderabad is woke up and filed the complaints in the lower court in August, 2003 which is barred by limitation.
58. In the present case also, the date of prospectus is 22.12.1992. Though the complainant has made allegations that the operations of the company resulted in a total loss of Rs.1,87,11,36,332/- up to 30.9.1999 as per the balance sheet as at 30.9.1995, 30.9.1996, 30.9.1997, 30.9.1998 & 30.9.1999, there is no specific averments that when exactly the limitation is commenced and when exactly the alleged offence came to their knowledge. In the Judgement reported in 2009 (111) DRJ 204 in a case between Dr.L.B.Singh Vs. Registrar of Companies NCT of Delhi & Harayana & Anr., &2009 (110) DRJ 205 in a case between Rajiv Kumar & Ors. Vs. Registrar of Companies Not of Delhi & Anr., it is clearly held that there should be averment in the complaint as to when the limitation commenced. But no such averment in the complaint of this case. So their silence from the date of prospectus till the show cause notice cannot be condoned.
59. All the above Judgements are since on similar circumstances applicable to the case on hand, Hence I hold that the complaint is barred by limitation.
60. In addition to which, the learned counsel for accused No.1 & other has further relied upon the case law reported in AIR 2011 SC 3114 in a case 34 CC.No.613-02 between Rafiq Ahmed @Rafi V. Sate of Uttar Pradesh, Criminal Appeal No.656/2005, D/4-8-2011 wherein the Hon'ble Supreme Court has held as follows:
A Like or similar offences can be termed a "Cognate Offences. The word cognate is a term primarily used in civil jurisprudence particularly with reference to the provisions of the Hindu Succession Act, 1956, where S.3© has used this expression in relation to the descendants of a class of heirs and normally the term is used with reference to blood relations. S.3© of the Hindu Succession Act defines cognate as follows:
"One person is said to be cognate of another if the two are related by blood or adoption but not wholly through males."
24.The Encyclopedia Law Lexicon explains the word 'cognate' in relation to civil laws as follows: "Cognate:- According to Hindu Law it is a class of Heirs, descended or borrowed from the earlier form. It means blood retain including female relation. Word "Cognate" Literally means akin in nature." Ram Briksh V State, 1978 All Cri.C 253(1978 Cri.L) (NOC) 198)"
25. This expression has been recognized and applied to the criminal jurisprudence as sell not only in Indian system but even in other parts of the world. Such offences indicate the similarity, common essential features between the offences and they primarily being based on difference of degree have been understood to be "Cognate Offences" Black's law Dictionary (English Edition) defines the expression cognate as follows:
"Cognate offences. A lesser offences that is related to the greater offence because it shares several of the elements of the greater offence and is of the same class or category. For example, shop lifting is a cognate offence of larceny because both crimes require the element of taking property with the intent to deprive the rightful owner of that property."
26. Therefore, where the offences are cognate offence with communality in their feature, duly supported by evidence on record, the courts can always exercise its power to punish the accused for one or the other provided the accused does not suffer any prejudice as afore-indicated."
and argues that S.63, 68 & 628 are similar offences and can be termed as Cognate offences and prays to punish in one case in case of this court comes to conclusion that the accused are fit to be convicted.
35 CC.No.613-02
I have perused the above Judgement is referring to S.396, 300, 302 of IPC, the Hon'ble Supreme Court of India in the said case, has at Para No.8, 9 & 10 observed that -
Para No.8: On a plain reading of these provisions, it is clear that to constitute an offence of "dacoity", robbery essentially should be committed by five or more persons. Similarly, to constitute an offence of "dacoity with murder" any one of the five or more persons should commit a murder while committing the dacoity, then every one of such persons so committing, attempting to commit or aiding, by fiction of law, would be deemed to have committed the offence of murder and he liable for punishment provided under these provisions depending upon the facts and circumstances of the case.
Para No.9: S.299 defines "culpable homicide". Whoever causes death by doing an act with the intention of causing death, or with the intention of causing such bodily injury as is likely to cause death, or with the knowledge that he is likely by such act to cause death, commits the offences of culpable homicide. Except the exceptions provided u/s.300 IPC, culpable homicide is murder if the act by which death is caused is done with the intention of causing death. The intention to cause death is the primary distinguishing feature between these two offences. It is a fine but clear line of distinction.
Para No.10: In terms of S.300 IPC, except in the cases stated in that provision, culpable homicide is murder if the act by which the death is caused is done with the intention of causing death or in terms of any of the circumstances stated secondly, thirdly and fourthly respectively. The law clearly marks a distinction between culpable homicide amounting to murder and culpable homicide not amounting to murder. Another distinction between sections 302 & 396 is that under the latter, wide discretion is vested in the courts in relation awarding of punishment. The court, in exercise of its jurisdiction and judicial discretion in consonance with the established principles of law can award sentence of ten years with fine or even award sentence of life imprisonment or sentence of death, as the case may be while under sec.302, the court cannot, in its discretion, award sentence lesser than life imprisonment."
61. Under such Circumstances, the Hon'ble Supreme Court of India held that in such cases the court should punish the accused for one offence in case of allegations for two cognate offences.
62. Of course, the complainant has filed 3 cases i.e., this case alleging that the accused have made un true- statement, CC.No.612/02 with the allegations that the accused have made false deceptive and misleading 36 CC.No.613-02 statement inducing public to invest money, CC.No.613/02 with allegations that the accused have given false statement.
63. The offence alleged against the accused are u/s.63 under which giving mis-statement is an offence, u/s.68 under which inducing a person fraudulently to invest money knowingly or recklessly makes any statement, promise or forecast which is false deceptive or mis-leading or such statement is made by way of any dishonest concealment of similar material facts is offence. U/s.628 is for giving false statement is offence. This shows the requirements in the above offences are of course distinct. But all the 3 cases have been filed for the same reason that the accused have not keep up the promises made in the schedule of implementation in the prospectus and risk factors are not specific. The intention of giving alleged false statement is untrue, deceptive, misleading alleged to be one and the same. Under these circumstances, as per the principle laid down in the Judgement reported in AIR 2011 SC 3114, in these cases all the offences can be termed as cognate offences. But in this case, the complainant has failed to place any evidence before the court showing that the statement made in the prospectus are mis-statement or false statement, false deceptive misleading statement and are made to induce public to invest money. Thus the above said judgement is not applicable to the case on hand.
64. The learned counsel for accused No.2 has further relied upon the case law reported in MANU/BH/1250/2006 in a case between T.K.Sinha 37 CC.No.613-02 Vs.The Registrar of Companies, Bihar & Jharkhand and Anr. wherein it is held as follows:
"A false promise is a promise never intended to be fulfilled and a promise made but not fulfilled is a breach of promise. The two are essentially different, first is culpable and the other is not. Here it is said within reference to balance sheet of 2000-2001 that the promises as made in the prospectus in 1995 were not carried out. On the face of the record petitioner being a Non- Executive Director had resigned even as such in 1996 petitioner cannot be said to be either the person incharge or the person responsible to or for the company, in question."Para.4 @. Pg.21 and argues that according to the complainant, the balance sheet as at 30.9.1999 shows that there was loss as at 30.9.1995, 30.9.1996, 30.9.1997, 30.9.1998 & 30.9.1999, the operation of the company has suffered loss Rs.1,87,11,36,332/-. But as on that date, the accused was not person incharge or the person responsible to or for the company in question & agues that A.2 was not responsible for the day to day affairs of the company between these periods. He refers admission of P.W.1 during his cross examination at Page No.13 in Para No.17 that - "it is true to suggest that A.2 was not the director from 1994." Further Ex.D.1 to 3 letters dated:21.9.2007 issued by the Ministry of Company Affairs shows that A.2 was not responsible for day to day affairs of the company. In the Judgement referred above referring to balance sheet of 2000-2001 it was alleged that promises made in the prospectus of the year 1995 were not carried out. It was held, on the face of the records petitioner was a non-executive director, had resigned in the year1996 & hence, petitioner cannot be said to be either the person incharge or the person responsible to or 38 CC.No.613-02 for the company in question. As in the present case also, A.2 was non-executive director, admittedly resigned in the year 1994, he cannot be held responsible for loss, after 1994. As the facts & circumstances are similar above referred judgement is applicable to the case on hand.
65. It is also argument of the learned counsel for accused that as per S.68 of the Act to constitute an offence there must be knowledge & recklessness while making any statement, promise or forecast & such statement should be deceptive or misleading, but on such statement is made by way of any dishonest concealment of material facts. In this case no such ingredients, thus the accused are liable to be acquitted.
66. It is further argued that S.63, 68 & 628 of Act are concerned, the directors become liable for punishment if the statement in the prospectus are not true & not if the statements made in the prospectus have not been adhered to by the company. But in this case, it is not so. Hence, the accused are liable to be acquitted. In support of his argument, the learned counsel for accused No.2 has further relied upon the case law reported in MANU/AP/0280/2013 in a case between Dr.T.H.Chowdary Vs. The Registrar of Companies and Anr. wherein it is held as follows:
" S.68 of the Act imposes penalty upon a person if such a person" either knowingly or recklessly" makes any statement, promise or forecast "which is false, deceptive or misleading" or such statement is made by way of "any dishonest concealment of material facts" and that if such a statement induced or attempted to induce another person to enter into any agreement etc., such a person would be liable for punishment. There are several 'ifs' in S.68 of the Act. That apart, mens rea is part of S.68 of the Act, viz., that the statement was made either knowingly or recklessly; further mens rea incorporated in S.68 of the Act is that if there was concealment, such concealment must have been dishonest concealment 39 CC.No.613-02 of material facts. If all these ingredients exist, the offence u/s.68 of the Act is made out. Inasmuch as the claim relates to u/s.628 of the Act, mens rea is incorporated in the section itself as making a statement which is false in any material particular or omits any material facts if such a statement was made "knowing it to be false."
Para.15 @. Pg.26 "Curiously, this is an activity of the company after receipt of money through public issue. I am afraid that if the company did not invest the monies in the manner as promised in the prospectus, it cannot be considered to be a violation of statement in the prospectus. The issuance of a statement through prospectus and not abiding by the promises made in the prospectus are tow distinct activities altogether. So far as Sections.63, 58 & 628 of the Act are concerned, the directors become liable for punishment if the statements in the prospectus are not true and not if the statements made in the prospectus have not been adhered to by the company. I therefore regret my inability to agree with the contention of the learned Assistant solicitor General that the statements made in the prospectus have not been carried out, which is evident through various subsequent balance sheets and that the petitioner-accused No.2, as a director of accused No.1 - company consequently is liable for punishment u/s.63,68 & 628 of the Act."
Para.21 @. Pg.28 st " As the 1 respondent failed to show the participation of the petitioner in st the issuance of the prospectus and also as the 1 respondent failed to show that the contents of the Prospectus are violative of Sections.63, 68 & 628 of the Act, I consider that the prosecution of the petitioner-accused No.2 for the offences u/s.63, 68 & 628 of the Act would be abuse of the process of Court and is beyond the scope of the three sections referred to. Consequently, the 3 applications deserve to be allowed quashing the proceedings against the petitioner. Accordingly, the three petitions are allowed. CC.Nos.125, 126 & 127 of 2010 on the file of the Special Judge for Economic Offences, Hyderabad, are quashed so far as the present petitioner, who is accused No.2 therein, is concerned." Para.26 @. Pg.
67. It is also argument of the learned counsel for accused that to constitute an offence u/s.628 of the Companies Act, there must be mens-rea as a constituent part of a crime. But, in this case, it is not so & relied upon the judgement reported in (1967) 37 Comp. Cas. 790 in a case between P.P.Looke Vs. N.J.Mathew wherein it is held as follows:
"In order to sustain an action an action u/s.628, the prosecution must show that false statements were made in the balance sheet knowing them to b e false and with a dishonest intention."
Para.6 @. Pg.34 " Unless a statute by itself or by necessary implication Jules out mens- rea as a constituent part of a crime, a person should not be found guilty of an offence against the criminal law unless he has got a guilty mind."
Para.7 @. Pg.35 40 CC.No.613-02 " Mens -rea is an essential ingredient of a criminal offences. A statute may exclude the element of mens- rea, it is, however, a sound rule of construction which is adopted in England and also accepted in India, to construction a provision which creates an offence in conformity with the common law rather than against it, except where the statute expressly or by necessary implication excludes mens -rea. Of the question whether the element of guilty mind is excluded from the ingredients of an offence the mere fact that the object of the statue is to promote welfare activities or to eradicate a grave social evil is not by itself decisive. Only where it is absolutely clear that the implementation of the object of the statues would otherwise be defeated that mens rea may, by necessary implication, be excluded from a statue. The nature of the mens rea that would be implied in a statute creating on offence depends on the object of the Act & the provisions thereof." Para.9 @. Pg.35 "Even if the legislation in question is one to eradicate the social evil, the foundation of penal responsibility attaching itself to the crime cannot change and the fundamental principle of criminal jurisprudence is that without mens- rea or the guilty mind being proved against the accused, he cannot be visited with a punishment. So also in the present case, the burden was on the complainant to show that the alleged statement in the balance sheet was made with the dishonest intention of making a wrongful gain or to deceive the public. No such element has evidently been proved in the case. In the circumstances, the accused have rightly been acquitted"
Para.10 @. Pg.35
68. I have perused the judgements referred above, as per the principles laid down in the above said judgements, according to S.68 of the Act, the statement should be false, deceptive, misleading, dishonest concealment of material facts, it should be knowingly or recklessly mens- rea in committing offence is mandatory. Further the directors can be made liable for punishment u/s.63, 68 & 628 if the statements in the prospectus are not true. But in this case, there is no averments or evidence meeting requirements of S.63, 68 & 628 of the Act. Thus, the principles laid down in the above judgements can be made applicable to this case on hand & accused are fit to be acquitted.
41 CC.No.613-02
69. The learned counsel for accused has also relied upon the case law reported in MANU/SC/0016/2015;2015(1) SCALE140, in a case between Sunil Bharti Mittal Vs. Central Bureau of Investigation, wherein it is held as follows:
"No doubt, a corporate entity is an artificial person which acts through its officers, directors, managing director, chairman etc., If such a company commits an offence involving mens rea, it would normally be the intent and action of that individual who would act on behalf of the company. It would be more so, when the criminal act is that of conspiracy. However, at the same time, it is the cardinal principle of criminal jurisprudence that there is no vicarious liability unless the statute specifically provides so."
Para.37 @. Pg.54 "Thus, an individual who has perpetrated the commission of an offence on behalf of a company can be made accused, along with the company, if there is sufficient evidence of his active role coupled with criminal intent. Second situation in which he can be implicated is in those cases where the statutory regime itself attracts the doctrine of vicarious liability, by specifically incorporating such a provision."
Para.38 @. Pg.54 "When the company is the offender, vicarious liability of the Directors cannot be imputed automatically, in the absence of any statutory provision to this effect. ........ if a group of persons that guide the business of the company have the criminal intent, that would be imputed to the body corporate ..... Here also, the principle of "alter ego", was applied only in one direction namely where a group of persons that guide the business had criminal intent, that is to be imputed to the body corporate and not the vice versa. Otherwise, there has to be specific act attributed to the Director or any other person allegedly in control and management of the company, to the effect that such a person was responsible for the acts committed by or on behalf of the company." Para.39 @. Pg.54.
70. In this case, Ex.D.1 to 3 shows that A.2 was not involved in day to day affairs of the company or that he was not having any mens- rea to give false statement. In fact, the prosecution has failed to prove that A.2 has given false statement in the prospectus.
42 CC.No.613-02
71. At the out set, I hold that the allegations made against the accused are not proved beyond all reasonable doubt. Thus, the accused are entitled to be acquitted. Hence I answer Points No.1 & 2 in negative.
72. Point No.3: In view of my findings on Points No.1 & 2, I proceed to pass the following order.
ORDER Acting u/s.255(1) of Cr.P.C the accused No.1, 2, 4 & 5 are acquitted for the offence punishable u/s.628 of Companies Act, 1956. The bail bonds of accused No.1, 2, 4 & 5 stands cancelled. Dictated to the Stenographer, directly on computer, typed by her corrected and then pronounced by th me, in open court on this the 10 day of December 2015.
PRESIDING OFFICER.
ANNEXURE:
ON BEHALF OF THE COMPLAINANT:
WITNESSES: P.W.1 N.K.R.Prasad.
DOCUMENTS:
Ex.p.1 Certificate of Incorporation, Ex.p.2 C/c of Prospectus dt:22.12.1992, Ex.p.2(a) Relevant Entry, Ex.p.3 Letter dated:30.4.2002, Ex.p.4 Show cause notice dt:3.6.2002, Ex.p.5 Complaint, Ex.p.5(a) Sig. of Sri.B.M.Anand.43 CC.No.613-02
ON BEHALF OF THE ACCUSED:
WITNESSES:
D.W.1 D.V.Kapur, D.W.2 T.V.Raja Reddy, D.W.3 R.Anand.
DOCUMENTS:
Ex.D.1 C/c of Letter, Ex.D.2 Report of 1992-93, Ex.D.3 Report of 1994-95, Ex.D.4 C/c of Letter dt:21.9.07, Ex.D.5 C/c of Annual Report of 1992-93, Ex.D.6 C/c of Annual Report of 1993-94, Ex.D.7 C/c of Resignation Letter, Ex.D.8 C/c of Confirmation Letter, Ex.D.9 C/c of Form No.32, Ex.D.9(a) Relevant entry, Ex.D.10 C/c of Order, Ex.D.11 C/c of Order.
(PUSHPAVATHI V) PRESIDING OFFICER, SPL.COURT FOR ECONOMIC OFFENCES, BANGALORE.