Calcutta High Court (Appellete Side)
Pradip Kumar Khaitan & Ors vs The State Of West Bengal & Anr on 28 April, 2017
Author: Sankar Acharyya
Bench: Sankar Acharyya
IN THE HIGH COURT AT CALCUTTA
CRIMINAL REVISIONAL JURISDICTION
APPELLATE SIDE
Present :
THE HON'BLE MR. JUSTICE SANKAR ACHARYYA
CRR 1747 of 2010
&
CRR 1748 of 2010
Pradip Kumar Khaitan & Ors.
-Vs.-
The State of West Bengal & Anr.
For the appellant : Mr. S. N. Mukherjee, Sr. Advocate,
Mr. Sandipan Ganguly, Sr. Advocate,
Mr. Sabyasachi Banerjee, Advocate,
Mr. Ayan Bhattacharyya, Advocate,
Mr. Cedric Fernandez, Advocate,
Mr. Anjan Datta, Advocate,
Ms. Nandini Khaitan, Advocate.
For the Opposite Party No. 2: Mr. Somnath Banerjee, Advocate,
Mr. Pradip Kumar Das, Advocate.
Heard on : 06.01.2017, 13.01.2017, 20.01.2017,
03.02.2017,10.02.2017, 17.02.2017,
24.02.2017, 03.03.2017 &10.03.2017.
Judgment on : 28.04.2017.
SANKAR ACHARYYA, J.
These two revisional applications have been heard simultaneously as both the revisional applications are based on same state of facts and parties in both the cases are same. Therefore, both the revisional applications are taken together for disposal in this composite judgment.
In CRR 1747/2010, the petitioners have challenged the order dated 01/01/2009 passed by Learned Chief Judicial Magistrate, Alipore, South 24 Parganas in Case No. C - 5562/2009. The petitioners have also prayed for quashing the said proceedings. Similarly, in CRR 1748/2010 the petitioners have challenged the order dated 01/01/2009 passed by Learned Chief Judicial Magistrate, Alipore, South 24 Parganas in Case No. C - 5563/2009. Petitioners have prayed for quashing the said proceedings also. One Swadhin Barua, Deputy Registrar of Companies, West Bengal has filed complaint against the petitioners of these revisional applications and others on 01/09/2009 under Section 628 of the Companies Act, 1956 in C
- 5562/2009. Same complainant filed the complaint against the same accused persons under Section 68 of the Companies Act, 1956 in C - 5563/2009 in the Court of Learned Chief Judicial Magistrate, Alipore, South 24 Parganas. On plain reading of the said complaints, it is obvious that cause of action for filing both the complaints is same although Penal Sections of the offence as mentioned are different. For better understanding, the allegation of the said complaints is set out hereunder:
Complaint in C - 5562/2009 "Complaint under Section 628 of the Companies Act, 1956. MOST RESPECTFULLY SHEWETH:
1. That M/s South Asian Petrochem Limited (hereinafter referred to as "the Company") was incorporated in the State of West Bengal under the Companies Act, 1956 (hereinafter referred to as "the Act") on 05/06/1996 bearing Registration No. 21-79932 and having its registered office at Dhunseri House, 4A, Woodburn Park, Kolkata-700020.
2. That the Authorised Capital of the company is Rs.
2900000000/- and its Paid up share Capital is Rs. 2331385940/-.
3. That the accused No. 1 to 12 are the Directors/Officers of the Company at all relevant times.
4. That Section 628 inter alia provides as under:-
"if in any return, report, certificate, balance sheet, prospectus, statement or other documents required by or for the purposes 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;
5. That on scrutiny of the Balance Sheet of the Company as at 31/03/2004, for violation of aforesaid section of the Act, it has been observed and pointed out in the under mentioned Show Cause Notice, which inter alia, stated are as follows:-
AND WHEREAS the Balance Sheet of the Company as at 31/03/2004 has been scrutinized to examine into the pattern of utilization of public issue monies arising out of the public issue (IPO) and the fund position of the company, the following violation of the Act was noticed leading to violation of the provisions of Section 628 of the Companies Act, 1956.
Violation of Section 628 of the Companies Act, 1956 While it was envisaged in the prospectus to part finance the project that the working capital of the company would be added to the extent of Rs. 18.23 crores during the year 2003-04 out of the public issue and other means of finance which include contribution from promoters, borrowing from WBIDC, fully convertible debentures, following examination of the fund position of the company's Balance Sheet for the financial year 31-03- 2003 & 31-03-2004 it was observed that the working capital increased during the year ended 31-03-2004 by Rs. 26.20 crores resulting from the Net Current Assets increasing from Rs. 34.66 crores as on 31.03.2003 to 60.86 crores as on 31.03.2004 with the corresponding increase in the Working Capital Borrowings amounting to Rs. 30.05 crores. Therefore the enhancement of the working capital in the year was exclusively contributed by Working Capital Borrowings ignoring the other sources of finance as envisaged in the prospectus which is in contravention of the provision of Sec. 628 of the Companies Act, 1956.
And consequently, the accused rendered themselves liable for punishment as provided under Section 628 of the Act.
6. That the Show Cause Notice No. ROC/TS/SCN/79932/1563 to 1573 (11.L) dated 11/08/2009 was issued to all accused by the complainant by Speed Post.
7. That the above violation of the Act came to the knowledge of the Complainant on 04/08/2009, by a letter received from the Ministry vide his letter no. F. No. 4/15/2009. CL-II dated 31/07/2009 and Regional Director, Eastern Region, Kolkata vide his letter no. RD/T/14134/BS/07 dated 13/07/2009 directing therein to launch the prosecution for the aforesaid violation against the accused and as such, the Complainant has filed this instant case well within the period of limitation as provided under Section 468 and 469 of the Criminal Procedure Code, 1973.
8. That the offence was committed at the registered office of the company situated at Dhunseri House, 4A, Woodburn Park, Kolkata-700020, which falls under the jurisdiction of this Learned Court, hence, this Learned Court has jurisdiction to try the offence.
9. That it is, therefore, prayed that:
a) that the accused herein may be summoned under Section 628 of the Act and dealt with according to Law.
b) since the complainant is a Public Servant is filling this complaint in his official capacity and the Complaint is mostly based on records maintained in his office, the personal attendance of the Complainant in this Learned Court may be dispensed with under proviso to Section 256 of the Code of Criminal Procedure, 1973 read with Section 621 (1A) of the Act.
c) at the time of imposing fine, if any, this Learned Court may direct that whole or any part thereof as may be deemed fit, be applied in or towards payment of costs of these proceedings under Section 626 of the Act.
d) such other Order/Orders as may be deemed fit be Passed for which your petitioner as in duty bound, shall ever pray."
Complaint in C - 5563/2009 "Complaint under Section 68 of the Companies Act, 1956.
MOST RESPECTFULLY SHEWETH:
1. That M/s South Asian Petrochem Limited (hereinafter referred to as "the Company") was incorporated in the State of West Bengal under the Companies Act, 1956 (hereinafter referred to as "the Act") on 05/06/1996 bearing Registration No. 21-79932 and having its registered office at Dhunseri House, 4A, Woodburn Park, Kolkata-700020.
2. That the Authorised Capital of the company is Rs.
2900000000/- and its Paid up share Capital is Rs. 2331385940/-.
3. That the accused No. 1 to 12 are the Directors/Officers of the Company at all relevant times.
4. That Section 68 inter alia provides as under:-
"Any person who, either by knowingly or recklessly making any statement, promise or forecast which is false, deceptive or misleading, or by any dishonest concealment of material facts, induces or attempts to induce another person to enter into, or to offer to enter into--
(a) any agreement for, or with a view to, acquiring, disposing of, subscribing for, or underwriting shares or debentures; or
(b) any agreement the purpose or pretended purpose of which is to secure a profit to any of the parties from the yield of shares or debentures, or by reference to fluctuations in the value of shares or debentures;
5. That on scrutiny of the Balance Sheet of the Company as at 31/03/2004, for violation of aforesaid section of the Act, it has been observed and pointed out in the under mentioned Show Cause Notice, which inter alia, stated are as follows:-
AND WHEREAS the Balance Sheet of the Company as at 31/03/2004 has been scrutinized to examine into the pattern of utilization of public issue monies arising out of the public issue (IPO) and the fund position of the company, the following violation of the Act was noticed leading to violation of the provisions of Section 68 of the Companies Act, 1956.
Violation of Section 68 of the Companies Act, 1956 While it was envisaged in the prospectus to part finance the project that the working capital of the company would be added to the extent of Rs. 18.23 crores during the year 2003-04 out of the public issue and other means of finance which include contribution from promoters, borrowing from WBIDC, fully convertible debentures, following examination of the fund position of the company's Balance Sheet for the financial year 31-03- 2003 & 31-03-2004 it was observed that the working capital increased during the year ended 31-03-2004 by Rs. 26.20 crores resulting from the Net Current Assets increasing from Rs. 34.66 crores as on 31.03.2003 to 60.86 crores as on 31.03.2004 with the corresponding increase in the Working Capital Borrowings amounting to Rs. 30.05 crores. Therefore the enhancement of the working capital in the year was exclusively contributed by Working Capital Borrowings ignoring the other sources of finance as envisaged in the prospectus which is in contravention of the provision of Sec. 68 of the Companies Act, 1956.
And consequently, the accused rendered themselves liable for punishment as provided under Section 68 of the Act.
6. That the Show Cause Notice No. ROC/TS/SCN/79932/1574 to 1584 (11.L) dated 11/08/2009 was issued to all accused by the complainant by Speed Post.
7. That the above violation of the Act came to the knowledge of the Complainant on 04/08/2009, by a letter received from the Ministry vide his letter no. F. No. 4/15/2009. CL-II dated 31/07/2009 and Regional Director, Eastern Region, Kolkata vide his letter no. RD/T/14134/BS/07 dated 13/07/2009 directing therein to launch the prosecution for the aforesaid violation against the accused and as such, the Complainant has filed this instant case well within the period of limitation as provided under Section 468 and 469 of the Criminal Procedure Code, 1973.
8. That the offence was committed at the registered office of the company situated at Dhunseri House, 4A, Woodburn Park, Kolkata-700020, which falls under the jurisdiction of this Learned Court, hence, this Learned Court has jurisdiction to try the offence.
9. That it is, therefore, prayed that:
d) that the accused herein may be summoned under Section 68 of the Act and dealt with according to Law.
e) since the complainant is a Public Servant is filling this complaint in his official capacity and the Complaint is mostly based on records maintained in his office, the personal attendance of the Complainant in this Learned Court may be dispensed with under proviso to Section 256 of the Code of Criminal Procedure, 1973 read with Section 621 (1A) of the Act.
f) at the time of imposing fine, if any, this Learned Court may direct that whole or any part thereof as may be deemed fit, be applied in or towards payment of costs of these proceedings under Section 626 of the Act.
g) such other Order/Orders as may be deemed fit be Passed for which your petitioner as in duty bound, shall ever pray."
Impugned orders dated 01/09/2009 passed in the aforesaid complaint cases are also set out hereunder:-
Order No. 1 Dated 01/09/09 in Case No. C/5563/2009 "Perused, the petition of the Complaint filed by Shri S. Barua, Dy. Registrar of Companies, West Bengal.
Cognizance is taken under Section 190(1) of the Cr. P. C. Since the complainant is a public servant or purporting to act in the discharge of his official duties and hence it is not necessary to examine him under Section 200 Cr. P. C. The personal attendance is dispensed with under Section 200 Cr. P. C. read with 621(1A) of The Companies Act, 1956.
A prima -facie case under Section 68 of the Companies Act, 1956 is made out against the above accused persons. Accordingly, issue summons, fixing for S/R and appearance on 05/01/10."
Order No. 1 Dated 01/09/09 in Case No. C/5562/2009 "Perused, the petition of the Complaint filed by Shri S. Barua, Dy. Registrar of Companies, West Bengal.
Cognizance is taken under Section 190(1) of the Cr. P. C. Since the complainant is a public servant or purporting to Act in the discharge of his official duties and hence it is not necessary to examine him under Section 200 Cr. P. C. The personal attendance is dispensed with under Section 200 Cr. P. C. read with 621(1A) of The Companies Act, 1956.
A prima -facie case under Section 628 of the Companies Act, 1956 is made out against the above accused persons. Accordingly, issue summons, fixing for S/R and appearance on 05/01/10."
Section 68 of the Companies Act reads as:-
"68. Any person who, either by knowingly or recklessly making any statement, promise or forecast which is false, deceptive or misleading, or by any dishonest concealment of material facts, induces or attempts to induce another person to enter into, or to offer to enter into--
(c) Any agreement for, or with a view to, acquiring, disposing of, subscribing for, or underwriting shares or debentures; or
(d) Any agreement the purpose or pretended purpose of which is to secure a profit to any of the parties from the yield of shares or debentures, or by reference to fluctuations in the value of shares or debentures;
Shall be punishable with imprisonment for a term which may extend to five years, or with fine which may extend to [one lakh] rupees, or with both."
Section 628 of the Companies Act reads as:-
"628. If in any return, report, certificate, balance sheet, prospectus, statement or other document required by or for the purposes 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, be punishable with imprisonment for a term which may extend to two years, and shall also be liable to fine."
In these revisional applications, 10 petitioners out of 12 accused persons of the complaint cases have challenged the criminal proceedings which have been brought against them by the Deputy Registrar of Companies, West Bengal. In the revisional applications, inter alia, petitioners have contended that before lodging the complaints separate notices was served on the petitioners calling upon them to Show Cause within 15 days from the date of notice why penal action under Section 68 of the Companies Act/under Section 628 of the Companies Act should not have been initiated against them in default. The petitioners replied said notices dated 27 August 2009 which were received in the office of the complainant on 28 August 2009. In that reply, it was specifically contended that Mr. Shankar Lal Dhanuka expired on 16.12.2002. The complaints were lodged on 01.09.2009 after receipt of that reply. Yet the complainant made Shree Shankar Lal Dhanuka as accused no. 3. During pendency of these revisional applications respondent no. 2, the Registrar of Companies, West Bengal filed affidavit-in-opposition affirmed by the Deputy Registrar of Companies, West Bengal. The factum of death of Shankar Lal Dhanuka has not been denied. Therefore, it is crystal clear that in both the complaints dead man namely, Shankar Lal Dhanuka was made accused which is not permissible in law.
In paragraph 20 of the revisional application, petitioners have stated in substance that on receiving the Show Cause Notices they filed an application under Section 633 (2) of the Companies Act in this High Court and in that proceeding Hon'ble Judge was pleased to pass an order to the effect that in the event, the learned Magistrate has not taken any cognizance in the matter till 4 September, 2009 being the date on which the said application was filed, no further steps may be taken by the learned Magistrate till 13 November, 2009 or until further order. Said order was passed on 22 September, 2009 in CP 384/2009 CA 614/2009. In last but one paragraph Hon'ble Judge was pleased to observe ---
"I am passing this interim order having prima facie satisfied about the petitioner's contentions that the complaint against the petitioner is not maintainable. Let affidavit-in-opposition be filed by 28 October, 2009. Reply, if any, be filed by 6 November, 2009. Let the matter appear in the list on 9 November, 2009."
In paragraph 9 of the affidavit-in-reply in both the cases, a subsequent order dated 7 February, 2012 passed in CP No. 384/2009 CA No. 614/2009 has been mentioned stating that since the criminal proceeding has already been lodged the petitioners do not wish to proceed with the petition under Sections 633 (2) of the Companies Act, 1956 and they were permitted to withdraw their application to urge all grounds in course of criminal proceedings.
At the time of hearing these two revisional applications, learned Advocate for the petitioners submitted that the baseless complaints have been lodged against the petitioners and others including a dead man. According to him, from the face value of the complaints any case of commission of neither any offence under Section 68 of the Companies Act nor any offence under Section 628 of the Companies Act is prima facie made out and therefore both the proceedings in the Court of learned Chief Judicial Magistrate are liable to be quashed. According to the allegations of the complaints M/s. South Asian Petrochem Limited issued prospectus offering shares of the Company to part finance the project that the working capital of the company would be added to the extent of Rs. 18.23 crores during the year 2003- 04 out of the public issue and other means of finance which include contribution from promoters, borrowing from WBIDC, fully convertible debentures. According to the complaints, the working capital was enhanced by working capital borrowing only excluding the other sources of finance as envisaged in the prospectus. Learned Advocate for the petitioners argued that such allegation was misleading because the prospectus was issued in 2001. According to him, in the prospectus estimated fund and not assured fund and source for part financing the project was stated and it is a normal prudence that when a prospectus was issued, estimated figures and futuristic projection are made in order to give an idea to the public as to the nature and manner in which funds were to be accumulated and the utilization of the same for the specified purpose. He advanced his arguments that no statement made in the prospectus of the company can be said to be false or there is any premeditated and deliberate false, deceptive or misleading promise or forecast in the prospectus. He further submitted that the company issued the first prospectus of the company offering to public for subscription simultaneous but unlinked issue of 50 lakh equity shares of Rs. 10 each for cash but surprisingly not even a single purchaser of such shares complained that he/she was mislead or deceived by any false statement of promise or forecast made in the prospectus. His further arguments is that the complaints were lodged after scrutiny of Balance Sheet of the Company for the year 2003-04 only and not the previous Balance Sheets where from it would have been crystal clear as to how the money collected on the basis of the offer in prospectus was utilized by the Company. There is no mens rea established in the face value of either of the complaints. Copy of such prospectus was not annexed to the complaints in the two cases before the learned Magistrate. The petitioners submitted copy of the said prospectus along with supplementary affidavit before this Court. Learned Advocate for the contesting respondent no. 2 has argued that the requirements to constitute the offences under Sections 68 and 628 of the Companies Act are present in the complaints for taking cognizance and therefore the said criminal proceedings cannot be quashed as prayed for.
Having gone through the materials-on-record, it appears that the complaints have been lodged in C-5562/2009 under Section 628 of the Companies Act and in C-5563/2009 under Section 68 of the Companies Act on the same day stating same fact but each complaint is conspicuously silent about the another complaint filed by same person against same accused persons. On simultaneous reading of the complaints it can be unhesitatingly said that the complainant was not in a position to firmly say whether any offence under Section 68 of the Companies Act was committed or any offence under Section 628 of the Companies Act was committed by the accused persons. As such he lodged two separate complaints for beating around the bush. It is significant to note that reply of the Show Cause Notice was received by the complainant on 28 August, 2009 wherein death of Shankar Lal Dhanuka which took place on 16.12.2002 was specifically informed but on 01.09.09 the complainant lodged the complaint against the accused persons including said Shankar Lal Dhanuka. It clearly speaks that the complainant had not gone through the reply given by the present petitioners to the Show Cause Notice. From the face value of the complaints it seems that the complainant lodged the complaints only because Regional Director, eastern Region, Kolkata directed by his letter no. RD/T/14134/BS/07 dated 13.07.2009 to launch the prosecution. After receiving that letter, the show cause notices dated 11.08.2009 were issued to the accused petitioners but reply to such Show Cause Notice was not adhered to as if such a show cause notice is mere a formality before lodging a complaint. Be it noted that allegation of violation of provisions of the Companies Act as made in the complaints is more or less reproduction of the allegations made in show cause notices. Said allegation was considered earlier in this High Court in the proceedings under Section 633(2) of the Companies Act and the Hon'ble Judge was prima facie satisfied that the complaint is not maintainable. Significantly, I like to mention that no better particular was placed before learned Chief Judicial Magistrate before taking cognizance of criminal offences.
Obviously the complaints have been drafted as if commercial offence was committed by the accused persons. From the order dated 01.09.09, I am not satisfied to hold that a preliminary inquiry was held judiciously by the learned Chief Judicial Magistrate. Neither a copy of the prospectus nor a copy of Balance Sheet of the Company was annexed to either of the complaints and therefore certainly learned Judicial Magistrate did not peruse the same and also did not insist for production of such documents. It is not clear as to why the learned Chief Judicial Magistrate did not make a query as to whether any reply was given to the Show Cause Notices by the accused persons and if so, what was their defence. These are all questions for preliminary enquiry before taking cognizance and not for holding any mini trial. Unless a prima facie case of commission of penal offence is made out, taking of cognizance of offence is certainly bad-in-law. That apart, on self-same set of facts as alleged in two separate complaints learned Magistrate took cognizance of offence under Section 68 of the Companies Act which is punishable for a term which may extend to 5 years or with fine which may extend to Rs. 1 lakh or with both. Learned Magistrate also took cognizance separately on same set of facts of offence under Section 628 of the Companies Act which is punishable with imprisonment for a term which may extend to 2 years and shall also be liable to fine. It would have been prudent for the learned Chief Judicial Magistrate to think as to whether on same set of facts a person can be punished under Section 68 of the Companies Act in a proceedings and also under Section 628 of the Companies Act in another proceedings or not at all. In my opinion, learned Magistrate passed the orders mechanically without application of judicial mind.
I like to reiterate that Hon'ble Judge of this High Court in CP 384/2009 CA 614/2009 on being prima facie satisfied observed on 22 September, 2009 considering the Show Cause Notice that the complaint against the petitioner is not maintainable. Be it noted that said case was filed by the petitioners under Section 633 (2) of the Companies Act for relief apprehending that a complaint might have been lodged against them in the tune of show cause notice. At the time of passing the said order, Hon'ble Judge was not apprised that a complaint was lodged against them. On a subsequent date it was reported to the Hon'ble Court that before filing the application under Section 633(2) of the Companies Act cognizance was taken on 01.09.2009. Subsequently the petitioners had withdrawn their application with liberty to make their contention in criminal proceedings.
Filing complaint alleging penal offence against accused is very responsible act. Taking cognizance of offence by Magistrate also requires sincere judicial consideration. Unless from the face value of the complaint a prima facie case of penal offence is made out cognizance of any offence cannot be taken by Magistrate under Section 190 of the Code of Criminal Procedure, 1973.
In the two complaints under consideration it cannot be said that there is allegations of wilful violation of any assurance or undertaking given in the prospectus by the company. At best on plain reading of the complaints it can be said that in the prospectus the company published the scheme for future financing the project from various sources including working capital borrowings and the proceeds from public issue and for giving effect to it, fund was collected from working capital borrowings only in a particular financial year, intervened by two financial years from the publication of the prospectus. Such scenario, in no way can make out a prima facie case that before publication of the prospectus the accused persons on behalf of the company intended not to utilize but deliberately promised to utilize the public issue proceed for the project of the company or to mislead or deceit the intending purchasers of shares of the company making false promise or forecast in prospectus. Significantly, there is no case that even a single buyer of shares made any complaint against the company or accused persons with reference to any statement or promise or forecast made in the prospectus as false or misleading or deceptive.
It is pertinent to note that the earlier observation of the Hon'ble Judge made in CP 384/2009 CA 614/2009 on 22.09.2009 against maintainability of complaint on the basis of show-cause notice was not challenged by the complainant/respondent. In my opinion also the face value of the complaints does not make out case for roping the accused persons with criminal liability. Rather, lodging of such complaints is a hasty act of the complainant, who holds responsible post of a public officer, without thinking about unnecessary probable adverse effect on the accused persons in the criminal cases initiated on the basis of his complaints. Learned Magistrate also failed to consider the consequence of taking cognizance simultaneously of the offences under Sections 68 and 628 of the Companies Act in two separate cases on the same cause of action, which prima facie does not constitute any such offence. Therefore, both the proceedings in C-5562/2009 and C-5563/2009 which are pending in the Court of learned Chief Judicial Magistrate, Alipore, South 24-Parganas, are liable to be quashed and quashed accordingly. Accused persons of those cases are discharged. Both the revisional applications are, therefore, allowed.
Urgent Photostat certified copy of this judgment, if applied for, be given to the parties expeditiously following usual procedure of law.
(SANKAR ACHARYYA, J.)