Delhi District Court
Roc vs Sunil Kumar Jha Etc. on 13 May, 2014
IN THE COURT OF SH. DEVENDRA KUMAR SHARMA
ADDL. CHIEF METROPOLITAN MAGISTRATES (Spl. Acts) CENTRAL
TIS HAZARI COURTS, DELHI
ROC vs Sunil Kumar Jha etc.
CC No.1417/3
JUDGMENT
(a)Serial no. of the case : 02401R0212992002
(b)Date of commission of offence : During the year 19961999
(c)Name of complainant : Registrar of Companies,
NCT of Delhi & Haryana
(d)Name, parentage, residence: 1)Sunil Kumar Jha
A1/G, DDA Flats, Munirka New Delhi
2)Vinay K. Sharma (PO)
F1/A, Radhapuri, Krishna Nagar,
New Delhi
3)Veena Sharma (PO)
r/o 36, Sainik Farms, New Delhi
4)Manohar Nath Badam
E15/B, DDA Flats, Munirka New Delhi
5)Col. M.J. Ganapathy, (PO)
"Ashary" 13, AOP Colony, Kankar
Khera, Meeut Cantt, UP.
(e)Offence complained of/ proved : U/s 63/628 of Companies Act, 1956
(f)Plea of accused : Pleaded not guilty
(g)Final order : Accused no.1 and 4 acquitted.
(h)Date of such order : 13.05.2014 Date of institution: 07.05.2002 Arguments heard/order reserved: 12.05.2014 Date of Judgment: 13.05.2014 Brief statement of the reasons for the decision: 1 Initially, the complainant Sh. JK Jolly, the then Deputy Registrar of Companies ROC vs Sunil Kumar Jha etc. CC No.1417/3 1 of 14 NCT of Delhi & Haryana filed the two complaints one u/s 62/68 and another complaint u/s 63/628 of the Companies Act, 1956 (for short the 'Act') against the aforesaid accused persons. Vide order 27.04.2012, it has been held by the learned Predecessor Court that complaint No.1418/3/09 u/s 62/68 of the Act is pertaining to civil liability and hence, same is not maintainable. Now this judgment is with respect to complaint u/s 1417/3/09 u/s 63/628 of the Act. 2 Since beginning accused Vijay Kumar Sharma and Veena Sharma did not appear and they were declared P.O. firstly on 06.09.2005 and thereafter PO proceedings was set aside against them by the learned Sessions Court vide order dated 13.04.2009. Thereafter, both accused Vijay Kr. Sharma and Veena Sharma again absented themselves and accordingly they were again declared PO vide order dated 22.02.2013.
3 Accused no.5 Col. M.J. Ganpathy has been absconding since commencement of trial. As per report upon process u/s 82 Cr.P.C dated 10.03.2007 which is now being marked as mark A and B, he is reported to be not residing at the given address since many years. Inadvertently, his formal proclamation order was not passed but he has been shown to be the PO vide order dated 16.01.2013. Therefore, accused no.5 Col. M.J. Ganpathy is declared abscondor. Hence, this judgment is directed against the accused no.1 Sunil Kumar Jha and no.4 Manohar Nath Badam.
4 The brief facts, as stated in the complaint, are that accused no.1 to 5 were the ROC vs Sunil Kumar Jha etc. CC No.1417/3 2 of 14 signatory of prospectus dated 04.04.1996 and were responsible for conduct of affairs of the company M/s Goga Foods Limited (hereinafter referred to as Company) registered with the office of ROC. The said company came up with a public issue of 27,47,5000 equity shares of Rs.10/ each aggregating to Rs. 274.75 lacs. In the said prospectus, the accused made an offer to the public issue with following objects of the issue: 1 To part finance the cost of the proposed project for processing 60,000 litres per day of milk at Khera Village, Meerut, U.P. 2 To meet the margin money requirement for working capital, 3 To meet the expenses of issue.
4 To get the shares of the company listed on recognized stock Exchanges.
5 However, it was observed that the company has diverted the fund since 199192 to the year ending 31.03.1997 in lending loans. During 199798, the company started commercial activity and suffered substantial loss. During the year ended 199899, the company stopped commercial activity without giving reasons for the same in the Director's Report. It is further alleged that the company had deployed heavy funds in the fixed assets as compared to projected figures to the prospectus. As per Auditor's Report annexed to the Balance Sheet as at 31.03.1999, the company has not maintained record showing full particulars of fixed assets as the evidence pertaining to verification of fixed assets was not shown to the Auditors.
Particulars Projected 199697 199798 199899
(Post issue) (Fig. In lacs)
Land & Site development 51.00
Building & Civil Const. 153.40
Plant & Machinery 300.54
Fixed Assets (a+b+c) 22.65 677.55 791.38 791.38
ROC vs Sunil Kumar Jha etc. CC No.1417/3 3 of 14
527.59
Accumulated Losses 133.82 205.00
From the aforesaid table, it observed that the company has deployed the valuable funds of the public in Fixed Assets without any returns thereby divesting them into unproductive purposes and the company has failed to utilize the funds received through public issue for the objects mentioned in the prospectus. Hence, present complaint.
6 On 01.06.2012, a notice was framed against accused no.1 Sunil Kumar Jha and no.4 Manohar Nath Badam for the offence punishable u/s 63 & 628 of the Act to which they pleaded not guilty and claimed trial. 7 In order to substantiate its allegations made in the complaint, the prosecution examined Sh. J.K. Jolly, the complainant as PW1.
PW1 Sh. J.K. Jolly reiterated the facts of the complaint and stated that the Company M/s Goga Foods Limited is registered with the office of ROC vide Certificate of Incorporation i.e Ex.PW1/2. The witness further deposed regarding the allegations in the complaint and proved on record several documents i.e copy of prospectus dated 04.04.1996 as well as printed copy of the same as Ex.PW1/3 and Ex.PW1/4, original listing agreement Ex.PW1/4A, copy of the balance sheets for the year ending 31.03.96, 31.03.97, 31.03.98 and 31.03.99 Ex.PW1/5 to Ex.PW1/8. The witness also stated that the examination of documents Ex.PW1/5 to Ex.PW1/8 revealed that the promise made in the prospectus were untrue and misleading with regard to the extent ROC vs Sunil Kumar Jha etc. CC No.1417/3 4 of 14 of investment to be made in the fixed assets and also with regard to its performance by way of entering into commercial production and sales forecast. The company deployed funds more than the projected figure of Rs. 527 lacs as stated in the prospectus. The funds deployed in fixed assets during the last three years as reflected in the document Ex.PW1/5 to Ex.PW1/8 is to the tune of Rs.677 lacs and 791 lacs which were in excess of the promise made in the prospectus. The witness also proved on record show cause notice Ex.PW1/9 and sanction Ex.PW1/1. The witness was cross examined at length on behalf of the accused.
8 The statements of accused no.1 and 4 were recorded u/s 313 Cr.P.C r/w section 281 Cr.P.C separately.
In their statements, both accused denied the allegations and submitted that the were not director at the relevant time. Accused no.1 and no.4 further stated that they had resigned from the post of director on 12.07.1996 and 01.08.1996 respectively. They further stated that present complaint is time barred and the company is still running and is producing milk as per its object in the prospectus and said information is already with the complainant. Accused opted not to lead any defence evidence.
9 I have given my thoughtful consideration to the submissions advanced on behalf of both the parties and gone through the relevant records. I have also gone through the written arguments filed on behalf of accused persons and considered the relevant provisions of law.
ROC vs Sunil Kumar Jha etc. CC No.1417/3 5 of 14 10 Relevant provisions of section 63/628 of the Act are reproduced below for ready reference.
63. Criminal liability for misstatement in prospectus. (1) Where a prospectus issued after the commencement of this Act includes any untrue statement, every person who authorized the issue of the prospectus shall be punishable with imprisonment for a term which may extend to two years, or with fine which may extend to [fifty thousand rupees], or with both, unless he proves either that the statement was immaterial or that he had reasonable ground to believe, and did up to the time of the issue of the prospectus believe, that the statement was true.
628. Penalty for false statements. 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, be punishable with imprisonment for a term which may extend to two years and shall also be liable to fine.
A) Firstly, it is argued that prosecution has failed to prove its case against the accused beyond reasonable doubt. It is further argued that accused no.1 and 4 have resigned on 12.07.1996 and 01.08.1996 respectively and placed reliance upon the document i.e Form32 Ex.PW1/D1. Secondly, it is argued that the present complaint is hopelessly time barred as limitation prescribed u/s 468(2) r/w section 63 & 628 is three years. The prospectus dated 04.04.1996 was filed and registered with the ROC on the same day. However the present case has been filed on 07.05.2002. There is no explanation as required u/s 470 Cr.P.C. for exclusion of limitation period on record. Thus, present complaint is hopelessly barred by limitation.
ROC vs Sunil Kumar Jha etc. CC No.1417/3 6 of 14 B) Per contra, learned company prosecutor argued that the case of the prosecution has been proved beyond reasonable doubt in view of the testimony of the prosecution witness. She further argued that the complaint was filed within limitation as the limitation period commenced from the date the Central Government gave its approval/sanction for prosecution. Therefore, accused may be convicted for the offence alleged in the complaint. C) The allegations against the accused are that the accused raised certain funds from the public by floating public issue with objects mentioned in the prospectus Ex.PW1/4 but the funds received through public issue were diverted in the activities other than the objects of public issue. Before discussing the case on merits, it would be appropriate to deal with the arguments advanced by the learned defence counsel first as the same are legal issues.
D) Firstly, the short point involved in this case is as to whether the complaint filed by the complainant against the accused for making a misstatement in the prospectus Ex.PW1/4 and for making a false statement in the prospectus, is within limitation.
E) Learned defence counsel has vehemently relied upon three arguments firstly that present complaint is prospectus based prosecution. However, the prosecution has miserably failed to produce and prove on record original prospectus dated 04.04.1996 nor was able to produce any power of attorney ROC vs Sunil Kumar Jha etc. CC No.1417/3 7 of 14 allegedly executed in favour of Sh. Manish Kumar Sharma who is alleged to have signed the prospectus on behalf of the accused persons. The prosecution has also failed to examine the said Manish Kumar Sharma to prove the allegations. The prosecution has produced on record only printed copy of the prospectus which does not bear signature of any of the accused. F) Learned defence counsel further vehemently argued that the present complaint has been filed solely on the basis of sanction letter Ex.PW1/1 but mandatory requirements of sanction letter was not complied with. As per sanction letter Ex.PW1/1, the complainant was required to file the complaint within 30 days and a report was required to be sent to the Department latest by 1st week of April, 2002. Present complaint was to be filed latest by the end of April, 2002. However, same was filed on 07.05.02, therefore, present complaint is timebarred being not filed within the time prescribed in the sanction letter. In this regard, reliance may be placed upon the judgment reported in "2009 (III) DRJ 204 and 2009 (109) DRJ 545 (supra)." G) This arguments of the learned defence counsel appears to have force. Neither in the complaint nor in his statement PW1 has disclosed as to when commission of aforesaid offence was noticed. It is simply stated that perusal of prospectus and balance sheets Ex.PW1/5 to Ex.PW1/8 revealed violation of offences u/s 63/628 of the Act but PW1 has not disclosed the date, month or year when he came to know about the commission of aforesaid offence by the accused. The case of the complainant is that as per the prospectus Ex.PW1/4 ROC vs Sunil Kumar Jha etc. CC No.1417/3 8 of 14 and the balance sheets Ex.PW1/5 to Ex.PW1/8, it was observed that the accused failed to deploy the funds as promised in the prospectus Ex.PW1/4 but it is not disclosed in the entire complaint or by the prosecution witnesses examined as to when the complainant noticed alleged nonutilization of funds as per the objects of issue. As per section 469 Cr.P.C, the period of limitation commences on the date of commission of offence or where commission of the offences was not known to the aggrieved, the first date on which such offence comes to the knowledge of such person, which ever is earlier. Admittedly, in the case in hand, the company in question was regular in filing of its balance sheet after the issue of the prospectus and this fact is apparent from the testimony of prosecution witnesses. Thus, the complainant should have the knowledge of any violation of section 63 of the Act much prior i.e. immediately after filing of balance sheets for the financial 199697, 199798 and 199899 which was filed by the company but the complainant department kept mum till sanction letter Ex.PW1/1 was received from the Ministry of Law, Justice & Company, Department of Company Affairs, New Delhi. The contention of learned company prosecutor that the complaint was filed within the period of limitation as the limitation period starts from the date the Central Government accords sanction, can not be accepted as there is no embargo u/s 234 of the Act for the complainant to seek approval from the Central Government before initiating the prosecution against the accused. The period of limitation commences when the knowledge of the commission of offence is gained by the prosecuting agency. In this regard reliance may be placed upon the ROC vs Sunil Kumar Jha etc. CC No.1417/3 9 of 14 judgment in "Cr.M.C. No. 3579/2009 in case titled as Jiyuan Ali vs. Registrar of Companies".
H) It is admitted position of fact that the cause of action arose in a case like in hand only when a prospectus containing untrue statement is filed which in present case was filed in April, 1996. Admittedly, no complaint of investor against the company was received by the ROC. Thus, it appears that the present complaint was filed merely on the basis of sanction letter Ex.PW1/1. Had, the ROC not been received the sanction letter, present complaint would not have been filed. No explanation for delay in filing the present complaint has been given in the complaint nor any condonation of delay application was filed. It is no where mentioned in the complaint as to when the alleged offence came to the knowledge of the complainant for the first time. The complaint also no where finds mention as to when the limitation period stars. It is so held in the judgment reported in "2009 INDLAW Del 422". that Practice and Procedure Corporate - Companies Act, 1956, ss. 63, 628 - Limitation - Petitioner made misstatement in prospectus and false statement in prospectus - Public prospectus containing misstatement fiiled on 11.04.1997 and complaint filed on 14.01.2004 - Respondents submitted that delay had been caused because of obtaining sanction etc. from department concerned - Whether complaint filed by respondents against petitioners for making a misstatement in prospectus and for making a false statement in prospectus offence punishable u/s 63 and 628 of the ROC vs Sunil Kumar Jha etc. CC No.1417/3 10 of 14 Companies Act, 1956 is within limitation? Held, once the respondents having come to know about violation, i.e., on filing of balance sheet, no where it is stated as to when the said balance sheet was filed - It is no where stated in complaint as to from which date limitation starts as to bring complaint within limitation, thus for prospectus being filed on 11.04.97, filing of the complaint in the year 2004 can not be justified. In this case also, the prospectus appears to have been issued on 04.04.1996 and present complaint was filed on 07.05.2002. In view of the aforesaid discussions, it is held that present complaint is liable to be dismissed being barred by limitation.
I) The prosecution has based its case solely on the prospectus dated 04.04.1996 but the prosecution has miserably failed to produce and prove on record original prospectus dated 04.04.1996 nor able to produce any power of attorney allegedly executed in favour of Sh. Manish Kumar Sharma who is alleged to have signed the prospectus. The prosecution has produced on record only printed copy of the prospectus which does not bear signature of any of the accused. Furthermore, in his cross examination, PW1 stated that accused no.1 to 5 being signatories to the prospectus were responsible for the conduct of the affairs of the company. But, the original attorney has not been produced or proved on record by the prosecution. Thus, in absence of said attorney which is a vital piece of evidence and non examination of said Manish Kumar Sharma by the complainant, the prosecution can not be in a position to establish on record that the prospectus in dispute is, in fact, signed by the ROC vs Sunil Kumar Jha etc. CC No.1417/3 11 of 14 accused persons or by the socalled constituted attorney Mr. Manish Kumar Sharma on behalf of the accused persons.
J) Further, mere issuance of prospectus or authorization of its issuance itself is not sufficient to constitute the offence. There must be something more i.e there must be authorization as well as some untrue statement in the prospectus. To be an offence under this section, there must be a false statement knowing it to be false and it must be a material statement. Without proof of mens rea or guilty mind, the accused persons cannot be punished. The burden is on the complainant to show that the statement in the document was untrue.
Thus, it is clear that the present complaint was filed on behalf of complainant without proper verification of facts and without proper investigation of the case. My view pertaining to utilization of funds is supported by the order passed by the Hon'ble High Court in "Criminal MC No.1759 of 2005 in case titled as Manju Yadav vs. ROC dated 02.05.05". K) Learned counsel for accused has taken one another stand throughout the case that both accused no.1 and 4 have resigned the company on 12.07.1996 and 01.08.1996 respectively and placed reliance upon the document i.e Form32 Ex.PW1/D1 and therefore, they are not responsible for offence, if any, committed on behalf of the accused no.1 company. The accused company came out with public issue in the month of April, 1996 and admittedly accused no.1 and 4 have resigned from the post of director on 12.07.1996 and 01.08.1996, before the end of financial year 19961997. Thus, even if the ROC vs Sunil Kumar Jha etc. CC No.1417/3 12 of 14 complainant would be able to prove the allegations qua misstatement from the balance sheets of the subsequent years, if any, in the prospectus, accused no. 1 and 4 can not be held liable for the said offence due to their resignation from the post of director. It is well settled law that an exDirector can not be made accountable and fastened with liability for anything done by company after acceptance of his resignation by Company. In this case also, resignation of accused no.1 and 4 has been accepted by the company and notified to the office of ROC in prescribed form i.e Form32 Ex.PW1/D1. Reliance may be placed upon the judgment reported in "(2011) 3 Supreme Court Cases 351 titled as Harshendra Kumar D. vs Rebatilata Koley and Others". L) Thus, in view of the aforesaid discussions and facts and circumstance of the case, this court is of the considered opinion that present complaint is not maintainable being barred by limitation against the accused no.1 and 4. Even otherwise, in absence of original prospectus, power of attorney executed in favour of Mr. Manish Kumar Sharma who is alleged to have signed the prospectus Ex.PW1/4 on behalf of the accused persons or nonexamination of said Mr. Manish Kumar Sharma, the prosecution would not be in a position to prove its case against the accused. Accordingly, it is held that the prosecution has failed to prove is case against the accused no.1 and 4 beyond reasonable doubt. Hence, both accused no.1 and 4 stand acquitted of charges leveled against them. Previous bail bonds stand cancelled. Previous sureties stand discharged. Original documents, if any, furnished with previous bail bonds be returned to the rightful claimant after endorsement cancelled thereupon.
ROC vs Sunil Kumar Jha etc. CC No.1417/3 13 of 14 Accused no.1and 4 are directed to furnish fresh bail bonds in terms of section 437A Cr.P.C. Fresh bail bonds in the sum of Rs.20,000/ furnished and accepted.
Now file be consigned to the record room and be summoned back whenever accused no.2, 3 and 5 (who are PO) are traced/arrested/produced before the court.
Judgment be sent to the server www.delhidistrictcourt.nic.in.
(DEVENDRA KUMAR SHARMA) ACMM(Special Acts) CENTRAL TIS HAZARI COURTS DELHI Announced in open court on 13th May, 2014 (Total number of page 14) (One spare copy attached) ROC vs Sunil Kumar Jha etc. CC No.1417/3 14 of 14