Andhra HC (Pre-Telangana)
Dr.T.H.Chowdary, Aged About 78 Years, ... vs Counsel For The on 28 March, 2013
Author: K.G.Shankar
Bench: K.G.Shankar
HON'BLE SRI JUSTICE K.G.SHANKAR
Criminal Petition Nos.5428 of 2010 and batch
dated:28-3-2013
Dr.T.H.Chowdary, Aged about 78 years, R/o.Plot No.8,P and T Colony, Kharkana,
Secunderabad-500 009.. Petitioner/Accused No.2
The Registrar of Companies,Government of Andhra Pradesh,Kendriya Sadhan, II
Floor, Sulthan Bazaar, Koti, Hyderabad-500 095; and another...
Respondents/Complainant
Counsel for the petitioner:Sri Vedula Venkataramana,
Senior Counsel.
Counsel for Respondent No.1: Sri Ponnam Ashok Goud,
Asst. Solicitor General
<Gist:
>Head Note:
?Cases referred:
1. 2003 Vol.115 COMPANY CASES 59
2. 2010 (1) ALD (Crl.) 1004 (AP)
3. 2008 CRI.L.J. 608
Criminal Petition Nos.5428, 5431 and 5540 of 2010
Common Order:
The parties are common in all the three petitions. The complaint is also identical except for the relief.
The 1st respondent sought for the prosecution of the accused for the offences under Section 63 of the Companies Act, 1956 (the Act, for short) and under Section 68 of the Act in the two complaints.
The 1st respondent also sought for the prosecution of the accused for the offence under Section 628 of the Act in the 3rd complaint. Barring for the three penal provisions, rest of the contents of the complaints in the three cases is not similar but identical. The contentions of both sides are also identical. Consequently, all these three petitions are disposed of through this common order.
2. The petitioner is accused No.2 in C.C.Nos.125, 126 and 127 of 2010 on the file of the Special Judge for Economic Offences, Hyderabad. In all the cases, there are nine accused. In C.C.No.125 of 2010, it is contended that the accused are liable for punishment under Section 63 of the Act. In C.C.No.126 of 2010, it is alleged that the accused are punishable under Section 68 of the Act while in C.C.No.127 of 2010 the violation was in respect of Section 628 of the Act. Accused No.1 is M/s. Sibar Software Services (India) Limited, Vijayawada. It is a Company. Accused 2, 3 and 5 to 9 are said to be the Directors of the Company. Accused No.4 is the Managing Director. Accused No.1 issued a Prospectus on 08-12-1999 calling for subscription for public issue of Rs.35,00,000/- of equity shares from 29-12-1999 till 04-01-2000.
3. The substratum of the allegation is that the statements made in the Prospectus are knowingly false, so much so, all the accused including accused No.2 are liable for punishment under Sections 63, 68 and 628 of the Act. The complaint was lodged on 10-3-2010.
The Prospectus was issued on 08-12-1999.
4. Sri Vedula Venkataramana, learned Senior Counsel for accused No.2, contended that (a) the complaint did not make out the ingredients of the penal provisions,
(b) two of the complaints are barred under Section 468(2)(c) Cr.P.C and (c) no specific overt acts are made against accused No.2 in respect of any of the alleged criminal activities and that the case against accused No.2 consequently deserves to be quashed.
5. The allegations to the complaint are as follows:
(a) The 1st accused issued Prospectus with the object to expand the Software Development Centre at Hyderabad and also to establish a Software Development Centre at Vijayawada, (b) to invest in subsidiaries in Mauritius and other foreign countries to support its marketing activities, (c) to purchase hardware and software and to upgrade existing software and hardware, (c) to meet the margin money requirements for working capital, (e) to meet the expenses of the issue and
(f) to enlist the Company's shares in recognized Stock Exchanges. The Prospectus also projected the cost of the project and pointed out that the Company requires Rs.1,24,00,000/- for long term working capital. These facts are admitted and are not in dispute.
6. It is contended by the 1st respondent-de facto complainant that the balance sheet audited as on 31-3-2000 shows that accused No.1-Company has not invested any monies in Overseas Associated Companies and diversified the public issue money to a local Company in which one of the Directors has special interest. The balance sheet dated 31-3-2001 reveals that accused No.1-Company invested Rs.1,07,00,000/- in equity of Secured Information Technologies Incorporation as against the proposed investment of Rs.2,00,00,000/- as promised in the Prospectus. Similarly, the balance sheet dated 31-3-2002 disclosed that accused No.1-Company enhanced its investment to Rs.1,41,00,000/- in Secure Information Technologies Limited from Rs.1,07,00,000/- and that the remaining investments were made in other Indian Companies and Inter Corporate Deposits. The balance sheet as on 31-3-2003 disclosed that accused No.1-Company has not made any investments in any Overseas Associate Companies.
7. It is also alleged that the accused 2 to 9 as the Directors of the Company have not given the complete information about utilisation of funds with break-up details in the Directors' Report and that the signatories of the Prospectus thus made untrue statements. It is the case of the 1st respondent that the accused 2 to 9 thus knowingly and recklessly made false, deceptive and misleading or dishonest statements and concealed material facts inducing public to enter into agreement for subscribing shares in accused No.1-Company. The accused 1 to 9 thus allegedly committed the offences punishable under Sections 63, 68 and 628 of the Act.
8. Sections 63, 68 and 628 of the Act are extracted below:
"63. Criminal liability for mis-statements in prospectus.-- (1) Where a prospectus issued after the commencement of this Act includes any untrue statement, every person who authorised 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.
(2) A person shall not be deemed for the purposes of this section to have authorised the issue of a prospectus by reason only of his having given--
(a) the consent required by section 58 to the inclusion therein of a statement purporting to be made by him as an expert, or
(b) the consent required by sub-section (3) of section 60."
"68. Penalty for fraudulently inducing persons to invest money.-- 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, 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."
"628. Penalty for false statements.-- 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."
9. Under each of these Sections, a false statement in the Prospectus is a ground to impose punishment upon the Company as well as upon its Directors. Under Sections 63 and 628 of the Act, the maximum punishment is imprisonment for a term of two years and also fine. Under Section 68 of the Act, the punishment is to a maximum extent of five years and fine to a maximum extent of Rs.5,00,000/- or both. Regarding Sections 63 and 628 of the Act, the learned Senior Counsel for the 2nd accused contends that the complaints are barred by limitation as the punishment prescribed is two years and under Section 468(2)(c) Cr.P.C., the prosecution is liable to be launched within 3 years. It may be recalled that the Prospectus was issued on 02-12-1999 and the complaint was lodged on 10-3- 2010.
10. It is the contention of the learned Senior Counsel that the complaints for the offences under Sections 63 and 628 of the Act covered by C.C.Nos.125 of 2010 and 127 of 2010 are barred by limitation.
11. Sri Ponnam Ashok Goud, learned Assistant Solicitor General, representing the 1st respondent, on the other hand, contended that the complaints are well within time and deserve to be entertained on merits.
12. As already pointed out, C.C.No.125 of 2010 from which Criminal Petition No.5428 of 2010 arose and C.C.No.127 of 2010 from which Criminal Petition No.5431 of 2010 arose are in respect of offences under Sections 63 and 628 of the Act. The contents of Sections 63 and 628 of the Act have already been extracted.
The punishment provided by Section 63 as well as Section 628 of the Act, is imprisonment for a term which may extend to two years. That apart, Section 63 of the Act provides for fine up to Rs.50,000/- while Section 628 of the Act speaks about mere imposition of fine.
Chapter XXXVI of Cr.P.C provides limitations for prosecuting various offences. Section 468(2)(c) Cr.P.C provides the period of limitation as 3 years if the offence is punishable with imprisonment for a term exceeding one year but does not exceed 3 years. It is the contention of the learned Senior Counsel for the petitioner that prosecution of the petitioner-accused No.2 for the offences under Sections 63 and 628 of the Act in C.C.Nos.125 of 2010 and 127 of 2010 is not permissible in view of the bar under Section 468(2)(c) Cr.P.C. Patently, it appears that the cases were filed long after the period of limitation.
13. However, the learned Assistant Solicitor General representing the 1st respondent contended that the period of limitation did not commence till the filing of the balance sheet for the year 2006 on 12-10-2007 and that the filing of the complaints in 2010 is well within time.
It is the contention of the learned Assistant Solicitor General that the balance sheets referred to the untrue statements in the Prospectus and that all the Directors of the Company including the 2nd accused is liable for prosecution. He further contended that the question whether the complaint is barred by limitation or otherwise deserves to be ascertained before the trial court.
14. It would appear that the petitioner did not raise the question of limitation before the trial court either in C.C.No.125 of 2010 or C.C.No.127 of 2010. As a policy, it is not appropriate to entertain a petition on the basis of question of limitation when such a question was not raised by the petitioner-accused No.2 before the trial court or the court where the charge-sheet was laid, as the case may be. I therefore consider it inappropriate to go into the question of limitation in Criminal Petition Nos.5428 and 5431 of 2010. So far as Criminal Petition No.5540 of 2010 is concerned, admittedly the punishment provided for the offence under Section 68 of the Act is 5 years with or without fine up to Rs.one lakh. Where the maximum imprisonment provided for the offence is beyond 3 years, Chapter XXXVI of Cr.P.C does not apply, so much so, the prosection is not barred by limitation. I consequently reject the contention that the petitions are barred by limitation in all these cases.
15. It is contended by the learned Senior Counsel for the petitioner that no specific overt act is attributed against the petitioner. Under Section 63 of the Act, every person who authorised the issuance of the Prospectus is liable for punishment; however, such a person may prove otherwise that the alleged untrue statement was immaterial or that such a person had reasonable ground to believe that the statement was true, at the time of making of the statement to obtain exemption from liability. Thus, Section 63 of the Act more or less is a case of strict liability in the absence of contrary evidence.
16. On the other hand, Section 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 Section 68 of the Act. That apart, mens rea is part of Section 68 of the Act, viz., that the statement was made either knowingly or recklessly; further mens rea incorporated in Section 68 of the Act is that if there was concealment, such concealment must have been dishonest concealment of material facts. If all these ingredients exist, the offence under Section 68 of the Act is made out. Inasmuch as the claim relates to under Section 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".
17. The learned Senior Counsel for the petitioner contended that no specific overt act is attributed against the petitioner in respect of any incident in the issuance of the Prospectus. As rightly submitted by the learned Senior Counsel for the petitioner, an omnibus allegation is made against all the Directors of the Company.
No specific allegation is made regarding the participation of the present petitioner in the commission of any of the offences. However, Section 63 of the Act imposes strict liability whereas mens rea is required for the offences under Sections 68 and 628 of the Act. Where mere omnibus allegations are made against the petitioner-accused No.2 in the complaint, it would not be appropriate to permit the prosecution to proceed with the case against the petitioner either for the offence under Section 68 of the Act or for the offence under Section 628 of the Act.
18. So far as the offence under Section 63 of the Act is concerned, every person who authorised the issuance of the Prospectus is jointly and severally liable unless such a person establishes that he has no role to play in the issuance of the Prospectus or that the alleged statement was either immaterial or such a person believed the contents of the statements at the time the Prospectus was issued. These are questions of fact, which can be determined at the time of the trial.
These questions of fact cannot be gone into in a petition under Section 482 Cr.P.C. I therefore consider that the petitioner established that the prosecution prima facie failed to make out the offences under Sections 68 and 628 of the Act only and that the prosecution against the petitioner-accused No.2 in respect of these two Sections is liable to be quashed.
19. The learned Senior Counsel for the petitioner primarily contended that the complaint did not make out the ingredients of the 3 penal provisions, so much so, no case is made out against the petitioner even for the offence under Section 63 of the Act.
20. It is the contention of the learned Assistant Solicitor General representing the 1st respondent that one of the objects of issue as recited in the Prospectus was to invest in subsidiaries in Mauritius, USA, Australia and Singapore to support its marketing activity and that in the heading "Cost of Project and Means of Finance", it was mentioned that the investments in Mauritius Company, USA, Australia and Singapore was Rs.80 lakhs, Rs.200 lakhs, Rs.75 lakhs and Rs.50 lakhs totalling Rs.405 lakhs. It is urged by the 1st respondent that no monies were invested by accused No.1- Company in any of the foreign companies. I may point out that page 27 of the Prospectus dealing with the Cost of Project and Means of Finance shows the cost as apprised by Bank of Madhura Limited and not the Cost of Project as claimed by the Directors and the Company.
21. It is contended by the learned Assistant Solicitor General that the Company has not invested any monies in Overseas Associate Companies and diversified the public issue money to a local Company. It is a fact that these details emerged from various balance sheets subsequent to the date of the issuance of the Prospectus. Be that as it is, the learned Assistant Solicitor General submitted that the Directors furnished incorrect information such as exhibiting the intention of the Company to make investments in Overseas Associate Companies.
22. 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 two distinct activities altogether. So far as Sections 63, 68 and 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 under Sections 63, 68 and 628 of the Act.
23. The learned Assistant Solicitor General also contended that the Directors of accused No.1-Company have not given the complete information about the utilisation or non-utilisation of the funds received through public issue. This again is a distinct activity on the part of the Company and its Directors and is distinct from the parameters of a Prospectus. From the subsequent conduct of the Company, I am not prepared to hold that the statements made in the Prospectus are untrue exposing the petitioner to liability under Sections 63, 68 and 628 of the Act. Viewed in this context, it would appear that the petitioner-accused No.2 did not make out a case under Section 63 of the Act.
24. In K.GOPI NAIR v. K.RAMUKUTTY1, Kerala High Court had occasion to consider the parameters of quashing petition under Section 428 Cr.P.C. To put it succinctly, it was observed that if the allegation set out in the complaint did not constitute the offence of which cognizance was taken by the Magistrate or was of such in a nature that the allegations did not reveal any offence, it would be open to the Court to quash the complaint.
The Court opined that the complaint had to be read as a whole and that if the sworn statement of the complainant disclosed the ingredients of an offence and it is not found to be a case of mala fide or vexatious litigation, it would not be justified to interfere with the trial of the case. It may be pointed out that none of the grounds considered by the Court in this case exist in the present case. It has already been found that neither overt acts were attributed against the petitioner nor the petition otherwise established any of the offences under Sections 63, 68 and 628 of the Act. Consequently, this decision relied upon by the learned Assistant Solicitor General has no application to the facts of the case.
25. In the common order in Criminal Petition Nos.5630, 5632 and 5661 of 2009, dated 12-4-2012, relied upon by the learned Assistant Solicitor General, the accused allegedly committed the offences under Sections 63, 68 and 628 of the Act. In that case, the accused made a promise to build a factory in 300 square metres and also promised to purchase a plant and machinery and other required assets for manufacture of granules worth about Rs.83 lakhs. The statement was totally a false statement. The Prospectus projected profits for 4 years, which were prima facie false statements since the very project did not commence to operate. A learned single Judge of this Court held that the Directors were prima facie guilty of the offences under Sections 63, 68 and 628 of the Act and that it would be for the trial court to determine on facts whether the offence was ultimately made out or not.
26. However, in another case in Hemendra Prasad Nag Chowdary v. Registrar of Companies, A.P.2, a Company went to public issue and issued a Prospectus. The Company closed one of its Units on the ground that the net worth of the Company eroded and that there was lack of availability of working capital. Alleging that the Company and its Directors committed offences under Sections 63, 68 and 628 of the Act, they were prosecuted. Some of the Directors (accused 2 to 4 and 8) approached the High Court for the quashing of the proceedings against them. Holding that the Prospectus contained figures and achievements secured by the Company prior to its conversion into a Company, merely because a rosy picture was painted in the Prospectus, it could not be said that the Prospectus contaiend false promises and false inducements. The Court held that the offences under Sections 63, 68 and 628 of the Act have not been made out merely because the Prospectus gave an encouraging state of affairs of the Company.
27. In Hindustan Lever Ltd. v. State3, relying upon S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla [(2005) 8 SCC 89], a learned single Judge of this Court observed that the mere directorship of the Company is not sufficient to make a person liable under Section 141 of the Negotiable Instruments Act, 1881, and that a Director in a Company cannot be deemed to be in charge of and responsible to the Company for the conduct of its business. The ratio in this case however has no application to the facts of the present case where the distinct offences including an offence under strict liability are contemplated by Sections 63, 68 and 628 of the Act. I therefore consider that Hindustan Lever Ltd. (3 supra) is not an authority to consider the liability of a Director in respect of the offences under Sections 63, 68 and 628 of the Act.
28. As the 1st respondent failed to show the participation of the petitioner in the issuance of the Prospectus and also as the 1st respondent failed to show that the contents of the Prospectus are violative of Sections 63, 68 and 628 of the Act, I consider that the prosecution of the petitioner-accused No.2 for the offences under Sections 63, 68 and 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. C.C.Nos.125, 126 and 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.
__________________ K.G.SHANKAR, J.
date:28-03-2013