Document Fragment View

Matching Fragments

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.

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.