P.R.Mahajan and others v. State of A.P.

Order

- These three petitions are filed under Section 482 Cr.P.C., to quash the proceedings initiated against the petitioner, who is arrayed as accused No.4 in C.C.Nos.38, 40 and 39 of 2003 pending on the file of Special Judge for Economic Offences, Andhra Pradesh, Hyderabad for the offences punishable under Sections 63, 628 and 68 of the Companies Act, 1956 (for short, “the Act”). Petitioner/A4, who is one of the Directors of M/s.Raam Tyres Limited, and other Directors were prosecuted for the offences as aforementioned in the above C.Cs., stating that accused No.8-Company has come out with Public Issue on 19.05.1992 offering 70,90,000 equity shares of Rs.10/- each for cash aggregating to Rs.7,09,00,000/-. It was further stated that the promised profitability and the statements made in the prospectus published are false and knowing them to be false, the signatories to the prospectus have recklessly made statements/promises without adequate basis and such statements were to mislead the public and induce the investors to invest their money and that the Company has not done any operation as promised in the prospectus after the public issue and also not filed required returns that are to be filed since 30.09.1996, which constitute an offence punishable under Section 63 of the Act.

Sri S.Niranjan Reddy, learned counsel for the petitioner contends that the petitioner, who was working with ICICI Bank Limited as Assistant General Manager, was nominated as representative Director to the Board of M/s.Raam Tyres Limited by letter, dated 24.09.1990, in terms of the Loan Agreements entered into by accused No.8 Company with ICICI Bank. The complainant on filing the complaint issued a show cause notice on 12.11.2002 to the petitioner, which was duly replied by letter, dated 18.11.2002. The petitioner is only a nominee Director on behalf of ICICI Bank, which was responsible for the day to day administration of the Company. He further contends that the imprisonment prescribed for the offences under Sections 63 and 628 of the Act is for a term which may extend to two years. As per Section 468(2)(c) Cr.P.C., the period of limitation for filing the complaint is only three years, which commences from the date of offence and hence, the complaint lodged in C.C.Nos.38 and 40 of 2003, which are filed beyond the period of limitation, are liable to be quashed. With regard to the offence punishable under Section 68 of the Act, which is subject matter of C.C.No.39 of 2003, it is contended by the learned counsel for the petitioner that the petitioner is only nominated as Director by the ICICI Bank and had no say in the day to day business and affairs of the Company and is not responsible for the issuance of the Prospectus of the Company as he was never in charge and responsible for the issuance of the Prospectus and that as per Section 5 of the Act, the petitioner cannot be termed as “Officer who is in default”. Therefore, the proceedings initiated against the petitioner cannot be proceeded for the offence under Section 68 of the Act and allowing the proceedings to continue against the petitioner is nothing but an abuse of process of law and they are liable to be quashed. A reading of the complaint in all the three cases shows that accused No.8-Company has come out with public issue on 19.05.1992 offering 70,90,000 equity shares of Rs.10/- each aggregating to Rs.7,09,00,000/-. The object of the issue as stated in the prospectus is 1) to part finance the cost of the project undertaken by the Company and 2) for meeting the expenses of the issue on listing requirements of Stock Exchange. As seen from the Prospectus the purpose for giving public issue has been stated but accused No.8 Company has not kept the promises/statements made in it. The Directors who have signed the prospectus have induced investors/public to subscribe for shares in the company and failed to fulfill the promises stated in the prospectus. The signatories to the prospectus have recklessly made statements/promises without adequate basis and mislead the public, induced the investors to invest their money, but the company has not done any operation as promised in the prospectus after public issue and not filed any required returns since 30.09.1996. Accused Nos.1 to 7 who are signatories to the said prospectus are directors/officers in default of accused No.8 company and have committed the offences as aforementioned and hence they punishable for the offence as aforementioned. Section 63 of the Act prescribes Criminal Liability for mis-statements in the prospectus, which reads as under:- 63- (1) Criminal liability for mis-statements in prospectus. 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 five 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) (b) the consent required by section 58 to the inclusion therein of a statement purporting to be made by him as an expert, or the consent required by sub-section (3) of section 60. Section 628 of the Act prescribes Penalty for false statements, which reads as under: “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.” The maximum punishment prescribed for the offence under Section 63 of the Act is two years or with fine which may extend to Rs.5,000/- or with both. The maximum punishment prescribed for the offence under Section 628 of the Act is two years and shall also liable to pay fine. Admittedly, the offence has been taken place on issuance of the prospectus, dated

19.05.1992, and a notice was issued on 12.11.2002 to the accused signatories to the prospectus to show cause as to why legal action should not be initiated against them. It is clearly stated in the complaint that the signatories to the prospectus made reckless statements, induced the investors and not done any operation as promised in the prospectus after public issue and has also not filed required returns to be filed since

30.09.1996. Section 468(2) (c) Cr.P.C. prescribes time limit of three years for filing complaint, which commences from the date of offence i.e., on issuance of the prospectus or from the date of failure to submit the returns. This Court failed to understand as to why three separate complaints have been filed for the same offence, which arise out of the public issue issued on 19.05.1992. Though the said incident constitutes various offences, a single comprehensive complaint for all the offences can be filed. In such an event, the prosecution can take the aid of Section 468 Cr.P.C., which reads as under: “ 468. Bar to taking cognizance after lapse of the period of limitation:- (1) Except as otherwise provided elsewhere in this 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 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 more severe punishment or, as the case may be, the most severe punishment. The prosecution failed to file a single complaint for all the offences and lodged separate complaint against the petitioner for individual offences separately, which are barred by limitation. Therefore, the complaints lodged against the petitioner in C.C.Nos.38 and 40 of 2003 are barred by limitation and they are liable to be quashed in view of the principles laid down by the apex Court in State of Haryana v. Bhajanlal [1]. C.C.No.39 of 2003 is filed against the petitioner for the offence punishable under Section 68 of the Act. Section 68 of the Act prescribes penalty for fraudulently inducing persons to invest money, which reads as under:

#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 ten thousand rupees, or with both. The petitioner/accused No.4, who was working as Assistant General Manager with the ICICI Bank, was nominated as representative director of the ICICI Bank in the Board of M/s.Raam Tyres Company Limited. A8-company in terms of the loan agreement entered by it with the ICICI Bank withdrew the petitioner as nominated director and appointed another person by letter, dated

23.11.1994, to protect the interest of the ICICI Bank. The nominated director is not involved in the day to day affairs of the management of the company and he is not expected to know the technical know how disclosed by the company in its prospectus and failure of the company to pay dividends by 1994-95; non-filing of the balance sheet subsequent to the balance sheet ended with 30.09.1996; annual returns to be filed since 30.09.1996; and non- reply to the notice, dated 12.11.2002, the petitioner-A4 cannot be prosecuted as he was withdrawn as nominee director by appointing another person through letter, dated 23.11.1994. The allegation that the committee has not kept the promises/statements made in the prospectus, dated 19.05.1992, the petitioner cannot be held responsible once he was replaced by another Director in the year 1994. When the petitioner was discharged of the offences under Sections 63 and 628 of the Act, on the very same charge, he cannot be proceeded for the offence under Section 68 of the Act. In view of the same, the proceedings initiated against the petitioner for the offences under Sections 63, 628 and 68 of the Act are accordingly, quashed. The Criminal Petitions are, accordingly, allowed. There shall be no order as to costs. February 17, 2011 [1] AIR 1992 SC 604 _____________________ A. GOPAL REDDY, J