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Judgment
Vinod K. Sharma, J.—This Petition u/s 633(2) of the Companies Act, 1956 read with Rule 11(a)(23) of the Companies (Court) Rules,
1959 has been filed by the Directors of M/s. Auberge Hotels Private Limited, for quashing the proceedings initiated against the directors for the
alleged contravention of Section 628 of the Companies Act, in pursuance to the show cause notice No. DN/884/209A/628/2010 dated 16th
November, 2010 issued by the Respondent.
The Petitioners are the directors of M/s.Auberge Hotels Private Limited, engaged in the business of a hotel. Sri. Dilip Kapur is the Managing
Director of the Company. The other two directors are also his family members.
The Company filed a balance sheet duly approved by the Board of Directors in the Annual General Meeting, with the Registrar of Companies.
The requirement of Section 220 was fulfilled as the requisite documents were filed and the balance sheet was signed by two of the Directors. The
balance sheet was required to be accompanied by e-form 23AC as the balance sheet was filed electronically with the Registrar of Companies.
Though there is no allegation of any mis-statement or misleading information in the balance sheet, the allegation against the Petitioners is that they
have given wrong information in Col.3 of Form 23AC which reads as under:
3(a) Date of balance sheet as at 31/03/2009 (b) Date of Board of directors meeting in which balance sheet was approved 31/03/2009.
(c) Details of director(s), Managing Director, Manager, Secretary of the company who have signed the balance sheet.
Following details are to be entered only in case date of balance sheet is on or after 1st July 2007
Provide Director identification number (DIN) in case of director, Managing Director and income tax permanent account number (income tax
PAN) in case of Manager, Secretary
(i)
DIN or income tax PAN 01303958 Pre-fill Designation Director Name Dilip Kapur Dwarknath Kapur Date of signing of
balance sheet 02/09/2009
(ii)
DIN or income tax PAN 01944844 Pre-fill Designation Director Name Jaqeline Christiane Kapur Date of signing of balance
sheet 02/09/2009
(iii)
DIN or income tax PAN 01944791 Pre-fill Designation Director Name Akash Keyes Kapur Date of signing of balance sheet
02/09/2009
(iv)
DIN or income tax PAN Name Date of signing of balance sheet Pre-fill Designation Director
(v)
DIN or income tax PAN Name Date of signing of balance sheet Pre-fill Designation Director
The allegation are that though balance sheet was signed by two of the directors only, but in Form 23AC, it was shown to have been signed by
all the four directors.
The learned Counsel for the Petitioners challenged the notice and subsequent proceedings thereto, primarily on the ground, that the allegation
even if we taken to be correct on their face value, it does not constitute an offence u/s 633 of the Companies Act.
It is contended that in order to attract the provisions of Section 633, false material particulars should be with regard to contents in the balance
sheet, so that the third party be not misled with regard to status of the company.
Furthermore, false information so disclosed should be as such which should be known to the directors, who sign the balance sheet. The purpose
of using the word ''knowing it to be false'' in the section clearly shows that there should be a motive with the directors to mislead the public at large
with regard to the status of the Company.
The fact that instead of two directors, name of the four directors are mentioned in form 23AC cannot be a ground to prosecute the directors of
the Company by alleging it to be a violation of Section 628 of the Companies Act.
It is also the contention of the learned Counsel for the Petitioners that u/s 220 of the Companies Act, the balance sheet is required to be signed
by the Managing Director/Director of the Company. It is not disputed that the balance sheet is duly signed by the directors and filed with the
Registrar of Companies. In the absence of any false or mis-statement in the balance sheet, the provision of Section 628 would not be attracted.
It is also the contention of the learned Counsel for the Petitioners that no motive can be attributed to the Petitioners for the reason that the error
occurred because of change of form. The Petitioners wrongly believed that the name of the directors is required to be mentioned in Form 23AC.
Form 23AC is a forwarding document accompanying the balance sheet.
In support of the contentions, the learned Counsel for the Petitioners placed reliance on the judgment of the Hon''ble Calcutta High Court in the
case of SBI Home Finance Ltd. and Ors. v. Regional Director, Department of Company Affairs (2007) 77 CLA 283 wherein the Hon''ble
Calcutta High Court has held as under:
13 There is, in my view, no mis-declaration that would attract the penalty u/s 628. I do not see any false or misleading statement having been
made. Notwithstanding the show cause notice not hawing relied on the second limb of Section 628 inasmuch as the same has been urged, I take
that into consideration. In the context of the report, there is no material concealment of information by such statement. In any event, the directors''
report is contained in papers which detailed the financial position of the company and anyone interested could have skipped over the pages to
come to the schedule to the balance sheet in order to ascertain the financial status of the company.
Upon an application being filed u/s 633(2), the High Court assumes the power and jurisdiction as the court before which the proceedings
threatened to be instituted may have been brought. In such a case, the criminal court would have the jurisdiction to acquit the accused, to
exonerate the accused or to find him guilty and to sentence him. Section 633(2) does not merely give the discretion to the High Court to pardon a
person upon his admission of negligence or breach of trust or misfeasance or default or breach of duty. Upon the High Court coming to the
conclusion that the apprehension referred to in the opening words of Sub-seciton (2) was genuine, the High Court, willy-nlly, becomes the criminal
court in which the complaint against the Petitioner may have been brought. The jurisdiction of the High court in such a case is not limited to pardon
the defaulter upon default being admitted or being found. The High Court in such a case may acquit or exonerate the Petitioner upon arriving at a
conclusion that there was no offence committed. In this case, I find that there was was no false or misleading statement contained in the sentence,
which has been made the subject-matter of the notice relating to violation u/s 628.
The learned Counsel for the Respondent vehemently contended that the Petitioners have only been issued show cause notice. It is always open
to the Petitioners to approach the Registrar of Companies with explanation. The present petition therefore is premature.
It is also the contention of the learned Counsel for the Respondent that in this case, admittedly information given in Form 23AC is misleading
and not correct, as it has been mentioned that balance sheet has been signed by four directors, whereas it is signed by two directors only.
On consideration, I find force in the contention raised by the learned Counsel for the Petitioners.
The reading of Section 628 shows that the directors of the Company, can be prosecuted for misleading statement in the balance sheet, but
typographical error cannot be a ground to prosecute. Admittedly, u/s 220 of the Act, balance sheet is not required to be signed by all the directors.
In the absence of any allegation of mis-statement or concealment of fact, in the balance sheet, it was not open to the Respondent to initiate
prosecution proceedings against the Petitioners, without specific allegation of mis-statement with due knowledge.
The ingredient of Section 628 are not fulfilled, in the case in hand, therefore, issuance of notice and subsequent proceedings thereto are nothing
but misuse of powers under the provisions of the Companies Act. Instead of initiating the prosecution, it would have been sufficient to ask the
directors to correct the form 23AC by deleting the names of two directors who had not signed the balance sheet.
Consequently, this petition is allowed. Show cause notice and subsequent proceedings were ordered to be quashed. But with no order as to
costs. Comp. A. No. 38 of 2011 is closed.