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Judgment
Samudrala Govindarajulu, J.—These three petitions are filed by accused Nos. 2 to 4 and 8 for quashing the proceedings in C. C. Nos. 7 of 2006, 9 of 2006 and 8 of 2006 on the file of the Special Judge for Economic Offences, Hyderabad, relating to the offences punishable under Sections 63, 68 and 628 of the Companies Act, 1956, respectively.
All the three complaints were filed by the Registrar of Companies, Andhra Pradesh, against Al to A10. Al to A9 are directors of A10 company, namely, M/s. Pfimex International Ltd., Hyderabad. Originally, the Pfimex group consisted of partnerships and the erstwhile partners promoted A10 company. On June 14, 1990, A10 came out with public issue for 24,87,223 equity shares of Rs. 10 each for cash aggregating to Rs. 2,48,72,230. The public issue was over subscribed by 6.5 times. Subsequently, on May 16, 1992, through letter of offer, A10 came out with 14 per cent. secured fully convertible debentures ("A" series) of 3,50,000 of Rs. 150 each for cash or par aggregating to Rs. 5,25,00,000 of which 3,33,334 debentures aggregating to Rs. 5,00,00,100 were offered on rights basis to the existing equity shareholders of the company and 16,666 debentures aggregating to Rs. 24,99,900 to its employees. The company was running its unit at Jeedimetla. On the ground that the company incurred loss of Rs. 1,628.59 lakhs and that the company''s net worth has been eroded and that there was non-availability of working capital, the company''s unit at Jeedimetla was closed by March 31, 1998 and the company became a sick industrial company under the Sick Industrial Companies (Special Provisions) Act, 1985.
Thereupon, the Regional Director (SR) in the office of the Regional Director, Southern Region, Chennai, addressed a letter dated July 12, 2002, to the first respondent/Registrar of Companies, Andhra Pradesh, for taking action against this company, as it has gone into the list of vanishing companies. It made the first respondent to file these three complaints in the lower court against Al to A10 under Sections 63, 68 and 628 of the Companies Act, 1956.
It is contended by senior counsel appearing for the petitioners that none of the above penal sections of law is applicable to the facts of these cases, because the complaints do not disclose which part of the prospectus or letter of offer contained which misstatements and which false promise as contemplated by the above penal sections of law. Secondly, it is contended for the petitioners that in so far as the prosecution of the petitioners for the offences punishable under Sections 63 and 628 of the Companies Act, 1956, is concerned, it is barred by limitation u/s 468 of the Code of Criminal Procedure, 1973.
On the other hand, it is contended by the first respondent''s counsel that with false promises and misstatements given in the prospectus, the company went out for public issue and also offered debentures to the existing shareholders and employees. It is further contended that as per Section 469(1)(b) of the Code of Criminal Procedure, both the cases are well within the period of limitation, because the complainant came to know about the commission of those offences only after receiving the letter dated July 12, 2002, from the Regional Director, Southern Region, Chennai, of the Government of India, Ministry of Law, Justice and Company Affairs.
It is further contended by the first respondent''s counsel that the scope of Section 482 of the Code of Criminal Procedure, 1973, is very much limited and that no interference may be made in these matters, having regard to the decision of the Supreme Court in State of Haryana and others Vs. Ch. Bhajan Lal and others, . While dealing with the scope of a petition u/s 482 of the Code of Criminal Procedure, 1973, the Supreme Court laid down certain guidelines which are as follows (page 378):
(1) Where the allegations made in the first information report or the complaint, even if they are taken at their face value and accepted in their entirety do not prima facie constitute any offence or make out a case against the accused.
(2) Where the allegations in the first information report and other materials, if any, accompanying the FIR do not disclose a cognisable offence, justifying an investigation by police officers u/s 156(1) of the code except under an order of a Magistrate within the purview of Section 155(2) of the Code.
(3) Where the uncontroverted allegations made in the FIR or complaint and the evidence collected in support of the same do not disclose the commission of any offence and make out a case against the accused.
(4) Where, the allegations in the FIR do not constitute a cognisable offence but constitute only a non-cognisable offence, no investigation is permitted by a police officer without an order of a Magistrate as contemplated u/s 155(2) of the code.
(5) Where the allegations made in the FIR or complaint are so absurd and inherently improbable on the basis of which no prudent person can ever reach a just conclusion that there is sufficient ground for proceeding against the accused.
(6) Where there is an express legal bar engrafted in any of the provisions of the Code or the concerned Act (under which a criminal proceeding is instituted) to the institution and continuance of the proceedings and/or where there is a specific provision in the Code or the concerned Act, providing efficacious redress for the grievance of the aggrieved party.
(7) Where a criminal proceeding is manifestly attended with mala fide and/or where the proceeding is maliciously instituted with an ulterior motive for wreaking vengeance on the accused and with a view to spite him due to private and personal grudge.
This court has to see whether the allegations made in the complaint prima facie make out offences under Sections 63, 68 and 628 of the Companies Act. Further, it has to be seen whether any of the complaints is barred by limitation in view of Section 468 of the Code of Criminal Procedure, 1973.
The offence u/s 68 of the Companies Act is punishable with imprisonment which may extend to five years. Therefore, the complaint in C. C. No. 8 of 2006 is not barred by limitation because there is no time limit fixed for prosecuting any person for the offence u/s 68 of the Companies Act. In so far as offences under Sections 63 and 628 of the Companies Act are concerned, they are punishable with imprisonment which may extend to two years and so as per Section 468(2)(c) of the Code of Criminal Procedure, the period of limitation for filing complaint for the said offences is only three years. As per Section 469 of the Code of Criminal Procedure, the period of limitation commences on the date of offence or where commission of the offences was not known to the person aggrieved by the offences the first date on which such offence comes to the knowledge of such person, which ever is earlier. In the cases on hand, the prospectus was published on June 14, 1990 and the letter of offer was given on dated May 16, 1992. If any false statement or misstatement occurred in the prospects or the letter of offer, then the first respondent should have filed complaints in the lower court within three years thereof. Now the first respondent wants to take shelter u/s 469(1)(b) of the Code of Criminal Procedure and also the letter dated July 12, 2002, of the Regional Director, Southern Region, Chennai. Until the letter dated July 12, 2002, of the Regional Director, the first respondent, viz., the Registrar of Companies, Hyderabad was sleeping over the matter and it is only after the Regional Director poked, the Registrar of Companies, Hyderabad woke up and filed the complaints in the lower court in August, 2003. Therefore, the first respondent wants this Court to reckon the starting of period of limitation from July 12, 2002. In my considered opinion, the first respondent cannot take benefit u/s 469(1)(b) of the Code of Criminal Procedure. Under the Companies Act, every company is bound to submit its balance-sheet along with the directors'' report every year to the Registrar of Companies. It is not the first respondent''s case that A10 company and its directors did not send such balance-sheet along with the directors'' report to the Registrar every year. On the other hand, even as per allegations in the complaint contained in paragraphs Nos. 9 and 10, there is no dispute that in the years 1992 and 1994, A10 company sent its balance-sheets on September 30, 1992 and December 31, 1994, respectively. The first respondent should have acted upon those balance-sheets and the directors'' reports and should have filed the complaints within the period of limitation. Therefore, in my opinion, inaction on the part of the Registrar of Companies, Hyderabad in this case debars him from filing the complaints under Sections 63 and 628 of the Companies Act. I find that C. C. Nos. 7 of 2006 and 9 of 2006 of the lower court are barred by limitation. The first respondent''s counsel did not claim any exemption for the Registrar of Companies from applicability of the period of limitation prescribed u/s 468 of the Code of Criminal Procedure.
Section 63(1) of the Companies Act makes any untrue statements in a prospectus liable for punishment. Section 68 of the Companies Act forbids any statement, promises or forecast which is false deceptive or misleading made knowingly or recklessly, or by any dishonest concealment of material facts and inducement of any other person to enter into, or to offer to enter into any agreement or subscribing for, or underwriting any shares. Section 628 of the Companies Act forbids any prospectus or other documents mentioned therein making statement which is false, in any material particular knowing it to be false. The first respondent accuses the accused in these cases on the ground that the prospectus and letter of offer contained mis-statements, false statements, false promises inducing the subscribers to invest in shares which were offered by the company. The first respondent lists out in the complaints the alleged misstatements and promises in the prospectus and in the letter of offer. There is no dispute that Pfimex group was an ongoing concern prior to going for public issue and it was being run in partnership firm. The prospectus contained only figures and achievements which were secured by Pfimex group prior to being converted into a company. The letter of offer given in the year 1992 also contained performance results of the company after it is incorporated. It is not the complainant''s case that any of those past history and performance results set out by the company either in the prospectus or in the letter of offer were false or misleading. The only allegation against the company is that the company had given a rosy picture in the prospectus and in the letter of offer attracting the public and shareholders to subscribe for shares and debentures in the company, by mentioning expected future results. One has to be optimistic in life and cannot be expected to be pessimistic. No one can expect future gloomy picture in the prospectus or letter of offer. At the same time, the subscribers will decide on subscribing for shares and debentures having regard to market instabilities and other risks involving in the subscription. Simply because the company expected to give more dividend and expected to earn more profit which the company could not achieve in future years, it cannot be said that the contents of the prospectus and letter of offer were full of false promises and false inducements. A10 company or its directors did not promise any definite achievement in future. They only projected possible achievements in the prospectus and the letter of offer. In those circumstances, in my opinion, the basic requirements of Sections 63, 68 and 628 of the Companies Act are not made out by the first respondent/complainant in all these cases. When there is no prima facie case made out by the first respondent/complainant and when two of three cases are barred by limitation, this Court will certainly quash the proceedings in all the three cases pending in the lower court.
Before parting with these petitions, it is pertinent to note that A10 company cannot be termed as "vanishing company". Even before going for public issue, the business was being run in partnership and the manufacturing was closed by March 31,1998, after about 8 years. This is not a company which did not start its business or manufacture after collecting share value from the shareholders after going for public issue.
In the result, all the three petitions are allowed quashing proceedings in C. C. Nos. 7 of 2006, 8 of 2006 and 9 of 2006 on the file of the Special Judge for Economic Offences, Hyderabad in so far as the petitioners are concerned.