JUDGEMENT ON COMPANIES ACT

1. The short point involved in this case is as to whether the complaint filed by the respondents

against the petitioners for making a mis-statement in a prospectus and for making a false statement

in the prospectus offence punishable under Section 63 and 628 of the Companies Act, 1956 is

within limitation. The relevant paragraphs of the complaint are as follows:

2. That No.1 and 3 being signatories to the prospectus dated 11.04.1997 are responsible for

conduct of affairs of the company at the relevant point of time and are, therefore, responsible for

compliance with the provisions of Section 63 and 628 of the Companies act, 1956. Copy of the

prospectus regarding the proof of directorship of the company being the person who authorized the

issue of the prospectus is marked as Annexure II to the complaint.

3. That the company, in question, in terms of Section 60 of the Companies Act 1956 filed the

prospectus with the office of the complainant for raising money from the public/primary market

and the said prospectus was registered by the office of the complainant.

6. That show cause notice dated 21.05.2002 to the said contravention was thereafter issued to

the Accused which is marked as Annexure-4 to the complaint and reply of the company to the said

show cause notice is marked as Annuexure-5.

7. That the complainant most respectfully submits that the reply to the said show cause notice

was thereafter forwarded to the Authorities concerned and accordingly in the absence of any

communication from the Department of Company Affairs, Shastri Bhawan, New Delhi, the

complainant could not have filed the present complaint. The Department vide its letter dated

11.11.2003 directed the Regional Director (NR), Kanpur to advise the office of the complainant to

file the present company who in turn by letter dated 20.11.2003 advised this office to file the

present complaint. Copies of the aforesaid letters are marked as Annexure-6 & 7 respectively. The

provision of Section 468 Cr.P.C. are, therefore, not applicable to the present complaint.

2. The complaint has been filed only on 14.01.2004. According to the petitioners this

complaint has been filed by the petitioner for making a mis-statement in the public prospectus

which was filed by the petitioners on 11.04.1997 is barred by limitation. It is submitted that the

punishment for making a mis-statement in a prospectus is punishable under Section 63 of the

Companies Act which provides punishment of two years. The said Section for the sake of

reference is reproduced hereunder:

63. Criminal liability for misstatements 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 1[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.

3. Section 628 of the Companies Act which is the other provision for which the petitioners are

sought to be prosecuted also provided punishment of two years only. The said provision also 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.

4. It is submitted by the petitioners that for any offence punishable for up to two years the

period of limitation is only three years as per the provisions of Section 468 of the Cr.P.C. As such

the complaint which has been filed after seven years of the filing of the prospectus is barred by

limitation.

5. The petitioners have also relied upon a judgment delivered by this Court in

Crl.M.C.1777/2005 titled as Sunair Hotels Ltd. and Anr. Vs. The Registrar of Companies and Anr.

decided on 18.03.2009 wherein in a similar circumstance also a complaint was filed beyond period

of limitation, this Court has held:

6. Section 374 of the Companies Act reads as under:

374 - Penalty for contravention of section 372 or 373:- If default is made in complying with the

provisions of1[section 372 [excluding sub-sections (6) and (7)] or section 373], every officer of the

company who is in default shall be punishable with fine which may extend to2[fifty thousand

rupees.

7. Similarly, it will also be appropriate to take note of Section 468 of Cr.P.C.

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 a term exceeding one year but

not exceeding three years.

1[(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 the more

severe punishment or, as the case may be, the most severe punishment.]

It was further held:

8. In view of the aforesaid it is apparent that the limitation to take cognizance of the offence

alleged to have been committed by the petitioner expired long ago before the filing of the compliant

which has been filed sometimes in 2004.

9. The only explanation given by the respondents to justify the delay is that the sanction for

lodging the prosecution against the petitioner company was required to have obtained prior to the

filing of this complaint which was received from the Department of Company Affairs, Shastri

Bhawan, New Delhi. They have also relied upon the provisions of Section 470(3) of the Code of

Criminal Procedure and submits that in the circumstances, the period taken by them in obtaining

the prior sanction which they say has to be excluded from the period of limitation as provided

under Section 468 of the Cr.P.C. Since the sanction was received only on 13.04.2004 and,

therefore, filing of the complaint within 6 months thereafter is justified and brings the complaint

within limitation.

10. Coming to the judgments which have been relied upon by the petitioner I find that in the

case of Vinod Kumar Jain (supra) it has been held:

(4) The petitioner appeared in the trial Court in obedience to the process issued to him but he has

challenged the legality and validity of the summoning order through this petition.

(5) The learned counsel for the petitioner has at the outset assailed the cognizance of the complaint

by the learned Additional Chief Metropolitan Magistrate on the ground that the complaint was

hopelessly barred by time on the date it was presented and the learned Magistrate could not take

cognizance of the same without first condoning the delay as envisaged in Section 473 of the Code

and that too after notice to the petitioner. Hence, the impugned order, according to him, is vocative

of principles of natural justice. Moreover, it betrays total non-application of judicial mind with

regard to the facts spelt out by the respondent-complainant in the application made by him under

Section 473 of the Code for condensation of delay. As pointed out by him, the cryptic order" and

find prima facie grounds to proceed against the accused under Section 473 Criminal Procedure

Code .......", does not disclose whether the learned Additional Chief Metropolitan Magistrate

condoned the delay and if so, on what ground.

(6) SUB-SECTION (1) of Section 468 of the Code lays down that except as otherwise provided

elsewhere in the Code, no court shall take cognizance of an offence of the category specified in

Sub-section (2) thereof after the expiry of the period of limitation prescribed in clauses (a), (b) &

(c) of the Sub-section. Obviously the bar of limitation operates before the court takes cognizance of

an offence. Under clause (a). Sub-section (2) of Section 468, the period of limitation is six months

if the offence is punishable with fine only as is admittedly the position in the instant case. Section

469 of the Code prescribes the terminus a quo for the commencement of period of limitation. It is

the date of the offence or where the commission of the offence was not known to the person

aggrieved by the offence, the first day on which such offence cones to the knowledge of such

person whichever is earlier. In the instant case, the contention of the respondent-complainant is that

he came to know of the commission of offence on 24th January 1981 when he perused the report of

the Inspecting Officer Shri O.P. Chadha. Obviously, thereforee, the complaint was hopelessly

barred by time on the date of its institution.

(7) Section 473 of the Code, however, provides that notwithstanding anything contained in the

foregoing provisions the court may take cognizance of an offence after the expiry of period of

limitation provided thereforee if it is satisfied on the facts and in the circumstances of the case that

(i) the delay has been properly explained; or that (ii) it is necessary so to do in the interests of

justice.

(8) It is thus manifest that if a complaint is prima facie barred by time when it is filed, it becomes

necessary for the prosecuting agency to explain the delay and seek condensation of the same.

Unless the delay is condoned the court cannot take cognizance of the complaint. In other words, the

Magistrate has to apply his mind to the question of limitation at the pre-cognizance stage and

satisfy himself that delay has been properly explained or that it is necessary to condone the delay in

the interests of justice. The Magistrate cannot hasten to issue the process without first recording his

satisfaction that the delay was satisfactorily explained to him or that he was of the view that the

condensation of delay was in the interests of justice. It 19 highly doubtful that the court can

condone the delay and thus extend limitation subsequent to the taking of cognizance of the offence.

Of course, the condensation of delay may be implied from the act of the Magistrate in taking

cognizance after the expiry of the period of limitation and proceeding with the case but the order

must be clear and categorical in this respect. He has no power or authority to condone the delay

provisionally or ex facie as has been seemingly done in the instant case.

(9) In State of Punjab v. Sarwan Singh, AIR 1981 SC1054, the accused Sarwan Singh was

convicted of an offence under Section 406, Indian Penal Code, by the trial Court. However, on

appeal having been preferred by him, the High Court set aside his conviction and acquitted him

mainly on the ground that the prosecution launched against him was clearly barred by limitation

under sections 468 & 469 of the Code. The State went in appeal by special leave to the Supreme

Court but the same was dismissed with the following observations which are very pertinent to

notice:.

"The object of Criminal Procedure Code in putting a bar of limitation on prosecutions was clearly

to prevent the parties from filing cases after a long time, as a result of which material evidence may

disappear and also to prevent abuse of the process of the court by filing vexatious and belated

prosecutions long after the date of the offence. The object which the statute seeks to subserve is

clearly in consonance with the concept of fairness of trial as enshrined in Article 21 of the

Constitution. It is, thereforee, of the utmost importance that any prosecution, whether by the State

or a private complainant must abide by the letter of law or take the risk of the prosecution failing on

the ground of limitation."

(10) Obviously an accused person acquires a valuable right the moment his prosecution is barred by

limitation. Hence, that right cannot be taken away except in accordance with the provisions of law.

It is, therefore, imperative for the court taking cognizance of the offence to apply its judicial mind

as to whether the prosecution has satisfactorily explained the delay in launching prosecution at the

pre-cognizance stage i.e. when the Magistrate applies his mind for the purpose of proceeding under

Section 200 and the succeeding Sections in Chapter 15 of the Code. Since the discretion vesting in

the Magistrate to condone the delay or not has to be judicially exercised, the principles of natural

justice require that the accused must be afforded an opportunity before he is called upon to face the

prosecution in a time barred matter. As observed by a Division Bench of this Court in State ( Delhi

Administration) v. Anil Puri and others ILR 1979 Delhi 350

6. In the present case, the respondents have submitted that it is only when a balance sheet was

filed by the petitioners for the year ending 31.03.2001 that they came to know that the statement

made in the prospectus was not correct and accordingly they gave a show cause notice which was

given on 21.05.2002 and then they have filed a complaint dated 14.01.2004. It is submitted that the

delay had been caused because of obtaining sanction etc. from the department concerned.

7. Even if one takes the case of the respondents at the highest and apply the provision of

Section 473 of the Cr.P.C. to the facts of this case, then also once the respondents having come to

know about the violation, i.e, on filing of the balance sheet, no where it is stated as to when the said

balance sheet was filed, it is also not stated as to whether prior to 31.03.2001 any balance sheet was

filed by the petitioner or not and in case such balance sheet was filed then what was the status

shown in that balance sheet. It is hard to believe that the petitioner had not filed any balance sheet

prior thereto though balance sheet as per the petitioners were filed on year to year basis. Moreover,

it is nowhere stated in the complaint as to from which date the limitation starts so as to bring the

complaint within limitation. As a matter of fact, the averments made in the response by the

respondents are not even forming part of the complaint.

8. Thus, even the averments made in the complaint are per se false to the knowledge of the

respondents and therefore the plea taken by the respondents that this is a case where neither there

was any continuing wrong and that the limitation period was continuing till the respondents filed

the complaint cannot be sustained. Even otherwise the law has been already discussed by this

Court in the judgment quoted above. No contrary judgment has been cited.

9. Taking into consideration that the prospectus in this case was filed on 11.4.1997, filing of

the complaint in this case in the year 2004 cannot be justified at all. Thus, the complaint as well as

the summoning order issued in this case is set aside and the complaint filed by the respondents is

quashed. Consequently, all the proceedings emanating therefrom are hereby quashed.

10. Petition stands disposed of.

Sd./-

MOOL CHAND GARG,J

MAY 05, 2009

anb

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