Retrospective criminalisation in company law cannot apply to prior subsidiary investments not punishable when made.

Investments made by a holding company in its subsidiary before the 17 April 1989 amendment to section 372 of the Companies Act, 1956 were outside the mischief of the unamended provision, so section 374 could not be invoked for that prior conduct. Penal provisions must be strictly construed, and conduct not punishable when committed cannot be treated as an offence by later retrospective legislation. Because the complaint omitted the material fact of the prior investment, it failed to disclose any offence under section 372(4); the cognizance and refusal-to-cancel orders were therefore unsustainable, and continuation of the prosecution would amount to abuse of process.

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Issues: Whether the complaint and the summoning order disclosed any offence under section 372(4) of the Companies Act, 1956 in respect of investments made by a holding company in its subsidiary before the 1988 amendment, and whether the criminal proceedings amounted to abuse of the process of court.

Analysis: The investment in the Nepal subsidiary was made and disclosed before the amended version of section 372 came into force on 17-4-1989. Under the unamended provision, investments by a holding company in its subsidiary were outside the mischief of section 372, and consequently section 374 could not be attracted for such prior conduct. Penal provisions must be strictly construed, and an act not punishable when committed cannot be treated as an offence by later legislation with retrospective effect. The complaint omitted the material facts showing the prior investment and therefore failed to disclose the commission of any offence. The order taking cognizance and the order refusing to cancel it were thus unsustainable and the continuation of prosecution would amount to abuse of process.

Conclusion: The complaint did not disclose an offence under section 372(4) of the Companies Act, 1956, and the summoning and rejection orders were liable to be set aside.

Ratio Decidendi: A penal provision cannot be applied retrospectively to criminalise an act of investment by a holding company in its subsidiary when that act was not an offence under the law in force at the time of the investment.

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