Limitation and sham transaction principles kept prosecution alive against directors, but not against the company itself.

Where allegations of Companies Act contraventions are connected with a charge of criminal breach of trust under section 409 IPC, the limitation period is governed by the more serious offence, so the bar under section 468 CrPC does not defeat the prosecution. The complaint also alleged that directors failed to disclose their interest and used a sham contract to divert company funds, making the case fit for trial against accused Nos. 1 to 3. However, the company itself was not shown to have committed the alleged misappropriation, so the proceedings could not be sustained against it and were quashed as against the company.

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Issues: (i) Whether the complaint was barred by limitation in respect of the alleged Companies Act offences when they were connected with an offence under section 409 of the Indian Penal Code; (ii) Whether the allegations disclosed offences against accused Nos. 1 to 3 and against accused No. 4-company.

Issue (i): Whether the complaint was barred by limitation in respect of the alleged Companies Act offences when they were connected with an offence under section 409 of the Indian Penal Code.

Analysis: The allegations included a serious charge of criminal breach of trust under section 409 of the Indian Penal Code, which is punishable with imprisonment for life or for a term extending to ten years. Where offences are triable together, the period of limitation is governed by the offence carrying the more severe punishment. Since no limitation applies to the section 409 charge, the bar of limitation under section 468 of the Code of Criminal Procedure, 1973, could not defeat the prosecution for the connected Companies Act offences.

Conclusion: The prosecution was not barred by limitation.

Issue (ii): Whether the allegations disclosed offences against accused Nos. 1 to 3 and against accused No. 4-company.

Analysis: The complaint contained substantive allegations that accused Nos. 1 to 3, as directors, failed to disclose their interest and participated in or caused a sham contract in violation of sections 297, 299 and 300 of the Companies Act, 1956, and that the arrangement was used to divert company funds, constituting prima facie criminal breach of trust. Those allegations were sufficient to require trial against accused Nos. 1 to 3. By contrast, the factual foundation of the complaint showed that the alleged wrongdoing was directed by the directors against the company and not committed by the company itself. The Companies Act provisions invoked fastened liability on the officers concerned, and the charge of criminal breach of trust was inherently one against the directors who allegedly misappropriated company funds, not against the company as such.

Conclusion: The proceedings were sustainable against accused Nos. 1 to 3, but not against accused No. 4-company.

Final Conclusion: The prosecution was allowed to continue against the individual accused, while the company was directed to be removed from the array of accused and the proceedings against it were quashed.

Ratio Decidendi: Where allegations show that company funds were diverted by directors through a sham transaction, the company is not liable as the offender for the directors' acts; and where a serious offence triable with the alleged regulatory contraventions carries no limitation, the limitation bar does not apply to the connected lesser offences.

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