Show-cause notice for Companies Act prosecution quashed where allegations lacked material particulars and factual nexus.

A show-cause notice proposing prosecution under the Companies Act was quashed because it lacked material particulars and a rational nexus between the allegations and the supporting facts. The court noted that the notice accused erstwhile directors of non-filing of statutory returns and diversion of public issue funds, yet did not disclose the basic facts or material relied on to form the proposed opinion. It also recorded that the petitioners had resigned before the alleged defaults and that the notice rested largely on unverified balance-sheet assumptions. A punitive notice must set out its factual basis to afford a real opportunity to answer the charge.

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Issues: Whether the show-cause notice proposing prosecution under the Companies Act could be quashed for want of material particulars and absence of a rational nexus between the allegations and the supporting facts.

Analysis: The notice was issued against erstwhile directors alleging non-filing of statutory returns and diversion of public issue funds, but it did not disclose the basic facts or material relied on to form such an opinion. The petitioners had resigned from the board before the alleged defaults by the subsequent management, and the record showed that the notice proceeded largely on assumptions drawn from balance-sheet entries without investigation or verification. A punitive notice must disclose the basis of the proposed action so that the person proceeded against has a real opportunity to answer the charge. Where the materials do not establish a direct nexus between the facts relied on and the allegation made, the notice cannot be sustained.

Conclusion: The show-cause notice was unsustainable and was quashed, and the petition was allowed in favour of the petitioner.

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