Quashing of prosecution for statement of affairs default where ex-directors lacked effective control and had furnished available company records.

Proceedings for alleged non-compliance with the obligation to file the statement of affairs and the connected prosecution under Section 538 of the Companies Act, 1956 were quashed against ex-directors who had supplied the available books and records. The court noted that defects in the statement of affairs had earlier been found rectified, and the material showed that day-to-day management had been handled by another director who had resigned, while the petitioners were not in effective control of the company's affairs. On that factual basis, continuation of the criminal case for alleged withholding of records or default under Section 454 was held to serve no useful purpose, and the proceedings were terminated.

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Issues: Whether proceedings for alleged non-compliance with the requirement to file the statement of affairs and the connected prosecution under Section 538 of the Companies Act, 1956 could be continued against the petitioners, who were shown as ex-directors but had not ically participated in the management of the company and had furnished the available records.

Analysis: The petitioners had supplied the available books of account and related documents and had earlier obtained a finding that the defects in the statement of affairs stood rectified. The material on record also showed that the day-to-day management had been handled by another director who had resigned earlier, while the present petitioners were residents of different cities and had not been in effective control of the company's affairs. In these circumstances, continuation of criminal proceedings for alleged withholding of records or default in compliance with Section 454 served no useful purpose.

Conclusion: The proceedings against the petitioners for the offence under Section 538 of the Companies Act, 1956 were quashed.

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