Limitation and incomplete pleadings in Companies Act prosecution led to quashing of the complaint and summoning order.

A prosecution under Section 211(7) of the Companies Act, 1956 was held not to be a continuing offence, so limitation ran from when the competent authority received actionable knowledge from the inspection report. Because the complaint was filed after the one-year limitation period, the proceedings were barred. The complaint also failed to plead essential facts showing the alleged accounting-standard breach, including any specific averment that borrowing costs were capitalised in asset cost or that self-created software was involved. In these circumstances, the High Court exercised its inherent power to prevent abuse of process and quashed the complaint and summoning order.

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Issues: Whether the complaint and summoning order were liable to be quashed for want of a prima facie offence and for being barred by limitation.

Analysis: The complaint was founded on inspection proceedings under the Companies Act, 1956 alleging contravention of accounting-standard disclosure requirements. The pleadings and complaint, however, did not contain a specific allegation that borrowing costs had been capitalized in the cost of assets or that the company had self-created software so as to attract the alleged defaults. On the limitation question, the relevant knowledge of the alleged offence was held to arise when the inspection report reached the competent authority on 24 June 2013, and the prosecution filed on 18 September 2014 was beyond the one-year period applicable to the offence. The offence under Section 211(7) was held not to be a continuing offence, and no requirement of prior sanction could extend limitation. In these circumstances, the inherent power could be exercised to prevent abuse of process.

Conclusion: The complaint and the summoning order were quashed, and the petitioners succeeded.

Ratio Decidendi: A prosecution under Section 211(7) of the Companies Act, 1956 is not a continuing offence, and where the complaint is filed beyond the limitation period counted from the date the competent authority acquired actionable knowledge, the proceedings are liable to be quashed if the complaint also fails to disclose the essential factual basis of the alleged offence.

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