2016 (8) TMI 792 - HC - Companies Law

Court quashes criminal proceedings for lack of evidence and expired limitation period.

The court quashed criminal proceedings against the petitioner in various cases related to non-maintenance of proper books of accounts, falsification of ... Offences punishable u/ss.209(5) r/w.Sections 211(7) and 628 of the Companies Act for non-maintenance of proper books of accounts - Held that:- The petitioner is a practicing advocate and it is his main vocation. Incidentally, he might have accepted Directorship, but merely he is a formal Director, no process can be issued against him unless specific allegation has been made against him in the complaint or primafacie ingredients of the offence has been established against him. Here in this case, it is established from the complaint itself that, though the present petitioner has been named as an accused in the said complaint, neither there is specific allegation made nor prima-facie ingredients of the offence established from the said complaint against the petitioner. It seems that he has been joined as an accused in the said proceedings merely because he is a formal Director in the Company. In absence of any specific averments or ingredients in the complaint against the petitioner, the process issued against the petitioner requires to be quashed. A plain reading of Section 211(7) and 209(5) of the Act would go to show that the default is punishable with imprisonment for a term which may extend to six months and shall also be liable to fine which may extend to ten thousand rupees, or with both. Section 628 provides for punishment with imprisonment, which may extend to two years and shall also be liable to fine. It is not in dispute that the alleged contravention with regard to the maintenance of Registers of Directors are for a period spanning from 1997-98 and 1998-99. The complaint came to lodged in the year 2006 The question which falls for my consideration is whether the learned Magistrate could have taken cognizance of the alleged offence, after the expiry of the period of limitation as provided under Section 468 of the Code of Criminal Procedure. Section 468 provides that the period of limitation shall be six months, if the offence is punishable with fine only, and three years if the offence is punishable with imprisonment for a term exceeding one year, but not exceeding three years. Having regard to the nature of the contravention, it could not be said that the Sections 211(7), 209(5) and 628 of the Companies Act are continuing offences so that the period of limitation would keep on running. What is continuing offence has been exhaustively explained by this Court, while disposing of Special Criminal Application No. 809 of 2014 today itself. In view of above facts and circumstances, the Special Criminal Applications are allowed. Thereby, the criminal proceedings of Criminal Complaint against the applicant pending before the Court of learned Addl. Chief Judicial Magistrate, Ahmedabad are hereby ordered to quashed. Issues Involved:1. Non-maintenance of proper books of accounts under Sections 209(5), 211(7), and 628 of the Companies Act.2. Allegations of falsification of accounts and non-disclosure of related party transactions.3. Allegations of financial misconduct related to the movement of funds and purchase of shares.4. Allegations of non-compliance with auditor’s remarks and adverse comments.Issue-Wise Detailed Analysis:1. Non-maintenance of proper books of accounts under Sections 209(5), 211(7), and 628 of the Companies Act:The respondent, Serious Fraud Investigation Office, lodged complaints against Mardia Chemicals Limited and its Directors for offences punishable under Sections 209(5), 211(7), and 628 of the Companies Act for non-maintenance of proper books of accounts. The court noted that these were technical offences lacking evidence of mens rea and intention to commit the alleged offences. The court found no prima facie evidence to continue criminal proceedings after a long period since the alleged commission of the offences.2. Allegations of falsification of accounts and non-disclosure of related party transactions:In Criminal Case No.14 of 2006, it was alleged that the company falsified accounts by not disclosing advances paid for acquiring mining lands from directors and their relatives. The petitioner argued that he was a professional director with no involvement in the day-to-day management and no specific allegations against him in the complaint. The court referenced several judgments, including S.M.S. Pharmaceuticals Limited v/s Neeta Bhalla, to support the petitioner’s position that mere directorship without specific allegations does not establish criminal liability.3. Allegations of financial misconduct related to the movement of funds and purchase of shares:In Criminal Case No.24 of 2006, allegations were made regarding the rotation of cheques among companies to confuse authorities, violating Section 77 of the Companies Act. The petitioner contended that there were no specific allegations or evidence of his involvement in such transactions. The court found that the petitioner, being a formal director, could not be held liable without specific allegations of misconduct.4. Allegations of non-compliance with auditor’s remarks and adverse comments:In Criminal Case No.15 of 2006, it was alleged that the directors did not furnish explanations for adverse remarks in the auditor’s reports from 1994-1995 to 2003-2004. The petitioner argued that there were no specific allegations against him and that he had resigned as a director before some of the alleged periods. The court noted that the complaint lacked specific allegations of mala fides or want of good faith against the petitioner.Limitation Period:The court considered whether the learned Magistrate could take cognizance of the alleged offences after the expiry of the limitation period under Section 468 of the Code of Criminal Procedure. It was determined that the offences under Sections 211(7), 209(5), and 628 of the Companies Act were not continuing offences, and the period of limitation had expired.Conclusion:The court allowed the Special Criminal Applications, quashing the criminal proceedings of Criminal Complaint Nos. 14 of 2006, 08 of 2006, 24 of 2006, and 15 of 2006 against the petitioner. The rule was made absolute, and direct service was permitted.