2021 (9) TMI 817 - HC - Companies Law

Court quashes complaint case under Companies Act, 2013 due to inadvertent error

The court allowed the revision application, quashing the proceedings of the complaint case under sections 118(2) and (7) read with sections 447/448 of the ... Minutes of board meeting - typographical/inadvertent error in minutes - minutes as evidence of proceedings - fraud and false statement - intent to deceive, gain undue advantage or injure - quashing of criminal complaint - inherent jurisdiction under Section 482 CrPCMinutes of board meeting - typographical/inadvertent error in minutes - minutes as evidence of proceedings - fraud and false statement - intent to deceive, gain undue advantage or injure - quashing of criminal complaint - inherent jurisdiction under Section 482 CrPC - Proceedings in complaint case no. 15 of 2018 quashed as the record did not prima facie disclose an offence under sections 118(2) and (7) read with sections 447/448 of the Companies Act, 2013. - HELD THAT: - The Court found that item no. 12 of the minutes of the Board meeting dated 11th June, 2014 contained the phrase 'for its de registration as NBFC', which was not supported by the application to the RBI dated 28th March, 2014 and that the company was not a registered NBFC at the relevant time. The erroneous recording was held to be a typographical/inadvertent error which was detected and rectified by the company by a Board resolution of 9th September, 2015. The statutory scheme establishes that minutes kept in accordance with section 118 are evidence of proceedings, but penal provisions in sections 447/448 require an element of intent - namely intent to deceive, gain undue advantage or injure the interests of the company or others. The complaint, on its face, did not prima facie disclose such intent; the petitioners' explanatory reply to the show cause notice was not reflected in the complaint and the sequence of events did not support a finding of mala fides. Given these facts, allowing the prosecution to proceed would amount to an abuse of process; accordingly, the Court, exercising its inherent jurisdiction under Section 482 CrPC, quashed the proceedings. [Paras 13, 14, 15, 16, 18]Complaint case no. 15 of 2018 quashed and proceedings before the Learned 2nd Special Court, Calcutta terminated.Final Conclusion: The revisional petition was allowed and complaint case no. 15 of 2018 was quashed under the Court's inherent jurisdiction, as the record disclosed only a typographical error in the minutes which, having been rectified and unexplained by the complaint as involving fraudulent intent, did not prima facie constitute an offence under the Companies Act, 2013. Issues:1. Quashing of proceedings of complaint case under sections 118(2) and (7) read with sections 447/448 of the Companies Act, 2013.Analysis:The petitioners, a company and its former manager, sought to quash the proceedings of a complaint case filed by the opposite party under sections 118(2) and (7) read with sections 447/448 of the Companies Act, 2013. The petitioners argued that a typographical error occurred in the minutes of a board meeting, erroneously recording the company's application for de-registration as a Non-Banking Financial Company (NBFC) when it was actually applying for registration as a Core Investment Company (CIC). The error was rectified by the company in a subsequent meeting. The opposite party inspected the records later and issued a show cause notice, leading to the complaint. The petitioners contended that the error was inadvertent, rectified promptly, and their explanation was not satisfactory to the opposite party, resulting in the complaint.The opposite party argued that the erroneous recording violated the Act and warranted prosecution. They claimed that the correction was made only after the show cause notice was issued, making the application for quashing premature. The court examined the relevant sections of the Companies Act, particularly sections 118(2), (7), and (11), emphasizing the importance of accurate minutes of meetings. The court noted that the error in recording the application was inadvertent and promptly rectified by the company. The court analyzed the definition of 'fraud' and the elements of false statement under sections 447 and 448 of the Act, emphasizing the intent to deceive or gain undue advantage. The court found that the complaint did not establish malicious intent on the part of the petitioners and that the error did not amount to an offense under the Act. The court highlighted the absence of the petitioners' reply to the show cause notice in the complaint and the timing discrepancies between the inspection, notice issuance, and prosecution instruction.The court applied the test of whether the uncontroverted allegations in the complaint made out a prima facie case and concluded that the petitioners did not act with malafide intention. The court exercised caution in invoking its powers under section 482 of the Code of Criminal Procedure, emphasizing that quashing a prosecution should not stifle legitimate cases. Ultimately, the court allowed the revision application, quashing the proceedings of the complaint case pending before the Learned 2nd Special Court, Calcutta. The court directed a copy of the order to be forwarded to the trial court for necessary action, disposing of related applications and ruling no order as to costs.