2023 (9) TMI 308 - HC - Companies Law

Court quashes criminal proceedings, emphasizes proving mens rea.

The court allowed the Criminal Original Petition in Crl.O.P.No.5385 of 2017, quashing the proceedings in C.C.No.4345 of 2016. In the Criminal Original ... Prosecution proceedings against the Directors of the company - Falsification of accounts of A1 Company for the financial year 2001 – 2002 to 2007 – 2008 - whether the Petitioners / Directors of the Companies during the relevant period, false statements made wilfully knowing them to be false? - HELD THAT:- On perusal of the records, it is seen that the falsification is alleged to have been done on 27.12.2010 and the same was submitted on 20.05.2011. In the complaint, date of resignation of the respective petitioners, and cessation of being directors given, which is not disputed by the complainant, which would clearly confirm that they resigned from the Directorship much before the alleged commission of offence and to that effect, the petitioners filed Form 32 with the Registrar of Companies - there is no specific averment of any irregularity committed by the petitioners during the relevant period. From the facts, it is clearly seen that, when the petitioners were not Directors of the Companies at the relevant period. Admittedly, the offence and the cause of action taken place during the years 2010 and 2011, but the present complaint is filed in the year 2014. The admitted case of the respondent is that the offence of submission of falsification of accounts have been taken place during the year 2010-11. The cessation of Directors has been admitted and the same tabulated in the complaint. In view of such admitted position, the case against the petitioners to be considered along with the Balance sheet submitted by them - In the document submitted it was found that maximum data manipulation and falsification of accounts have been done by the Company and the Company Balance sheet do not project fair picture of the affairs of the Company. As regards the persons, who have signed and submitted return, report, certificate, balance sheet, prospectus, statement or other documents with false material particulars knowing it to be false or omitted any material fact knowing it to be material, they can be prosecuted for offence under Sections 628 and 629 of the Companies Act. Since the Petitioners 7, 8 and 9, who are A8, A10 and A12 have signed the above documents with the other Director, the case against them has to be proved whether they had requisite mens rea or guilty mind only during trial. Complaint against the persons where not the Directors during the relevant period, quashed - Proceedings against the persons who singed and verified the Balance Sheet shall continue. Issues Involved:1. Quashing of proceedings in E.O.C.C.No.47 of 2014.2. Quashing of proceedings in C.C.No.4345 of 2016.3. Allegations of falsification of accounts and submission of false evidence.4. Resignation of Directors prior to the commission of the alleged offenses.5. Limitation period under Section 468 of Cr.P.C.6. Filing of multiple complaints for the same allegations.7. Mens rea or guilty mind of the accused Directors.Summary:Issue 1: Quashing of proceedings in E.O.C.C.No.47 of 2014The Petitioners sought to quash the proceedings in E.O.C.C.No.47 of 2014, alleging that they had resigned from the Directorship of the company before the commission of the alleged offenses. The court found that the petitioners were not Directors when the financial statement was filed on 20.05.2011. The falsification of accounts was alleged to have been done on 27.12.2010, and the submission was on 20.05.2011. The court noted that the petitioners' involvement could only be confined to the financial year 2010-11 and found no specific averment of any irregularity committed by the petitioners during the relevant period. Thus, the proceedings against petitioners 1 to 6 and 10 (arrayed as A2 to A7 and A13) were quashed. However, the case against petitioners 7 to 9 (arrayed as A8, A10, and A12) was not quashed as they had signed the documents and their mens rea or guilty mind needed to be proved during the trial.Issue 2: Quashing of proceedings in C.C.No.4345 of 2016The Petitioners argued that C.C.No.4345 of 2016 amounted to a second complaint for the same allegations already covered in E.O.C.C.No.47 of 2014, which is not permissible in law. The court noted that both complaints were almost identical, except for some cosmetic changes and the inclusion of a Chartered Accountant as A15, who was no more. The court held that for the same cause of action/offense, there cannot be two cases, and thus, the proceedings in C.C.No.4345 of 2016 were quashed.Issue 3: Allegations of falsification of accounts and submission of false evidenceThe Respondent alleged that the accused falsified the accounts of the company for the financial years 2001-2002 to 2007-2008 and submitted manipulated data to derail the investigation. The court found that the maximum data manipulation and falsification of accounts were done by the company, and the balance sheet did not project a fair picture of the company's affairs. The court noted that the documents were signed by certain Directors, and their involvement needed to be proved during the trial.Issue 4: Resignation of Directors prior to the commission of the alleged offensesThe Petitioners contended that they had resigned from the Directorship of the companies much prior to the alleged commission of offenses and had filed necessary Form-32 with the Registrar of Companies. The court confirmed that the petitioners had resigned before the alleged commission of the offenses, and thus, the prosecution against them need not be continued.Issue 5: Limitation period under Section 468 of Cr.P.C.The Petitioners argued that the complaint was barred by limitation as the offense and cause of action took place during 2010-2011, but the complaint was filed in 2014. The court did not find this argument persuasive, noting the continuing nature of the offense and the exclusion of delay in granting sanction as per Section 470 Cr.P.C.Issue 6: Filing of multiple complaints for the same allegationsThe court held that for the same cause of action/offense, there cannot be two cases, and thus, the proceedings in C.C.No.4345 of 2016 were quashed.Issue 7: Mens rea or guilty mind of the accused DirectorsThe court noted that the case against petitioners 7 to 9 (arrayed as A8, A10, and A12) needed to be proved during the trial to determine whether they had the requisite mens rea or guilty mind when signing and submitting the documents.Conclusion:The Criminal Original Petition in Crl.O.P.No.5385 of 2017 was allowed, and the proceedings in C.C.No.4345 of 2016 were quashed. The Criminal Original Petition in Crl.O.P.No.9939 of 2015 was partly allowed, quashing the proceedings in E.O.C.C.No.47 of 2014 against petitioners 1 to 6 and 10 (arrayed as A2 to A7 and A13), while the case against petitioners 7 to 9 (arrayed as A8, A10, and A12) was dismissed.