Limitation and nominee director liability bar prosecution for cured cost audit default under corporate compliance law.

Non-compliance with cost audit filing requirements was held not to be a continuing offence once the default had been cured by appointment of the cost auditor and completion of the filing. Because the alleged contravention was punishable only with fine, prosecution had to be initiated within limitation; a complaint taken on file in 2018 was time-barred. The proceedings were also found unsustainable against nominee and non-executive directors, as the default arose from board-level decisions, statutory compliance was later completed, and no material showed their personal culpability. The criminal proceedings were therefore quashed as an abuse of process.

---

---

Issues: (i) Whether non-compliance alleged under Section 148 of the Companies Act, 2013 constituted a continuing offence so as to avoid the bar of limitation. (ii) Whether the complaint could be sustained against nominee and non-executive directors where the default arose from board-level decisions and the relevant Ministry circular advised against unnecessary proceedings.

Issue (i): Whether non-compliance alleged under Section 148 of the Companies Act, 2013 constituted a continuing offence so as to avoid the bar of limitation.

Analysis: The cost audit requirements were subsequently complied with, the cost auditor was appointed, and the necessary filing was completed. Once the default was made good, the omission could not be treated as a continuing offence. As the alleged contravention was punishable only with fine, prosecution had to be initiated within the applicable period of limitation. The complaint having been taken on file only in 2018, it was beyond limitation.

Conclusion: The alleged default was not a continuing offence and the prosecution was barred by limitation.

Issue (ii): Whether the complaint could be sustained against nominee and non-executive directors where the default arose from board-level decisions and the relevant Ministry circular advised against unnecessary proceedings.

Analysis: The accused were nominee directors and officers of a public sector company. The materials showed that the relevant steps were taken through board resolutions and the statutory filings were later completed. The circular issued by the Ministry of Corporate Affairs emphasized that proceedings should not be unnecessarily initiated against independent or non-executive directors, including government-nominated directors, unless sufficient material showed their personal responsibility. No such basis was shown to continue the prosecution against the petitioners.

Conclusion: The complaint was not maintainable against the petitioners in the facts of the case.

Final Conclusion: The criminal proceedings were held unsustainable and were quashed for abuse of process of law.

Ratio Decidendi: Where a statutory default punishable only with fine has been cured and the prosecution is launched after the limitation period, the omission does not continue indefinitely; prosecution against nominee or non-executive directors cannot be sustained without material showing their personal culpability.

---