Prospectus misstatement liability: good faith and due diligence did not justify quashing the criminal complaint at the threshold.

A criminal complaint alleging an untrue statement in a prospectus under Section 63 was held not to be quashed at the threshold merely because a director claimed reliance on a due diligence report and belief in its truth. The court held that the prosecution must show prima facie material that the prospectus contained an untrue statement, while the statutory exception for immateriality or reasonable belief is a defence to be proved by the accused, consistent with the burden rule under Section 105 of the Evidence Act. At the stage of process, the Magistrate need only assess prima facie support for the complaint, and the proceedings were allowed to continue.

---

---

Issues: Whether a criminal complaint for offences under Section 63 of the Companies Act could be quashed at the threshold on the plea that the director had relied on a due diligence report and believed the prospectus statements to be true.

Analysis: Section 63(1) makes every person who authorised the issue of a prospectus containing an untrue statement liable, unless he proves that the statement was immaterial or that he had reasonable ground to believe it was true. The prosecution must establish the existence of untrue statements in the prospectus, but the statutory exception based on reasonable belief is a matter for the accused to prove. At the stage of process, the Magistrate is required only to see whether there is prima facie material supporting the complaint. The Court also treated the exception as placing the burden on the petitioner in line with Section 105 of the Indian Evidence Act.

Conclusion: The complaint disclosed a prima facie case and the proceedings could not be quashed merely on the petitioner's plea of good faith and due diligence.

---