2026 (3) TMI 1381 - HC - Companies Law

Statutory auditor prosecution fails without specific allegations or mens rea; vague complaints cannot sustain criminal proceedings.

A complaint by a Deputy Registrar was treated as maintainable because the term 'Registrar' under the Companies Act includes a deputy registrar, and the ... Maintainability of complaint by Deputy Registrar - Limitation for prosecution under Section 448 read with Section 447 - complaint barred by limitation - Contraventions under Sections 129 and 448 of the Companies Act, 2013 - False statement and mens rea - definition of 'Registrar' in Section 2(75) - Specific allegations against statutory auditor. Maintainability of complaint by Deputy Registrar - Meaning of Registrar - The complaint filed by the Deputy Registrar of Companies was maintainable under Section 439(2) of the Companies Act, 2013. - HELD THAT:- The Court held that though the complaint was filed by the Deputy Registrar and not by the Registrar in name, Section 2(75) defines 'Registrar' to include a deputy registrar. On that statutory definition, a Deputy Registrar is competent to institute the complaint in writing for the purpose of cognizance under Section 439(2). [Paras 45] The objection to the competence of the Deputy Registrar to lodge the complaint was rejected. Limitation for prosecution under Section 448 read with Section 447 - Applicability of Section 468 Cr.P.C. - The prosecution was not barred by limitation. - HELD THAT: - The Court held that the alleged offence under Section 448 attracts liability under Section 447 of the Companies Act, 2013, which provides for imprisonment extending up to ten years. In view of the nature of punishment prescribed, the Court found that the institution of the complaint in November, 2019 was not barred under Section 468 of the Cr.P.C. [Paras 46] The plea of limitation was negatived. False statement and mens rea - Specific allegations against statutory auditor - Abuse of process - HELD THAT: - The Court found that the complaints were largely directed against the company and its directors and did not attribute any specific overt act to the petitioner bringing his conduct within Section 448. Since Section 448 requires a knowingly false statement or omission of a material fact with knowledge of its materiality, the complaint had to disclose deliberate falsity and mens rea. The allegations against the petitioner were held to be vague and general; at the highest, they indicated non-disclosure in the balance sheet format and not fabrication or falsification. The Court also noted that the petitioner, being a statutory auditor, examined statements prepared on the basis of records and information furnished by management, and the complaint disclosed no material showing that he knowingly made any false statement. In these circumstances, continuation of the criminal proceeding was held to be an abuse of process, especially when proceedings against the directors in connected matters had already been quashed. [Paras 48, 49, 51, 52, 53] Proceedings under Section 448 were quashed insofar as the petitioner was concerned. Final Conclusion: The Court upheld the competence of the Deputy Registrar to file the complaint and rejected the plea of limitation. It nevertheless quashed the proceedings against the petitioner-auditor, holding that the complaints did not disclose the essential ingredients of Section 448 or any specific allegation showing a knowingly false statement or deliberate concealment. Issues: (i) Whether the complaint filed by the Deputy Registrar of Companies was maintainable under Section 439(2) of the Companies Act, 2013; (ii) whether the complaint was barred by limitation; (iii) whether the alleged contraventions under Sections 129 and 448 of the Companies Act, 2013 were prima facie made out against the petitioner; and (iv) whether the prosecution could continue against the statutory auditor in the absence of specific allegations and without the company being arraigned as an accused.Issue (i): Whether the complaint filed by the Deputy Registrar of Companies was maintainable under Section 439(2) of the Companies Act, 2013.Analysis: Section 439(2) restricts cognizance to complaints by the Registrar, a shareholder, a member, or a person authorised by the Central Government. The definition of 'Registrar' in Section 2(75) includes a deputy registrar, and the complaint was filed by the Deputy Registrar in that capacity. On that basis, the complaint was held to be within the statutory competence contemplated by the Act.Conclusion: The complaint was held to be maintainable.Issue (ii): Whether the complaint was barred by limitation.Analysis: The alleged defaults related to non-disclosure during the period of demonetization, and the complaint was lodged in November 2019. The Court treated the alleged conduct as falling within the framework of offences carrying punishment beyond the limitation bar under Section 468 of the Code of Criminal Procedure, 1973, and held that the proceedings were not time-barred.Conclusion: The complaint was held not to be barred by limitation.Issue (iii): Whether the alleged contraventions under Sections 129 and 448 of the Companies Act, 2013 were prima facie made out against the petitioner.Analysis: The complaints mainly alleged non-disclosure in financial statements, but the Court found no specific material showing that the petitioner knowingly made a false statement or omitted a material fact with the requisite fraudulent intent. Criminal liability was not to be inferred merely from the petitioner's status as auditor, and the essential ingredients of the offence were not disclosed with sufficient particulars.Conclusion: The alleged offences were not prima facie made out against the petitioner.Issue (iv): Whether the prosecution could continue against the statutory auditor in the absence of specific allegations and without the company being arraigned as an accused.Analysis: The Court found that the complaint was vague, general, and lacking in particulars against the petitioner. It also noticed that the company itself had not been arrayed as an accused, while the allegations were directed principally at the company's affairs. In these circumstances, continuation of the criminal proceeding was held to be oppressive and unwarranted.Conclusion: The prosecution was held unsustainable and liable to be quashed.Final Conclusion: The revisional applications succeeded, and the criminal proceedings arising from the two complaint cases were set aside in relation to the petitioner.Ratio Decidendi: A criminal prosecution against a company officer or auditor under the Companies Act cannot be sustained in the absence of specific allegations showing the essential ingredients of the offence and the requisite mens rea, and vague or general accusations are insufficient to justify continuation of proceedings.