Company formation offences under the Companies Act: subscription money and unregistered status were enough to establish liability.

For an offence under section 4(2) of the Companies Act, 1913, proof of mutual legal relations among more than twenty subscribers was not required where the object was to form a company; the provision covered that mode of association and applied. Collection of subscription money for shares in an unregistered company completed the bargain, and the absence of share certificates or unfinished registration did not prevent the offence being made out. The non-cognizable character of the offences did not bar trial by the Magistrate, even if police investigation was irregular. The conviction was substantially upheld, with only the sentence on the first offence reduced and the default imprisonment modified.

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Issues: (i) Whether, for an offence under section 4(2) of the Companies Act, 1913, it was necessary to prove legal relations inter se among more than twenty persons forming the association; (ii) whether the offence was made out where subscription money had been collected for shares in an unregistered company notwithstanding that share certificates had not been issued and registration was not completed; (iii) whether the fact that the offences were non-cognizable prevented investigation or trial.

Issue (i): Whether, for an offence under section 4(2) of the Companies Act, 1913, it was necessary to prove legal relations inter se among more than twenty persons forming the association.

Analysis: The provision was construed as covering different modes of association, including the formation of a company. The requirement of mutual legal rights and duties between the subscribers was treated as applicable to a chit fund type association, but not to the formation of a trading company. Once the object was to form a company, proof of legal relations inter se among the subscribers was not necessary.

Conclusion: The requirement of legal relations inter se among the subscribers was not necessary, and section 4(2) applied.

Issue (ii): Whether the offence was made out where subscription money had been collected for shares in an unregistered company notwithstanding that share certificates had not been issued and registration was not completed.

Analysis: The collection of money for shares was treated as completing the bargain for participation in the concern. The absence of share certificates did not prevent the subscribers from being treated as shareholders for the purpose of the offence. Although genuine attempts had been made to secure registration, the company remained unregistered and the statutory offence was therefore established.

Conclusion: The offence was proved notwithstanding the absence of share certificates and the incomplete registration process.

Issue (iii): Whether the fact that the offences were non-cognizable prevented investigation or trial.

Analysis: The proceeding was not shown to have been investigated under Chapter 14 of the Criminal Procedure Code, and the matter appears to have proceeded on a private complaint. Even assuming some defect in police investigation, that circumstance did not bar trial by the Magistrate.

Conclusion: The non-cognizable nature of the offences did not prevent the trial.

Final Conclusion: The conviction was substantially upheld, but the sentence for the first offence was reduced while the conviction and sentence on the second offence were left intact apart from the stated modification to the default imprisonment.

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