Misdescription of Security in financial statements lacks criminality without knowledge of falsity; outcome: conviction set aside, acquittal.

A balance-sheet entry describing a loan as "secured by a first mortgage" was held not to constitute an offence under Section 282 because the statement was not plainly false on the special facts: written agreements provided for execution of a mortgage and an option for the mortgagee to insist on it, giving the loan an intermediate character between secured and unsecured. Section 132(1) and Form F require disclosure of the general nature of liabilities, and Section 282 imports knowledge of falsity; on the facts the appellant did not knowingly make a false statement, conviction set aside and acquittal ordered.

---

---

Issues: Whether an offence under Section 282 of the Indian Companies Act is established by a balance sheet entry describing a loan of Rs. 73,000 as "secured by a first mortgage" when no formal mortgage deed existed.

Analysis: Section 132(1) and Form F require that a balance sheet disclose the general nature of liabilities and classify loans as secured or unsecured. The balance sheet entry at issue described the loan as secured although no formal mortgage had been executed; however, there existed written agreements providing for a mortgage to be executed and an option for the mortgagee to insist on execution. The statement was therefore not plainly or demonstrably false on the special facts because the loan occupied an intermediate character not fitting strictly into "secured" or "unsecured" classifications, and the appellant had supplied a draft statement to auditors correctly describing the loan as advanced per agreements. The language of Section 282 imports an element of knowledge of falsity; on these facts it was not established that the appellant knew the description to be false.

Conclusion: The offence under Section 282 of the Indian Companies Act has not been established; the conviction is set aside and the appellant is acquitted.

---