Offence U/s. 68 Of Companies Act Is Not Attracted In Absence Of Any Misleading Statements By Directors: Kerala HC

Update: 2023-04-20 08:30 GMT

Finding that the alleged company has already been wound up and is no longer in operation, and the Managing Director of the company against whom the entire allegations were made is also no more, the Kerala High Court in a matter related to offences under Section 68 of the Indian Companies Act, 1956, decided not to proceed further.

The Bench of Justice Kauser Edappagath observed that “there was absolutely no material on record that the petitioners knowingly or recklessly made any statement, promise or forecast which is false, disruptive or misleading or by dishonest concealment of material facts induced any person subscribing to shares of the company so as to attract the offence u/s 68 of the Indian Companies Act, 1956". 

Advocates K.N. Naidu & R. Sanjith appeared for the Petitioners and Advocates S. Manu & Suvin R. Menon appeared for the Respondents.

In a nutshell, the first respondent i.e., the Registrar of Companies, Kerala, filed a private complaint against the revision petitioners and the first accused i.e., Managing Director of the company, alleging offence u/s 67 of the 1956 Act. The precise allegation was that even though the certificate of commencement of business was obtained by the company only on Dec 18, 1991, it started receiving share applications from July, 1991 onwards. It was further alleged that the brochures issued by the company during September, 1991 show that the company commenced production and export of raw granites but the certificate of commencement of business was issued only on Dec 18, 1991.

The Additional Chief Judicial Magistrate Court (Economic Offences), after hearing the prosecution and taking the evidence framed charge against the revision petitioners and the first accused for the offence u/s 68 of 1956 Act.

From the evidence given by the prosecution witness who at the time of filing of the complaint was working in the office of the Registrar of Companies, the Court noted that he admitted during cross-examination that no records were produced at the Court in order to establish that revision petitioners have issued any prospectus or any document resembling any prospectus to the public.

Further, no evidence was adduced at the Court to establish that revision petitioners have invited shares from the public so as to attract violation of Section 67 of the 1956 Act, added the Single Judge.

The High Court also observed that the prosecution witness during his cross-examination had admitted that there was no evidence to prima facie establish that revision petitioners have any involvement in the issuance of brochures as well.

No evidence was produced by the complainant to prove that the Board of Directors have taken any decision to issue prospectus before the commencement of the business with the company and the entire allegation was against the Managing Director. There was no allegation to attract the offence against the revision petitioners who are only Directors”, pointed the High Court.

The High Court, therefore, set aside the charges framed by the Economic Offences Court against the revision petitioner.

Cause title: K.N Naidu and Ors. v. Registrar of Companies, Kerala and Anr.

Click here to read/download the Order 




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