Gujarat HC Quashes Companies Act Case Against CA Over 1996 Prospectus, Citing Six-Year Delay and No Inducement Allegation

The petitioner, a Chartered Accountant, was appointed as a non-executive director of NISU Fincap Limited (formerly Mega Finance and Securities Limited) in 1995 and resigned with effect from 1 April 1997, as recorded in Form No. 32.

The Registrar of Companies filed Criminal Case No. 136 of 2002, alleging offences under Sections 63, 68 and 628 of the Companies Act, 1956, in connection with the company’s public issue and prospectus dated 5 January 1996; the petitioner was named as an accused and alleged to have been a signatory to the prospectus.

The petitioner sought quashing under Section 482 of the Code of Criminal Procedure, 1973, contending that he had resigned before the alleged events and had acted only as a professional, non-executive director.

He also relied on an earlier order quashing a separate FIR against him.

Section 63(1) of the Companies Act, 1956 imposes criminal liability for an untrue statement in a prospectus on a person who authorised its issue, while Section 63(2) provides that consent given under Section 58 by an expert for inclusion of their statement does not, by itself, amount to authorisation of the prospectus.

Section 68 concerns fraudulently inducing persons to invest; Section 628 concerns false statements in documents required under the Act, and the Court treated conscious falsity and the requisite mens rea as necessary to attract liability.

Under Section 468(2)(c) CrPC, the limitation period for an offence punishable with imprisonment exceeding one year but not exceeding three years is three years; Section 473 permits cognizance after expiry where delay is properly explained or extension is necessary in the interests of justice.

Relying on Sarah Mathew v. Institute of Cardio Vascular Diseases, (2014) 2 SCC 62, the Court stated that the relevant date for computing limitation is the filing of the complaint or initiation of criminal proceedings.

The petition was considered under the High Court’s inherent jurisdiction in Section 482 CrPC.

The Court found that Form No. 32 recorded the petitioner’s resignation on 1 April 1997 and that the complaint did not allege that he had induced anyone to invest, as required for liability under Section 68.

As to Section 63, the Court held that expert consent under Section 58 did not, by itself, constitute authorisation of the prospectus under Section 63(2).

It further found no specific allegations or material showing that the petitioner knowingly or intentionally made a false statement for purposes of Section 628.

Independently, the prospectus was dated 5 January 1996, while the complaint was dated 21 June 2002; the complaint disclosed no application for condonation or plausible explanation for the delay, which exceeded the three-year period identified by the Court.

The Rule was made absolute to that extent.