The Calcutta High Court on 27th January 2021, on the prayer of the petitioner under article 227 of the Constitution of India read with sections 401/482 Cr.P.C., ordered quashing of proceedings of complaint case no. 15 of 2018 filed by the opposite party for offenses punishable under sections 118(2) and (7) read with sections 447/448 of the Companies Act, 2013.
Facts of the case:
Petitioner no. 1 is a registered company under the provisions of the Companies Act, 2013, and Petitioner no. 2 is the manager of the company. Petitioner no. 1 applied to RBI, on 28th March 2014 for being registered as Core Investment Company (CIC) under the Core Investment Companies (Reserve Bank) Directions, 2011 following which the RBI sought certain clarifications and documents from the petitioner company.
The company’s Board of Directors meeting was held on 11th June 2014 where it was erroneously recorded in item no. 12 of the minutes that the company submitted an application with the Reserve Bank of India for its de-registration as NBFC and registration as a CIC. Though, such recording was an inadvertent/typographical error as the company was not a registered Non-Banking Financial Company (NBFC) at the relevant time and the question of de-registration as NBFC did not arise. Subsequently, the said error was detected and rectified in a meeting on 9th September 2015.
The opposite party in February 2016, inspected the books of accounts and records of the company and detected the erroneous recording in the minutes of the meeting dated 11th June 2014, and issued a show-cause notice on 24th August 2018. The said explanation was not found to be satisfactory by the opposite party and the complaint was lodged against the petitioners.
Petitioner’s arguments:
The petitioners contended that the error detected in item no. 12 of the minutes was a typographical mistake which was subsequently rectified by the company suo moto on 9th September 2015. But a show-cause notice was issued by the opposite party only on 24th August 2018.
Though the company sufficiently and adequately explained the said error and its rectification even then, the opposite party complained for no good reason.
Thus, the petitioners prayed for quashing the entire proceedings pending before the Learned 2nd Special Court, Calcutta, being complaint case no. 15 of 2018.
Respondent’s arguments:
The opposite party argued that the petitioners have violated the provisions under sections 118(2) and (7) of the Act of 2013, for making an erroneous recording in the minutes of the Board meeting and are liable to be prosecuted under sections 447/448 of the Act.
It was further contended that the correction in the minutes’ book was carried out by the petitioners only after the show cause notice was issued upon them and the present application is premature, more so, as the complaint makes out a prima facie case against the petitioners.
Court’s observations:
The Hon’ble Justice Suvra Ghosh ruled that it is trite law that jurisdiction under s/482 Cr.P.C., should not be exercised as an instrument to axe down or stifle a legitimate prosecution. Further, a test was laid down as to whether the uncontroverted allegations made in the complaint make out a prima facie case and whether allowing the proceedings to continue would amount to an abuse of the process of the court.
The court remarked that it is crystal clear from the minutes dated 11th June 2014 and 9th September 2015 that the words “for its de-registration as NBFC” was inadvertently recorded and was rectified upon detection and no such request for de-registration was made by the petitioners. Thus, there could have been no malafide intention on the company’s part to deceive, gain undue advantage or injure the interest of the company or any person connected thereto is not reflected in the four corners of the complaint. Hence, allowing the proceeding to continue shall be a futile exercise and abuse of the process of law since the inadvertent error has been sufficiently and adequately explained and does not call for any prosecution. It was also held inconceivable that after the inspection, the show cause-notice was signed on 24th August 2018 whereas the prosecution for such violation was issued on 7th December 2017, i.e., preceding the inspection.
Judgment:
The Hon’ble Court found no impediment to hold that the proceeding in respect of complaint case no. 15 of 2018 is liable to be quashed and C.R.R. 494 of 2019 is allowed with context as to no costs. Further, proceedings in respect of complaint case no. 15 of 2018 pending before the Learned 2nd Special Court, Calcutta be quashed and such order should be forwarded to the Learned Trial Court for information and necessary action.
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