TMI Blog2004 (12) TMI 399X X X X Extracts X X X X X X X X Extracts X X X X ..... B. Trivedi, learned Additional Advocate General and Senior Counsel appearing initially with Ms. P.J. Davawala and thereafter Mr. J.M. Malkan, learned Standing Counsel appearing for the Opponent. 3. It is the case of the applicants that Bahuma Polytex Ltd. was incorporated and registered on 12-11-1986 as a private limited company. Consequent to the change in the status as a public limited company, a fresh certificate of incorporation was granted by the Registrar of Companies, Gujarat on 23-11-1990. The company had issued a prospectus dated 6-5-1992 for the public issue of 22 Lakhs Equity shares of Rs. 10 each at par aggregating to Rs. 220 Lakhs. The applicants were invited to become Directors of the company and signatory to the prospectus. 4. It is also the case of the applicants that the applicants have received notices dated 21-6-2002 issued by the opponent alleging that the company had come out with the public issue of 22 lakhs equity shares of Rs. 10 vide prospectus dated 8-5-1992 and that various statements/forecasts were made in the prospectus which have not been implemented. It is also alleged in the said notices that the said statements made in the prospectus were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and from 15-3-1997 as notified to the Registrar of Companies, by the Company s Form No. 32 dated 28-3-1997. It has been duly acknowledged in the opponent s office. It was also stated that during the period from 8-5-1992 to 15-3-1997, when the applicant was Director of the Company, the company had duly implemented the expansion- cum -diversification project under the direct control and supervision of the lead financial institutions, i.e. IFCI, which had released the finances from time to time after duly verifying the relevant implementation of the project and had also issued the project certificate in favour of the company. The issuance of a project certificate by a Government Corporation i.e. IFCI would conclusively establish that the project has been duly implemented. By the time, the applicant had left the company in March, 1997, the company had been exceeding the estimated sales figures as were origi- nally projected in its prospectus and that the company was also earning profits, that its networth was positive and that it had healthy reserves. It was also stated that the said applicant was an ordinary Director of the Company and had never been assigned any executive or ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for initiation of prosecution proceedings. The relevant statements as appearing in the company s prospectus were made bona fide and were based upon the facts and circumstances then prevailing. The cost of project and means and finance as mentioned in the company s prospectus and as actually incurred has been given by him in the tabular form in the affidavit filed in support of the Judges Summons. The same is as under : (Amount in Rs. in lakhs) As perAs actually Prospectus Incurred Land and site development10.508.89 Building42.3273.97 Plant and machinery and other fixed asset402.20388.66 Preliminary and pre-operative expenses37.4860.28 Contingencies39.05 (adjusted in other head) Working capital margin 67.45110.13 600.00641.93 Means of Financial and Share Capital : Promoters and Associates150.00150.00 Public220.00220.00 Internal accruals 8.93 Total (A)370.00411.93 Loans : IFCI130.00130.00 ICICI 100.00100.00 Total (B)230.00230.00 Total (A)(B)600.00641.93 11. Mr. Soparkar has further submitted that the company had indeed achieved what has been projected in the company s prospectus. In support of this submission, he has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of treating the company as vanishing company. It is a matter of fact that none of the notices issued on the applicants referred to the words Vanishing Companies . If one refers to the heading Plant Machinery on internal page 11 of the Prospectus, it was suggested that the company under the proposed expansion- cum- diversification scheme will have ( i ) Texturising Machine of 216 Spindles, ( ii ) 14 Nos. Con Winding Machine of 24 Spindles, ( iii ) one two-for-one (IFO) Twisting Machine of 320 Spindles, ( iv ) Dyeing Plant of 200 Kg. par batch capacity with other accessories. It was also stated under the said heading that the Company had already placed order for Dyeing Plant which was expected to be delivered by the end of May, 1992 and that it has also negotiated orders for Con Winding Machine, delivery of which was already started by end of March, 1992 and would continue to June 1992 and that the order for Texturising and Twisting Machines would be placed in August and the same would be commissioned by September/October, 1992. 14. He has further submitted that as against the above statements made in the Prospectus, it is seen from the balance-sheets for the year 1991-92 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e charges sought to be levelled against them vide the impugned show-cause notices are incorrect, nor is it possible to arrive at a satisfactory conclusion with regard to the knowledge or complicity or honesty or reasonableness of the action of the applicants or with regard to the fairness of their claim to be excused for any lapse or offence. It is always open for them to establish their defence in case the prosecution is launched by the Registrar of Companies. He has, therefore, submitted that the communication dated 4-2-2003 issued by the Registrar of Companies is not one which is called mechanical or without any application of mind. 16. In support of his submission, Mr. Trivedi has relied on the decision of the Allahabad High Court in the case of G.D. Bhargava v. Registrar of Companies [1970] 40 Comp. Cas. 664 wherein it is held that the Trial Court, where charges of offences falling both within and outside the purview of section 633 of the Act may have been joined, can take and examine detailed oral and documentary evidence so as to be able even to view them separately and to take appropriate action under section 633(1) with regard to some allegations or some particul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e both twisted yarn and Air intermingled yarn as per demand. The investment was made in Air intermingled yarn equipments and the same was installed. This decision in fact proved fruitful as large quantity of intermingled yarn was subsequently exported by the company. 19. Mr. Soparkar has further drawn the attention of the Court to the company s position of Profit After Tax (PAT) which is given in the further affidavit filed on 11-8-2004. The same is as under: PAT(Rupees in Lakhs) 199319941995 ProjectedActualProjectedActualProjectedActual Sales16719252910151529101957 PAT3312.415040.204197.03 He has submitted that in the year 1993, the project was not fully implemented as the disbursement of loan from IFCI was delayed. In 1994, ( i.e. first full working year) profit achieved was 90% of the projected profit and in the year 1995, the PAT achieved was 2.37 time the projected profit. This was inspite of the fact that the turnover figures were lower due to reduction in excise duties on polyester. The export turnover was net of excise duty and customs duty. Inspite of turnover falling, percentage of PAT actually increased beyond projections. He has further submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to various countries but also sold extensively in the domestic market. With regard to the allegation of non-installation of Texturising Machine and TFO Twisting Machine, Mr. Soparkar has submitted that Texturising Machine with 216 Spindles was installed at 20 KEJF GIDC, Kadi. Air Jet Intermingling attachment were part of texturising machine which were installed on this machine as a substitute to twisting as the company already had twisting capacity. The Twisting Machinery worth Rs. 16.08 Lakhs was already available since 1988-1989. This enabled the Company to add to its product mix and offer both twisted and intermingled yarn, which are substitutes of each other, as warp yarns. This is borne out by the fact that large quantities of intermingled yarn both dyed and undyed were exported and dyed twisted yarns were sold in the domestic market and also exported to Turkey and Italy. All necessary machinery and plants were installed and run successfully. 22. While dealing with this further affidavit as well as the submissions made by Mr. Soparkar, further reply affidavit was filed on behalf of the Registrar of Companies on 30-11-2004 wherein it is inter alia stated that the applican ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny to this fact. With regard to item No. 2, it was stated that the Cone Winding Machines have been installed and dyed yarn, which has to be necessarily wound on the same has been produced and exported. With regard to item No. 3, it was stated that the Air jet intermingling attachment has been installed and production/excise and records of Development Commissioner (EOU) Kandla and export documentation of Air intermingled yarn are sufficient evidence on this aspect. With regard to item No. 4, it was stated that Texturising machine of 216 Spindles has been installed and in addition, excise records pertaining to production is available at site. The same site was also an export oriented unit registered with Development Commissioner, Kandla. EOU status was granted to the unit only after due diligence and verification by the Government authorities. With regard to item No. 5, it was stated that financial institutions disbursed loans and issued Project Completion Certificate only after detailed and periodic inspection of the projects financed by them. Project Completion Certificate was granted by IFCI after due diligence. With regard to item No. 6, it was stated that the opponent has not ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f these transactions. In view of the circumstances, the petitioners had acted honestly, reasonably and in good faith and were entitled to be relieved of the liability for the offence under section 211 of the Act. 26. After having heard learned advocates appearing for the respective parties and after considering their pleadings as contained in several affidavits filed during the course of hearing of these two applications and after examining the relevant provisions of the Companies Act, 1956 as well as the authorities cited before the Court, the Court is of the view that both these applications deserve to be allowed and they are accordingly allowed for the reasons stated hereinunder. 27. It is pertinent to note here that while disposing of the earlier Company Application Nos. 170 of 2002 and 213 of 2002 vide order dated 26-12-2002, this Court has specifically directed the opponent to consider the reply filed by the applicants and/or additional reply or submissions which were to be made by the applicants, within one week from the date of the order and thereafter take appropriate decision in the matter. The Court has further directed that the explanation which was already gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tating that the authority will not have any case against the applicant in Company Application No. 51 of 2003. When the said action was challenged by the applicants in the present proceedings, the opponent has gone on filing affidavits after affidavits to justify his decision. The Court is, therefore, of the view that despite a specific direction being given by this Court, the matters were not dealt with by the opponent in the manner in which they ought to have been dealt with. 28. The action of the opponent is not sustainable even on the ground that the Company in question is not a vanishing company and still the notices were issued on the applicants on assumption that the Company is a vanishing company. The Company does not fall in any of the criterias which are laid down for treating the Company as a vanishing company. The applicants have demonstrated before this Court in their pleadings that the applicants name was not included in the list of Vanishing Companies and there was no allegation against the Company that it did not comply with the listing requirement for two years or that it did not submit the required report to Regional Stock Exchange or that it did not correspon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ishable with imprisonment for a term which may extend to five years, or with fine which may extend to Rs. 1 lakh, or with both. Section 628 deals with penalty for false statements. It states that if any return, report, certificate, balance-sheet, prospectus, statement or other document required by or for the purpose of any of the provisions of this Act, any person makes a statement ( a ) which is false in any material particular, knowing it to be false; or ( b ) which omits any material fact, knowing it to be material, he shall save as otherwise expressly provided in this Act, be punishable with imprisonment for a term which may extend to two years, and shall also be liable to fine. 31. If the opponent is of the view that the Directors and/or Promoters of the Company have committed breach of the provisions contained in sections 63, 68 and 628 of the Act, he should not have waited for long ten years. Such commission or omission on their part would have come to the forefront immediately. The action taken after ten years itself suggested that it was based on the instruction issued by the Director of Inspection and Investigation to initiate actions against the Vanishing Companies. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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