“Abuse of Process, Bad in Law”: Calcutta HC Quashes Companies Act Case Against Directors for ‘No Mens Rea, Procedural Violations, and Omission of Company as Accused’
Safiya Malik
The Calcutta High Court quashed the criminal proceedings against the directors of a company accused of contravening Sections 129 and 448 of the Companies Act, 2013. The decision was delivered by Single Bench of Justice Chaitali Chatterjee Das, following joint hearings in CRR/4526/2024 and CRR/1805/2020. The applications sought quashing of Complaint Case No. 43 of 2019 pending before the Learned Judge, Second Special Court at Calcutta.
The court stated that the proceedings, including all related orders, were not in accordance with law, primarily due to procedural lapses, non-joinder of the company as an accused, and lack of prima facie satisfaction recorded by the trial court.
The revisional applications arose from criminal proceedings initiated on the basis of a complaint lodged by the Deputy Registrar of Companies, West Bengal, against two directors of Balai Lal Mukherjee Private Limited, alleging violations of financial disclosure norms during the demonetisation period (8th November 2016 to 30th December 2016).
According to the complaint, the company failed to disclose specified bank notes (SBNs) in its financial statements as per the Notification issued by the Ministry of Corporate Affairs (MCA) dated 30.03.2017. It was further alleged that advances amounting to Rs. 80,50,450 were shown without proper disclosure, which were related to transactions with Marco Polo Restaurants Pvt. Ltd., a related party.
Section 129 of the Companies Act, 2013 mandates the preparation of financial statements giving a true and fair view, and Section 448 penalises making false statements or omitting material facts in company filings. The petitioners contended that the entire proceeding was flawed on several legal and factual grounds:
The complaint was filed by the Deputy Registrar of Companies, not the Registrar, contravening Section 439(2) of the Companies Act, which stipulates that only the Registrar, a shareholder, or a person authorised by the Central Government can lodge such complaints.
The company itself was not made a party, contrary to settled legal principles and Supreme Court precedents such as Sunil Bharti Mittal v. Central Bureau of Investigation, (2015) 2 SCC (Cri) 687, which states that individuals can only be made accused along with the company if the statutory regime supports vicarious liability.
- There was no allegation of mens rea against the directors. Paragraphs 3.1 and 3.2 of the complaint did not attribute any specific intent to defraud.
- The MCA notification was retrospective, and the auditor had indicated inability to provide details, which did not amount to concealment.
- Related party transactions amounting to Rs. 80,50,450 had been carried forward from previous years and did not involve any new transactions during the period in question.
- Alleged discrepancies in profit and loss and trade receivables were proportionate and could not be construed as concealment.
- The existence of the complainant, Prakash Kumar Roy, was questioned. The address provided was allegedly incorrect, and this issue had been raised in previous responses but not addressed by authorities.
- Charges under Section 448 could not be sustained without first establishing fraud under Section 447.
The petitioners claimed that the complaint and summons were issued after an undue delay exceeding the period of limitation under Section 468 of the Code of Criminal Procedure.
Justice Chaitali Chatterjee Das reviewed the sequence of events, legal provisions, and prior precedents. It was recorded that the Special Court took cognizance based on a complaint by the Deputy Registrar without stating reasons for deviation from Section 439 of the Companies Act.
The judgment stated: "The Learned Special Court also took cognizance of the matter on the prayer of the Deputy Registrar of the Company without enquiring about the existence of prima facie case."
On the question of not making the company an accused, the court cited Sunil Bharti Mittal and held: "When the Company is the offender, vicarious liability of the directors cannot be imputed automatically."
The court referred to the decision in Santosh Kumar Lahoti v. Registrar of Companies, West Bengal, 2024 SCC Online Cal 3220, where it was held that criminal prosecution cannot proceed when the company is not impleaded, despite allegations being primarily against it.
It was also noted that the Registrar failed to provide any explanation or verification about the alleged informant, Prakash Kumar Roy, and despite multiple correspondences, no satisfactory response was received.
The court further observed that there was no justification for accepting the complaint as there was no preliminary inquiry as required under Section 202 CrPC. Quoting Pepsi Foods Ltd. v. Special Judicial Magistrate, (1998) 5 SCC 749, the court stated: "The order of the Magistrate summoning the accused must reflect that he has applied his mind to the facts of the case and the law applicable thereto."
It was recorded that the petitioners had provided replies through legal counsel addressing every allegation and that the auditor also responded, stating that any discrepancy was inadvertent and not fraudulent.
Moreover, the judgment stated: "In order to attract Section 448 of the Company’s Act the necessary ingredient must be false statement what would constitute Fraud as defined under section 447 of the Act."
The court concluded that the continuation of the proceedings would amount to an abuse of process.
The court ordered:
"The proceedings being Complaint Case no.43/2019 pending before the Learned 2nd Special Court, Calcutta at West Bengal under section 129/448 of the Companies Act appears to be bad in law and is liable to be set aside being not in accordance with law and is an abuse of the process of law."
"The CRR NO.1805/2020 and 4526/2024 stands allowed by this common Judgement."
"The complaint and the proceeding being Complaint Case no.43/2019 pending before the Learned 2nd Special Court, Calcutta, West Bengal under section 129/448 of the companies Act is hereby quashed in respect of the petitioners."
Advocates Representing the Parties:
For the Petitioners: Mr. Ratul Das, Advocate, Mr. Prasanta Naskar, Advocate
Case Title: Arup Mookerjee vs The Registrar of Companies, West Bengal
Case Number: CRR/4526/2024 with CRR/1805/2020
Bench: Justice Chaitali Chatterjee Das
[Read/Download order]
