( 1 ) THIS is a sequel to an earlier an application of similar effect having been made by the petitioner. That earlier petition being C. P. No. 275 of 2003, under Section 633 (2) of the Companies Act, 1956 was dismissed on the ground that it was premature and liberty was reserved thereunder for the petitioner to take appropriate steps upon receipt of a further show cause notice.

( 2 ) THE second show cause notice has prompted the petitioner to seek to be excused for any offence that he may have committed or for being exonerated if there was no offence. Section 633 (2) of the Act empowers the High Court to entertain an application by an officer of a company who has reason to apprehend that any proceeding may be brought against him in respect of negligence, default, breach of duty, misfeasance or breach of truest. The apprehension in this case was based on notices dated December, 31, 2004 that charged the petitioner with the violation of the provisions of Section 628 read with Section 211 on one count, and with the violation of Section 628 on the second count.

( 3 ) IT is undisputed position, as would appear from the affidavit filed on behalf of the Registrar of Companies in the earlier petition, that the petitioner herein came to be a Director of S. B. I. Home Finance Limited (the company) on July 27, 2002. The date is important as on that date depends the fate of the charge on the first count.

( 4 ) THE first notice issued on behalf of the Registrar related to alleged mis-declaration and non compliance with the provisions relating to the form and contents of the balance sheets of the Company for the years ended march 31, 2000 and March 31, 2001. Ordinarily, annual accounts including balance sheets are required to be prepared within six months from the date of closure of a financial year. There is no complaint that such was not the case in respect of the balance sheets and other accounts of the Company for the aforesaid two financial years. If the balance sheets and other accounts and the accompanying Directors' Reports were prepared and presented within time, the petitioner could have had no hand in the same as he assumed office nearly a year after such matters ought to have been completed.

( 5 ) IN all fairness, learned Counsel for the Registrar has not disputed such position.

( 6 ) IT is the second count that needs to be looked into. In the notice issued the Registrar has complained of the following statement appearing in the Directors' Report :

"due to non-infusion of capital, the networth of the company continues to remain fully eroded".

( 7 ) THE notice mentions that such statement was 'false/misleading', though it has also been urged before me that such statement amounted to a mis-representation that would come within the mischief of Clause (b) of section 628 of the said Act.

( 8 ) THE explanation given by the Company and adopted by this director/petitioner was that all material facts had been disclosed in the balance sheet and in the composite papers of which the Directors' Report was only a part. Reliance was placed, in the reply to the relevant original notice to show cause, on the schedule appended to the balance sheet and the notes on accounts to indicate that the basis of the charge of falsity was unfounded.

( 9 ) IN claiming that a false or misleading statement had been made by inserting the quoted sentence in the Directors' Report, the Registrar had suggested that the purport of the sentence was that the erosion of the networth was due to the non-infusion of capital whereas the erosion of networth could only be upon losses being incurred by our Company. It is thus that the sentence calls for examination. There appears, in my mind, three statements of fact contained in the sentence. The first statement of fact, notwithstanding the syntax, is that the networth of the Company has been fully eroded. The second statement of fact is that such full erosion continues. The third statement of fact is that due to non

Click Here to Read the rest of this document