The deliberate suppression of material facts in a prospectus constitutes fraud, and the misuse of company funds indicates fraudulent intent.

Happell, J.

1. The appellants, who will hereafter be referred to as accused 1 and 2 respectively, were promoters and two of the directors of a company designated "The Sugar and General Investment Trust." In connexion with the promotion and management of this company they were prosecuted in the Court of the Chief Presidency Magistrate for the offence of conspiracy to cheat the public by the issue of a prospectus punishable under Section 120B, Penal Code and for the offence of criminal breach of trust punishable under Section 409, Penal Code. Both the accused were convicted under the charge of conspiracy and for this offence were sentenced each to undergo one years rigorous imprisonment. Accused 1 was also convicted under Section 409, Penal Code and for that offence he was sentenced to undergo 18 months rigorous imprisonment, the sentences in his case to run concurrently. To understand the case and the charges, it is necessary to refer to the events which preceded the formation of "The Sugar and General Investment Trust" in 1936. There was in Travancore a company known as "Travancore Sugars Limited" which operated a sugar factory at Thackalay in Travancore State. This company was in fact controlled by the Travancore Government, which owned shares to the value of Rs. 2,50,000 out of a total share capital of Rs. 4,50,000 and had advanced a loan of Rs. 1,50,000 to the company on certain conditions. The company was not a success, and in 1933 for a few months a Mr. Crowther worked the factory on a contract basis. It was at this juncture that accused 2, N. S. T. Chari came on the scene. He purchased Mr. Crowthers interest and entered into an agreement with the company under which he was granted a lease of the factory, or what might perhaps be better described as a license to work it as a contractor, for a period of 15 years. Under the terms of the agreement he was himself to find working capital up to a maximum of Rs. 2 lakhs and was to receive a salary of Rs. 1000 a month and a percentage of profits, if any. The agreement contained two provisions which are of great importance in this case. Under the first provision accused 2 was prohibited from subletting or assigning his interest without the consent of the company, and under the second he himself assumed the liability to repay the loan advanced by the Travancore Government in annual instalments of Rs. 15,000 together with the interest on the loan. In the event of a breach of the first provision the agreement was to be ipso facto cancelled, and in case of a failure to comply with the second, the agreement provided that the company was at liberty to cancel the contract. The agreement between accused 2 and the company was executed on 1st June 1933. In 1934 accused 1 joined accused 2 and a fresh agreement was entered into between the company and them both, the second agreement being identical with the first except that for "Chari," was substituted throughout "Chari and Srinivasan." For a few months after the execution of the agreement with accused 2 the company made profits. But in the Malayalam year 1934-35 the factory worked neither continuously nor to capacity and between July 1935 and January 1936 it did not work at all. The reason for the disappointing results and the stoppage of work is said by the accused to have been the lack of raw materials. But the evidence of P.W. 20, the agent of the Travancore Government, indicates that inadequate finance was also an important factor. The two accused did not confine their activities to "The Travancore Sugars." There were three other enterprises with which they were concerned, a factory in Eramalikara, the Lakshmi Sugar Mills, and the South Indian Match Factory. At Eramalikara the accused purchased the machinery of a sugarcane crushing factory and leased the land on which it stood for five years with an option to purchase within three years.

2. The primary object of this factory seems to have been to feed the Thuckalay Factory which w