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Section 217 Companies Act & Criminal Prosecution

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Judgment dated 27.4.2026 of the High Court of Bombay at Goa in Criminal Writ Petition No.6 of 2024 of Mrs. Radha Satish Timblo and others   Vs.  The Union of India and others.

Section 217 Companies Act & Criminal Complaint of Registrar

The private complaint was filed by the Registrar of Companies that the  Petitioners failed to furnish the fullest information or explanation in respect of the remark in the Auditor’s report stating that “the Company has an internal audit system, which needs to be strengthened.”

The respondent no.2 filed the private complaint on 11.12.2014. The Magistrate had taken the cognizance and issued summons on 25.6.2015.

However, in the prior complaint based on the same material facts and circumstances of present complaint, the petitioners pleaded guilty with fine and it was disposed of.

Examining the Scheme of Section 217 of the said Act, it is clear that the requirement of furnishing explanations under sub-section 3 of Section 217 is directed towards the shareholders of the Company and is to be complied through the Board of Directors. It is evident that this provision does not envisage furnishing of explanations to the Registrar of Companies.

Now juxtaposing paragraph 6 of the complaint reproduced hereinabove, it is seen that the Respondent No.2 has premised the entire criminal complaint on the fact that the reply of the Petitioners to the show cause notice was not found to be satisfactory. It is a settled position of law that initiation of prosecution cannot be predicated solely on the subjective dissatisfaction of the Respondent No.2 with the reply of the Petitioners to the show cause notice. Criminal liability can only be fastened against the Petitioners if they are independently found to be in violation of Section 217(3) of the said Act.

The allegations in the complaint, even if taken at face value, do not disclose the commission of any offence under Section 217 of the Companies Act, 1956. The initiation and continuation of the impugned proceedings in the absence of the ingredients of the offence amounts to an abuse of the process of law. The complaint, which forms the basis of the impugned order issuing process, is barred by limitation and hence not maintainable. Apart from the above reasons, the order taking cognizance and the subsequent order issuing process are bereft of application of mind.

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