Independent Professional Giving Expert Consent Under Section 58 Companies Act Not Liable For Mis-Statements In Prospectus U/S 63, 68; Prosecution Barred By Section 468 CrPC: Gujarat High Court

"An independent professional who relies upon books, records, and data furnished by the management cannot be hauled up under Section 628 without specific, concrete allegations and material evidence showing direct complicity or conscious knowledge of falsification."

Holding that an independent professional giving consent under Section 58 cannot be deemed to have authorised a prospectus or fastened with vicarious penal liability in the absence of mens rea, the Gujarat High Court bench of Justice P. M. Raval quashed a decades-old prosecution initiated by the Registrar of Companies against a Chartered Accountant. The Court further held that taking cognizance beyond the statutory limitation period under Section 468 of the Code of Criminal Procedure, without condonation under Section 473, renders the proceedings legally unsustainable.

The petitioner, a practicing Chartered Accountant, was appointed as a professional non-executive director in NISU Fincap Limited in July 1995 when the company launched a public issue of equity shares. He subsequently resigned from the directorship on April 1, 1997, as reflected in Form 32 filed with the Registrar of Companies. In 2002, the Registrar of Companies lodged a criminal complaint alleging contraventions of Sections 63, 68, and 628 of the Companies Act, 1956, after the entity was categorized as a vanishing company by SEBI for failing to execute the projects promised in the prospectus.

Whether a professional non-executive director who acts as an expert can be prosecuted under Sections 63, 68, and 628 of the Companies Act, 1956, merely for signing the prospectus without specific averments of inducement or mens rea?

Whether the Magistrate could take cognizance of offences carrying a maximum sentence of two years when the complaint was filed nearly six years after the issuance of the prospectus, in contravention of Section 468(2)(c) of the CrPC?

Expert consent under statutory provisions does not amount to authorising the issuance of a prospectus

The Court meticulously examined the statutory scheme governing misstatements under Section 63 of the Companies Act, 1956. Referring directly to Section 63(2)(a), the bench noted that an individual is not deemed to have authorized the issue of a prospectus merely by reason of having given the consent required by Section 58 for the inclusion of a statement purporting to be made by him as an expert. The Court underscored that granting expert consent does not automatically attract criminal liability under Section 63.

Statutory exemption under Section 63 excludes criminal liability for experts

"Thus, giving consent as an expert under Section 58 is not to be treated as authorizing the issue of the prospectus, and cannot attract criminal liability under Section 63 of the Companies Act merely by reason of having given such consent," the Court observed, adding that the petitioner's uncontroverted explanation to the show cause notice confirmed his limited professional capacity.

Section 68 of the Companies Act requires specific averments of fraudulent inducement

Addressing the allegations under Section 68, which penalises fraudulently inducing persons to invest money, the bench noted that the statutory exclusion under Section 63(2) similarly neutralises the charge against an expert. The Court observed that the entire complaint was bereft of any specific factual averment attributing fraudulent inducement of investors to the petitioner.

Vicarious criminal liability cannot be fastened under Section 628 without conscious mens rea

Scrutinising Section 628, the bench expounded on the stringent evidentiary threshold necessary to penalise false statements in statutory company filings. The Court observed that the provision does not criminalise accidental inaccuracies but targets conscious and deliberate introductions of falsehood requiring guilty mind.

Independent professionals cannot be held liable for management falsifications without direct complicity

"The essence of an offence under this section is not merely the submission of an inaccurate or defective document, but the conscious, deliberate, and intentional introduction of falsehood coupled with the requisite mens rea (guilty mind). Criminal penal liability of this severity can never be fastened vicariously, on the basis of loose suspicion, or through abstract association," the Court held, highlighting that an expert who acts upon management records cannot face penal prosecution without material establishing direct complicity.

Taking cognizance of offences after statutory limitation period without delay condonation vitiates proceedings

Finally, the bench examined the threshold question of limitation under Section 468(2)(c) of the CrPC. The penal offences invoked against the petitioner carried a maximum punishment of two years' imprisonment, prescribing a mandatory limitation period of three years. Relying on the Supreme Court ruling in Sarah Mathew v. Institute of Cardio Vascular Diseases, the Court reiterated that limitation is computed up to the date of filing the complaint. Since the complaint was filed in June 2002 for a prospectus issued in January 1996, the delay of over six years—without any accompanying application under Section 473 for condonation—barred cognizance entirely.

The High Court allowed the petition under Section 482 CrPC and quashed Criminal Case No. 136 of 2002 pending before the Additional Chief Metropolitan Magistrate, Ahmedabad, along with all consequential proceedings qua the petitioner.

Date of Decision: October 23, 2026