Sanjib Banerjee, J.

1. The primary question raised in these applications under Section 633(2) of the Companies Act, 1956, is whether the petitioners actively concealed material facts from the annual report of SBI Home Finance Ltd. ('the company') for the financial years ended March 31, 2000 and March 31, 2001. The Registrar of Companies required the petitioners to show cause why penal action under Section 628 read with Section 211 should not be initiated against them. The petitioners have replied to the Registrar's letter of December 31, 2004, but upon apprehension that the Registrar may institute criminal proceedings, have applied to the court seeking to be excused for the offence, if any, committed by them.

2. The State Bank of India promoted the company and along with some other banks and financial institutions held the entire paid-up capital of the company. For reasons not necessary to be gone into, the promoter who was in control through its officers as nominated directors of the company found the home finance business a different kettle of fish than the routine banking business and ran the company aground. The company applied to the National Housing Bank (NHB), the apex body controlling companies engaged in such business, for relaxation of the prudential norms relating to provisioning and capital adequacy applicable to the company. By a letter of April 7, 2000, the company sought divers exemptions and detailed a road-map that the company proposed to follow during the financial years 1999-2000 to 2003-04. In the synopsis appended to the letter of April 7, 2000, the company indicated that it proposed to infuse capital for the year 2000-01, Rs. 25 crores by way of equity and a further Rs. 25 crores by issuing preference shares.

3. A reminder followed from the company to NHB on April 17, 2000, recording discussions and of NHB having required the company to make further provisioning of about Rs. 9 crores mainly on account of higher provisioning requirement for the existing non-performing assets (NPAs). The company agreed in such letter that there was need for further finance as suggested by the NHB but sought exemption on that score for the year 1999-2000.

4. NHB accorded its consent to the exemptions sought subject, however, to the following conditions:

1. The promoters shall bring in equity share capital of Rs. 25 crores and compulsorily convertible preference share capital of Rs. 25 crores.

2. The tier II capital infusion from SBI shall be in the form of compulsorily convertible preference shares, to be converted within three years, rather than optionally convertible preference shares, as proposed in the revival plan.

3. SBIHFL shall furnish to NHB, a quarterly statement in the prescribed format on the status of NPA recovery.

4. SBIHFL shall extend finance for individual housing loans only.

5. The highest Rule of interest on public deposits shall not be in excess of what SBI pays on its term deposits. Further, no brokerage shall be payable on renewal of the deposits.

6. SBIHFL will be required to compare the position achieved each quarter with the quarterly projections made and to analyse the reasons for variations, under intimation to NHB.

7. The managing director of SBIHFL shall be from SBI, having a tenure of at least three years.

8. The chairman of SBIHFL shall also be from the SBI.

9. In order to ensure effective monitoring of implementation of the revival plan and operations of SBIHFL, an official from NHB may be placed on the board of SBIHFL as an observer.

5. It is the first of the conditions set by NHB that is relevant for the present proceedings. It is to be recognised at the outset that by the time the initial request for exemption had been made by the company, the financial year 1999-2000 had already run out. The company availed of the concession and acknowledged the same in its annual report for the year 1999-2000. In the directors' report for the relevant financial year, the restructuring package for the company was referred to as was the approval of the NHB to the relaxation of the applicable prudential norms. The directors' report of that year acknowledges the requirement for a sum of Rs. 50 crores being infused by way of additional equity and preference shares. The restructuring package and relaxation of norms are referred to in the report thus:

Restructuring package.--A restructuring package for the company has now been chalked out. This package envisages infusion of additional equity and preference share capital aggregating to Rs. 50 crores by institutional promoters and a line of credit from its bankers. As a result the company has recommenced its loaning activities which are presently confined to individual housing loans only. With the increase in the volume of business the company is confident of making operating profits in the next two to three years.

Relaxation of prudential norms by the National Housing Bank based on the restructuring package as above, the National Housing Bank was approached by your company for granting exemptions from the applicability of the prudential norms relating to provisioning and capital adequacy for a while.

The NHB has since accorded their approval for these relaxations for the period under review. The company proposes to approach National Housing Bank at the end of the next year for extension of the same facility.

6. Along with the annual accounts for the year ended March 31, 2000, the company forwarded, as is customary, the notice convening the annual general meeting for the relevant financial year. At such annual general meeting convened to be held on August 19, 2000, the company proposed resolutions to be passed by its members, authorising the issuance of equity and preference shares.

7. The relevant resolutions were carried at the general meeting. It has now - been recognised that an omnibus resolution at a general meeting, unlimited as to time, authorising the board to take steps for issuance of further capital would not be valid. Thus, the relevant resolutions passed by the company were revalidated from time to time and it appears that steps preparatory to the ultimate issuance of further capital for infusion of funds in the company, were taken.

8. No further shares in the company were issued and no further funds were received by it though the NHB's first condition required the shareholders making further investments in the company. An inspection under Section 209A of the Companies Act was carried out in respect of accounts and other records of the company and several discrepancies were indicated in a notice of June 11, 2003, following such inspection. The questions raised in the Department's letter of June 11, 2003, required answers that would help the authorities to arrive at a conclusion whether their impression of diverse provisions of the Act having been violated needed to be taken forward. The company put in a detailed response through its secretary. The Department was not satisfied with the explanations put forth by the company and the show-cause notices were slapped on the officers of the company on December 31, 2004. Two of such show-cause notices have been made the subject-matter of these petitions by the directors of the company.

9. The first notice complains of violation of Section 628 of the Companies Act on the following lines:

The board of directors in their annual report to the members attached with the balance-sheet for the year 2001-02 have given the statement, 'due to non-infusion of capital, the net worth of the company continues to remain fully eroded' under the heading 'net worth of the company' whereas the fact is that the company has suffered heavy losses and due to that, the net worth of the company has eroded. The company in its reply states that the statements contained in the annual report have to be read together with a reference of carry forward losses has been given in paragraph 7 to Schedule 16 of the balance-sheet for the financial year 2001-02 the contention of the company is not acceptable and statement given in the director's report under the heading 'net worth of the company' is a false/misleading statement attract penal action under Section 628 of the Act.

10. The second notice speaks of violation of both Section 211 and Section 628 of the Act on the following basis:

During the financial years 1999-2000 and 2000-01 the company has not made provision/write off of Rs. 64.44 crores as per the prudential norms and finally the same was provided in the financial statement of the year 2001-02. The board of directors in their report and notes on account dated June 29, 2000 and August 17, 2001, attached with the balance-sheet for the years 1999-2000 and 2000-01 have made statement regarding relaxation of prudential norms by National Housing Bank which omits material facts knowing it to be material, which is knowingly omission of material particular in the directors' report under the heading 'relaxation of prudential norms by the National Housing Bank' therefore the management of the company violated the provisions of Section 628 read with Section 211 of the Act.

11. The first count is resisted by the petitioners on the basis of an order passed in C.P. No. 23 of 2005 on December 7, 2006 S.B.I. Home Finance Ltd. In re [2007] 138 Comp Cas 106 (Cal) : [2007] 2 CHN 268 (Cal), allowing a petition by some other officers of the same company in respect of a notice of similar import. The Registrar has complained, in the first notice, that the statements appearing under the heading 'net worth of the company' in the directors' report were misleading and were liable to be proceeded against under Section 628 of the Act. The Registrar complains, in particular of the following sentence (page 108):

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

12. It is the same statement and a charge under Section 628 of the Act that was considered in the judgment rendered on December 7, 2006, in C.P. No. 23 of 2005 S.B.I. Home Finance Ltd. In re [2007] 138 Comp Cas 106 (Cal) : [2007] 2 CHN 268 (Cal)). On the construction of the sentence complained of, it was earlier found as follows (page 108):

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-infusion of capital such erosion has not been arrested. What was sought to be suggested by the sentence was that the continuation of the erosion could have been arrested, but due to non-infusion of capital, the same could not be achieved. I do not see any misstatement of fact in the sentence.

10. Again, that sentence appearing in the directors' report has to be seen in the context of the material in the report preceding it. As has become the accepted format for such reports, the summary of the financial results of the company for the relevant financial year with a comparison with the corresponding figures of the previous financial year have been set out. There is this mandatory declaration as to dividend following the summary of the results. Such declaration provides that in the absence of profits no dividend could be issued. Thereafter, the operations of the company have been detailed and in such details the financial position of the company has been mentioned.

11. From the matters referred to under the heading 'operation' and from the summary of the financial results of the two years, it is evident that the company has been suffering losses.

12. It is in this context that the directors found it prudent to mention that the networth of the company could have been improved by infusion of funds but in view of the statutory restrictions on the promoter company, SBI Capital Markets Ltd., fresh capital could not be infused. The sentence does not make out that the erosion is due to non-infusion of capital. What it conveys is that the erosion continues because the eroded capital has not been replaced by fresh capital. It is not a sentence appearing in a report where the financial position of the company is attempted to be concealed. The financial position of the company is for everyone to see in the column preceding the one containing that sentence.

13. As it is the same sentence in the same report that had been complained of in the earlier case and it was held that there was no misdeclaration, either for any false statement being made or on account of any material statement being omitted, the first show-cause notice in this case does not appear to disclose any violation by the petitioners. The petitioners are absolved of whatever they have been charged with by the first notice.

14. The second notice is somewhat more serious and the petitioners' explanation and the prayer for being spared the humiliation of a criminal trial have been strenuously contested on behalf of the Registrar. The substance of the charge is that the company availed of the concessions granted by the NHB without meeting the first condition set by it. However, the violation that is complained of is one of material suppression. It is insinuated by the Registrar in the notice that the first condition set by the NHB had to be met before the company could avail relaxation of the prudential norms and the fact that the company, through its directors, took benefit of the relaxed norms without referring to the condition precedent therefor, the statements in the notes on accounts for the years 1999-2000 and 2000-01 were false and misleading.

15. It is urged on behalf of the Registrar that in not meeting the first condition, the company stood disqualified from availing the relaxed norms. The representation found in the statements complained of was a simplistic assertion of the norms being relaxed, which was not the case. The Registrar's point is that even if the company could take the view that the norms stood relaxed in its case despite it not meeting the fundamental condition therefor, a more elaborate statement was called for and the condition ought to have been pointed out therein with the company's explanation, whether valid or not, as to why the condition could not, or need not, have been met. The. Registrar attacks not so much the company's justification for not meeting such condition, as the complete omission thereof. It is in such omission that such Registrar finds that there has been violation, irrespective of the acceptability of the excuse for non-infusion of further capital.

16. The thrust of the petitioners' initial argument has been that the condition could not have been met as the State Bank of India, as the majority shareholder in the company was barred by law to have more exposure in the company's capital. But that is not the Registrar's point. The Registrar's understanding is that if relaxation was permitted upon a condition first being met then a statement ought to have been made that the relaxation applied without the condition precedent being required to be satisfied. There is substance in the distinction made by the Registrar.

17. The petitioners' fall back on the ultimate defence of a criminal charge, there was no mens rea and, in any event, no one suffered by reason of such alleged omission of a material fact or an alleged misstatement. The petitioners show from additional material permitted to be brought on record that all depositors of the company were paid off and that the company stopped receiving deposits by January 8, 2002. The petitioners show that the entirety of the NPA was assigned to the majority shareholder, State Bank of India.

18. The petitioners rely on the judgments reported at East India Commercial Co. P. Ltd. v. Raymon Engineering Works Ltd. : AIR1966Cal232 , Amara Pictures P. Ltd. In re [1970] 40 Comp Cas 130 (Mad), East India Hotels Ltd. In re [1980] 50 Comp Cas 381 (Cal), M. Meyyappan v. Registrar of Co. [2002] 112 Comp Cas 450 (Mad), Progressive Aluminium Ltd. v. Registrar of Co. [1997] 89 Comp Cas 147 (AP), G. M. Mohan v. Registrar of Co. [1984] 56 Comp Cas 265 (Karn), Putin Chandra Daw v. Emperor : AIR1948Cal190 and P.D. Shamdasani, In re AIR 1929 Bom 443 : 31 BLR 1144, to urge that the motive of the person charged has to be seen and mens rea required to be established before he can be fastened with guilt.

19. In the East India Commercial Co. P. Ltd. v. Raymon Engineering Works Ltd. : AIR1966Cal232 , a Division Bench of this Court held that whether material facts were disclosed or not depended on the facts of each case. That judgment was rendered in the context of an explanatory statement required to be appended under Section 173(2) of the Act to a notice for any special business proposed at a general meeting. Section 173(2) requires a higher test than what the petitioners here are required to pass. The test in this case is whether on the basis of all that had been disclosed by the company and the petitioners at the relevant time, one can reasonably conclude that there was some material which was kept concealed with intent to conceal.

20. In the Amara Pictures P. Ltd. In re [1970] 40 Comp Cas 130, a single judge of the Madras High Court held, though in reading Section 633(1) of the Act, that criminal intention is irrelevant in the context of the test that is required to be applied. It was held that what is relevant is whether the accused acted honestly, namely in good faith, and whether he had any justifiable reason to escape from the liability. It was found that the provisions could not be equated with a provision for discharge or acquittal under the Code of Criminal Procedure. The grounds on which an accused can seek to be excused under Section 633(1) of the Act are not dissimilar to the grounds that a petitioner may cite before a High Court under Section 633(2). Just as a criminal court has been given discretion under Section 633(1), such discretion is at large in a petition under Section 633(2).

21. In the East India Hotels Ltd. In re [1980] 50 Comp Cas 381, a single judge of this Court excused officers of the company upon the company failing to repay depositors on the ground that the default was subsequently made up and that the officers had acted honestly and bona fide. In M. Meyyappan v. Registrar of Co. [2002] 112 Comp Cas 450, a single judge of the Madras High Court expressed the view that the High Court has the same power to decide a matter under Section 633(2) as if it were a court before which proceedings against an officer of a company for negligence, default, breach of duty and breach of compliance had been brought under Sub-section (1). There is no argument with such proposition and the same view is found in the order dated December 7, 2006, in C.P. No. 23 of 2005 S.B.I. Home Finance Ltd. In re [2007] 138 Comp Cas 106 (Cal) : [2007] 2 CHN 268 (Cal)).

22. The Andhra Pradesh High Court considered the misstatement in a prospectus in the case of Progressive Aluminium Ltd. v. Registrar of Co. [1997] 89 Comp Cas 147. The facts and the conclusion in favour of the petitioners are found in the following paragraph of the report (page 158):

In the case before us, it could equally be seen that the petitioners have not acted with a mala fide intention of luring the public for subscribing to the shares of the company under a false representation that the company had experience of two and a half decades. The only default, if at all it could be termed as a default, was the omission on the part of the promoters to clarify that the experience of two and a half decades in the field was of the persons who were manning the earlier partnership firm and not the partnership firm itself. However, such omission could not be treated as a deliberate omission with a mala fide intention of suppressing any truth from the public, and in fact as submitted by learned Counsel for the petitioners and not controverted by learned Counsel for the respondent-Registrar of Companies, that the company has successfully launched production on the strength of the experience of the directors, and that neither any complaint had been made that the company had not lived up to its expectations nor in actual practice it could be seen that any situation had arisen which would lend any credence to the implied allegation that any wrongful attempt was made by the promoters by making the aforesaid statement in the prospectus. Delay indeed has taken place in commencing production. However, the explanation tendered by the petitioners for delay does not call for any stricture to be passed against the promoters that they were actuated by any mala fide intention which resulted in delay or that any wrongful gain was derived by the promoters by intentionally allowing the delay to creep in. The cause for the delay appears to be quite reasonable. In fact the subsequent developments and the progress made by the company in the direction of fructifying the objects for which the company was incorporated, discharges or acquits the promoters of any allegation that the alleged misstatements in the prospectus were made with any dishonest intention of practising fraud upon the subscribers of the company. Of course, the liability of being prosecuted cannot be viewed lightly from subsequent developments. However, in the face of our finding that the intentions were not mala fide, which stands corroborated by the subsequent developments, the prosecution loses its force and substance, more particularly so because this could be categorised as an economic offence, where wrongful pecuniary gains is the main consideration, which is conspicuous by its absence in this case.

23. The failure of the company to pay its depositors and the culpability of its officers therefor, fell for consideration in the G.M. Mohan v. Registrar of Co. [1984] 56 Comp Cas 265 (Karn), where the fact that the depositors had been paid weighed with the court in requiring the Registrar not to proceed with the relevant show-cause notice. In the Division Bench judgment of this Court reported at Pulin Chandra Daw v. Emperor : AIR1948Cal190 , Section 282 of the 1913 Act and an offence thereunder was considered. The Division Bench found that the language used by Section 282 of the 1913 Act imported an element of mens rea when it spoke of the relevant statement being known to be false. A passage from a Privy Council decision was relied upon to the following effect (page 126):.unless a statute by itself or by necessary implication rules out mens rea as a constituent part of a crime, a person should not be found, guilty of an offence against the criminal law unless he has got a guilty mind.

24. The old Bombay case reported at P.D. Shamdasani In re AIR 1929 Bom 443 : 31 BLR 1144, covered the same Section as the just-noticed Calcutta case. On the aspect of motive, it was held as follows (page 445):

Here, it is important to observe that we are dealing with an alleged criminal offence. Speaking generally, it is essential for a criminal offence that what is known in English law as mens rea 'a guilty mind' should be established. I am aware that that precise expression is not in the Code, but the provisions of the Code amount in effect to this. Accordingly on a question like this, I entirely agree with the learned magistrate in thinking that no prima facie case has been made out here for thinking that any false statement was wilfully made knowing it to be false.

I wish to add this. In a criminal court one often wants to test the alleged guilty mind by seeing what was the motive of the alleged criminal in doing the particular act. I quite agree that under the Code it is not essential for the prosecution to establish a motive. But, as a matter of common sense this is usually of importance, because an average man does not commit a criminal offence unless he has a strong motive for doing it. I have accordingly asked Mr. Shamdasani on every one of the points here what motive he suggests the respondents had in making these alleged false statements. Substantially, he can point to no motive. Then I asked him:

Supposing the balance-sheet was drawn up in the way you say it ought to be drawn up, then how would you as a shareholder be damnified by the way in which the balance-sheet and the profit and loss account were, in fact, drawn up?

Apart from the question of the amount of contingent liability which I will deal with later on Mr. Shamdasani was unable to point out to us how he would be pecuniarily affected, except that it is material for the public to know the exact position of a company so that the market can appraise the shares of a company at their proper value, and that accordingly, the ten second preference shares and the two preference shares which the complainant says is his sole holding, should maintain their proper market value. I am not impressed with that last suggestion.

25. On behalf of the Registrar, the judgments reported at Sanatan Ganguly v. State [1984] 56 Comp Cas 93 (Cal); S. Pandit In re [1990] 68 Comp Cas 129 (Bom) and Coal Marketing Co. of India P. Ltd. In re [1967] 37 Comp Cas 720 (Cal), were placed. In referring to such authorities, it is urged that it has first to be ascertained whether an offence has been committed before the discretion to pardon can be exercised. The following paragraphs of the first of the three decisions need to be quoted to appreciate the Registrar's contention (page 96):

It appears that neither the Act nor the rules framed thereunder has laid down any procedure for such an enquiry. Section 4(2) of the Code of Criminal Procedure, 1973 ('Code' for short), provides that all offences under any other law (other than the Indian Penal Code) shall be investigated, inquired into, tried and otherwise dealt with, according to the provisions of the Code, but subject to any enactment for the time being in force regulating the manner or place of investigating, inquiring into, trying or otherwise dealing with such offences. In the absence of any provision in the Act or the Rules framed thereunder, the enquiry under Section 633(1) has, therefore, to be held according to the provisions of the Code. It was, however, contended that the inquiry contemplated under Section 633(1) of the Act was not an enquiry in respect of an offence and, therefore, such an enquiry need not be according to the Code of Criminal Procedure. I am, however, unable to accept this contention having regard to the language of Section 4(2) of the Code, and that of Section 633(1) of the Act. Under Section 633(1), it has to appear to the court that the officer of the company in question 'is or may be liable in respect of the negligence, default...' and the court has also to find that 'he ought fairly to be excused' before the court can relieve him of the liability. It will thus be seen that unless the liability of the person is fixed or, in other words, the court finds that he is guilty or may be guilty, the court cannot invoke the said provision. This position has been made abundantly clear by the words 'he ought fairly to be excused'. The question of excuse comes only when a person is found to have committed some wrong. It necessarily means that the enquiry that is to be held by the court is whether the person has committed the offence or may have committed the offence and then only the court can invoke the powers under that Section to relieve him of the liability on being satisfied that he has acted honestly and reasonably. In the ultimate analysis, therefore, the court has first to enquire into the commission of the offence and that necessarily will mean invocation of Section 4(2) of the Code of Criminal Procedure. It must, therefore, be held that the procedure laid down under the Code is required to be followed in dealing with the application under Section 633(1) of the Act. The matter can be viewed from another angle.

The power of the court under Section 633(1) of the Act is a discretionary one and it is to be exercised only when the court is satisfied that the defaulting officer has acted honestly and reasonably and that having regard to all the circumstances of the case he ought fairly to be excused. It is just and desirable, therefore, that this power should not be exercised in a casual manner and a decision should not be arrived at solely relying upon the averments made in an application under Section 633(1) and the written objection thereto. For those considerations the best procedure to be adopted is to dispose of any application, if filed under Section 633(1) of the Act, along with the case, on the basis of evidence adduced during trial, including the evidence that may be adduced by the accused who files the application under Section 633(1) of the Act. This is all the more necessary as, under the Code, the court's finding as to whether an offence has been committed or not has to be based on evidence to be adduced through examination of witnesses, except where provision has been expressly made in the Code to adduce such evidence through affidavits, namely, Sections 295 and 296 of the Code.

26. In the Sanatan Ganguly v. State [1984] 56 Comp Cas 93 (Cal), the complaint was on account of an alleged offence under Section 210(5) of the Act. Before the magistrate, Sanatan Ganguly filed an application under section 633(1) of the Act and contended that other directors were inimically disposed towards him and in spite of his best efforts, he could not persuade them to comply with the requirements of Section 210(1) and (3) of the Act, for which prosecution had been launched. The magistrate rejected the application following which Ganguly applied to this court. Even though this Court required the regular procedure contemplated under the Code of Criminal Procedure, 1973, to be applied to ascertain whether Ganguly had committed any offence, it appears that Ganguly had admitted that an offence as complained of had been committed. That is not the case here. The petitioners suggest that they did not conceal any material nor made any false statement for which the consequences under Section 628 of the Act should visit them. There is a further distinction in this case. If the procedure as required under Section 4(2) of the Code is required to be followed, Section 633(2) of the Act under which an officer threatened to be proceeded against can apply directly to the High Court to be excused, would be rendered otiose. Though the considerations that would weigh with a magistrate under Section 633(1) should not be materially different from the considerations that would weigh with the High Court under Section 633(2) of the Act, it is not necessary to go into such aspect and the decision rendered in the Sanatan Ganguly v. State [1984] 56 Comp Cas 93 (Cal), may be confined to Section 633(1) of the Act.

27. The petitioners here urged that NHB had the authority and continued to monitor the progress of the company after relaxing the norms. NHB did not complain that the relaxed norms would not apply since the company had not complied with the first pre-condition set by it to avail of the relaxation. In effect, the petitioners question the Registrar's reading of the first condition as a condition precedent since the authority that set the condition did not treat as such.

28. Whether the disclosure made by the company, or by the petitioners, in the relevant papers complained of by the Registrar were adequate, would depend on the first condition being established as a condition precedent. If, indeed, as the Registrar urges, the relaxation would not have applied if such condition was not first met, the company and the petitioners were guilty of not disclosing a relevant fact. Even then, for an offence under Section 628 of the Act to be established, it would require something more than the casual omission of a material particular or an apparent misstatement. Clauses (a) and (b) of Section 628 of the Act require, in addition, for it to be established that the false statement was made knowing it to be false or for the omitted material to have been ignored with knowledge that it was material. In the Registrar's subjective, and partly justifiable, opinion the fact that the company obtained relaxation of the strict norms applicable to it upon the condition set therefor by the NHB, should have been mentioned in the relevant documents. But the Registrar has not been able to establish that the alleged misstatement was deliberately made or that the omission was made with the idea of concealing the same. True, the Registrar would have had opportunity to establish the second limbs of either Clause found in Section 628 if the matter went to trial, but he could have attempted to establish the same in these proceedings.

29. The petitioners have relied on the company's annual report for the year 2003-04 and the balance-sheet and profit and loss accounts for the relevant financial year that had been finalised on April 24, 2004, and placed before the company's general meeting on May 24, 2004, long prior to the issuance of the show-cause notice of December 31, 2004, by the Registrar. It appears from the directors' report and from the accounts that by the close of the financial year ended March 31, 2004, all public deposits had been fully paid off by the company and loans made available by State Bank of India were completely wiped out from the company's books. In addition, the company's assets portfolio comprising commercial loans/investments, the prospects of recovering which were far from encouraging, were assigned to the State Bank of India at a consideration of Rs. 3891.65 lakhs against assets of book value of Rs. 11458.03 lakhs. Schedules 3 and 4 to the accounts for the relevant financial year reveal that all secured loans that remained outstanding as at March 31, 2003, had been repaid by March 31, 2004, and that all unsecured loans and public deposits had also been repaid.

30. It appears that the Registrar has missed the wood for the trees in insisting that an offence had been committed and that the petitioners were liable to be faced trial therefor. The NHB required additional funds to be brought into a company whose networth had been substantially depleted. The object of the exercise was to ensure that the credit side in the company's books of account climbed up to meet the debit entries in its books. Such objective of balancing the two sides was to reduce the difference between the debit side and the credit side. The NHB suggested that the company pull up the credit side to bring it closer to its cumulative debts. The company could not infuse funds, as the laws applicable to the State Bank of India did not permit to make further investments in the company's capital. But the State Bank of India did not lose sight of what the NHB sought to achieve. The State Bank of India had the company assign its NPA to the bank and therefor reduced the debit side on account of bad or suspected debts in the company's accounts. Whichever way the matter is looked into, the difference between the debits and credits of the company became more favourable to the company upon the State Bank of India taking over the bad debts of the company. NHB's objective was achieved, though not strictly in terms of the letter of its requirement.

31. The petitioners were all nominees of the State Bank of India on the company's board and participated in the State Bank of India taking over the company's NPAs. The petitioners did not flout the NHB condition because they chose to, the limits that State Bank of India was required to restrict its investments to, dictated that. The company and the petitioners adopted the alternative route to achieve the same purpose.

32. That State Bank of India took over the company's NPAs appears in the company's documents and is a fact that is not controverted by the Registrar. Not only was the substance of the NHB condition complied with, the State Bank of India did more than the NHB condition required it.

33. There is no substantive violation by the petitioners of the provisions complained of. If the petitioners can be faulted, it is on the score of not making this explicit in the relevant documents and thereby giving the Registrar room to doubt their conduct and assail their motives. It is not as if the Registrar took a pedantic view, he was well within his rights to raise the point. The petitioners ought to have explained better in the relevant documents that the spirit behind the NHB condition had more than been complied with.

34. If such is the conclusion that can be drawn, then the petitioners can be found guilty of understating theirs' and the State Bank's contribution. And there could have been no mala fides or ill motive in underplaying the company's substantive compliance with the NHB condition that would bring the second limbs of Clauses (a) and (b) of Section 628 into play.

35. The petitions are allowed. The petitioners are absolved of all liabilities in respect of the alleged offence complained of by the Registrar.

There will, however, be no order as to costs.

Urgent photostat certified copies of this order, if applied for, be issued to the parties upon compliance with requisite formalities.