ATUL PUKHRAJ FALGUNIA -VS- STATE OF WEST BENGAL & ORS, RAMKRISHNA MOOGIMANE -VS- STATE OF WEST BENGAL & ORS.

What happened

In the first year of the XBRL mandate, the company's financial statements for 2010-11 were converted to XML by consultants, and the digital filing showed earnings per share for 2009-10 as Rs. 1.371 instead of the audited Rs. 13.71, so that a decline of about 66 per cent appeared as growth of 237 per cent. About 20,000 physical copies of the Annual Report with the correct figure were circulated to shareholders and stock exchanges and a PDF was on the company's website. After a show-cause notice in 2013, the Registrar filed a complaint on 10 September 2013 in Complaint Case No. C/7025/2013 before the Magistrate at Alipore, South 24 Parganas, under section 628 of the Companies Act, 1956, and the Magistrate took cognizance and issued process the same day. The petitioners lived in Mumbai and Delhi and the case remained at the stage of appearance for over a decade. They filed CRR 4387 of 2022 and CRR 4388 of 2022, arguing breach of section 202 and lack of knowledge, that a Chief Financial Officer had been designated in Form 1AA, and the benefit of section 633; the Registrar called the shift a calculated manipulation.

Questions before the court

• Could the prosecution continue where process was issued without the section 202 inquiry and the alleged falsity was a decimal-point error in a digital filing?

Why the court ruled this way

Following Vijay Dhanuka v. Najima Mamtaj and Sunil Bharti Mittal v. CBI, the 2005 amendment to section 202 made it mandatory to postpone process and inquire or direct an investigation when the accused lives outside the Magistrate's area, and here process was issued the same day without any inquiry, so the order was a nullity (paragraphs 5.1.1 to 5.1.7). Section 628 requires a statement false in a material particular made 'knowing it to be false', and the circulation of the correct figure in 20,000 physical reports and stock exchange filings negated knowledge, the first XBRL year being one of conversion errors (paragraphs 5.2.1 to 5.2.8). Where the company had designated a Chief Financial Officer through Form 1AA, other signatories could not be held vicariously liable for a data-entry slip, applying G.N. Verma v. State of Jharkhand (paragraphs 5.3.1 to 5.3.8). The error was an honest and reasonable mistake within section 633 (paragraphs 5.4.1 to 5.4.6). The seventh Bhajan Lal category applies where the allegations are inherently improbable, and the delay of over a decade added to the abuse (paragraphs 5.5.1 to 5.5.6).

Controlling point

The summoning order was invalid for want of the section 202 inquiry, the knowledge required by section 628 was absent, and continuing the prosecution would be an abuse of process.

Order and next steps

The summoning order was quashed as regards the petitioners, who were discharged, with consequential warrants and interim orders declared null and bail and surety bonds cancelled; they were exonerated under section 633 of the Companies Act; the trial court was to proceed against any other accused without being influenced by this judgment, the Registrar was directed not to take further coercive action on this discrepancy, there was no order as to costs, and CRAN 7 of 2025 was disposed of.

Practical implications

Officers prosecuted for an apparent error in an electronic filing can invoke section 202, the knowledge requirement in section 628 and section 633 where the correct figures were publicly available and the error was inadvertent.

Limits of this ruling

• The Court acted on admitted facts: widespread disclosure of the correct figure, a first-year XBRL conversion and no loss or gain; the decision does not hold that every misstatement in a digital filing is excused, and the trial court may proceed against other accused.