In the present instance, an inspecting officer looked over a petitioner company. The inspecting officer noted that a total of Rs. 27.85 crore, which was shown as bad debts in the profit and loss account of the petitioner company, was written off.
The petitioner complained that the entire prosecution was nothing more than an abuse of the legal system and that no specifics were provided in the entire complaint regarding the type of material facts that were withheld in order to commit an offence under either section 447 or 448 of the Companies Act.
It was further argued that the RoC was aware of the bad debts that the company's accounts showed. As a result, it was determined that the respondent's argument was unfounded. As a result, the petitioner asked for the proceedings to be stopped.
In the instant case titled Deva Jaya Thanga Thambi v. Deputy Registrar of Companies, the issue raised for clarification before them Madras High Court was:
Whether proceedings are valid or not?
With regard to this issue, according to the Madras High Court, there must be a clear finding of fraud or the concealment or omission of material facts in order to bring charges under Section 448 or result in punishment under Section 447. In the present case, however, no findings were made to demonstrate the nature of any material fact suppression or omission that would have triggered the application of section 447 or 448 provisions, and the immediate prosecution was brought primarily due to the petitioner's unsatisfactory reply notice. As a result, it was decided that the prosecution of the petitioner was an abuse of the legal system and needed to be overturned.
The Court categorically stated that,
"From the reading of the above section makes it clear that, to initiate the prosecution, it must be shown by the prosecution that the false statement of any material particulars made by the petitioner in respect of any return, report, certificate or a statement etc. Similarly, any omission of material facts is liable under Section 447 of the Act. The punishment for giving false statements and any material particulars or omission to make a material fact which is provided under Section 447."