Corporate Perjury and Jurisdictional Fraud: Legal Consequences of Manipulated Financial Documents

The case of M/s New Era Fabrics Ltd. v. Bhanumati Keshrichand Jhaveri & Ors. is a significant judgment in corporate law, focusing on perjury, fraud, and the manipulation of financial documents. The Supreme Court had to determine whether M/s New Era Fabrics Ltd. deliberately presented false financial records in an attempt to evade legal liability and mislead the court.

The issue originated when the respondents (plaintiffs) sought eviction of the petitioner (defendant) company under the Maharashtra Rent Control Act, 1999, claiming that the company had a paid-up share capital exceeding one crore rupees, thereby making it ineligible for tenant protection. The petitioner argued that it had reduced its share capital below the threshold through a buy-back of shares, but the court found discrepancies in their financial records, leading to allegations of perjury.

Background of the Case

The respondents claimed to be the lessors of a property located at Mogul Lane, Tulsi Pipe Road, Mumbai. The petitioner company was a tenant of the premises. The tenancy was terminated by a notice dated February 11, 2009, and the respondents subsequently filed Suit No. 48/62/2009 before the Small Causes Court, Mumbai, seeking possession and injunction.

The respondents argued that the petitioner, a public limited company, had a paid-up share capital exceeding one crore rupees, making it ineligible for protection under the Maharashtra Rent Control Act. The petitioner countered this claim by asserting that it had reduced its share capital to Rs. 93,74,000 through a buy-back of shares in March 2007.

Key Legal Issues

• Whether the petitioner company’s paid-up share capital was legally reduced before the termination of the tenancy.
• Whether the petitioner committed perjury by manipulating financial documents submitted in court.
• Whether the lower courts were correct in ruling that the petitioner’s share capital exceeded the statutory limit.

Arguments by the Petitioner

The petitioner contended that:

• The company had reduced its share capital through a buy-back of shares on March 1, 2007.
• The company’s internal audit team mistakenly recorded the old share capital in its tax returns, leading to the discrepancy.
• The Registrar of Companies had been informed about the share buy-back.
• The revised financial records, filed on April 4, 2009, correctly reflected the reduced share capital.

Arguments by the Respondents

The respondents argued that:

• The buy-back of shares was not legally executed as per the Companies Act, 1956.
• The petitioner’s financial documents contained material discrepancies and were manipulated after the eviction notice was issued.
• The trial court rightly found inconsistencies in the balance sheet, suggesting fraudulent intent.
• The company’s financial statements continued to show an unaltered paid-up capital of Rs. 1,03,64,000, even after the alleged buy-back.

Supreme Court’s Observations

The Supreme Court carefully examined the financial records submitted at different stages of the litigation. The judgment states:

“We have compared the original copies of the auditor’s report and the balance sheet, as exhibited before the Trial Court, with the copies filed before this Court in SLP (Civil) No. 3309/2018. We find that in the Trial Court record, Column 12 of the balance sheet dated 19.09.2008 tabulated the EPS as follows: … Whereas in the copy of the balance sheet submitted before this Court, the words ‘Weighted average’ have been struck out, and ‘as on 1/4/07’ has been added after ‘Equity Shares’.”

The Court found clear evidence of manipulation, as the financial statements submitted before the Supreme Court contained handwritten modifications that were absent in the original trial court records. This suggested an attempt to mislead the Supreme Court by altering crucial financial details.

Legal Analysis of Perjury

Under Section 340 read with Section 195(1)(b) of the Criminal Procedure Code, a person can be prosecuted for perjury if they willfully provide false evidence in a judicial proceeding. The Supreme Court ruled:

“We find that a prima facie case is made out that the Petitioner has fabricated evidence for the purpose of the SLP proceedings before this Court.”

The Court further found that the company’s director, Mr. R.K. Agarwal, had sworn an affidavit affirming the veracity of the manipulated documents, making him liable for perjury as well.

Final Judgment

The Supreme Court took serious note of the fraudulent conduct and directed the Secretary General of the Court to file a complaint under Sections 193 and 199 of the Indian Penal Code against both the petitioner company and its director. The Court concluded:

“Accordingly, we direct the Secretary General of this Court to depute an officer of the rank of Deputy Registrar or above of the Court to file a complaint under Sections 193 and 199 of the Indian Penal Code, 1872 against the Petitioner Company in SLP (Civil) No. 3309/2018 and Mr. R.K. Agarwal, before a Magistrate of competent jurisdiction at Delhi.”

Conclusion

This judgment highlights the importance of honesty in legal proceedings. Fabrication of evidence not only undermines judicial integrity but also attracts criminal liability. The case serves as a strong precedent in holding corporate entities accountable for presenting false information to courts. The Supreme Court’s ruling reinforces that perjury and document manipulation in judicial proceedings will not be tolerated.

Petitioner Name: M/s New Era Fabrics Ltd..
Respondent Name: Bhanumati Keshrichand Jhaveri & Ors..
Judgment By: Justice Mohan M. Shantanagoudar, Justice R. Subhash Reddy.
Place Of Incident: Mumbai, Maharashtra.
Judgment Date: 03-03-2020.

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