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2023 (12) TMI 320 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI
Professional misconduct - Role of NFRA V/s ICAI on disciplinary matters of Chartered Accountants - Retrospective V/s prospective applicability of provisions as contained in Section 132 of Companies Act, 2013 as well as NFRA Rules, 2018 - Violation of Principle of natural justice w.r.t. separate division of NFRA - Role of Statutory Auditors of the Company V/s Statutory Auditors of the Branches of the company - Are Standards of Auditing (SA) mandatory or Advisory or to be treated as guidance notes to Auditors - What is professional misconduct for member of ICAI and legal provisions - True intent of Standard of Audits and other related standards relevant for audit and issue regarding alleged violation by the Appellants herein - Alleged violation of the Code of Ethics issued by ICAI and impact on Appeals before this Appellate Tribunal - Excessive V/s adequate imposition of penalties on Appellants, herein - Can automatic stay is triggered on deposit of 10% of penalty and appeal is made before NCLAT.
Role of NFRA V/s ICAI on disciplinary matters of Chartered Accountants - HELD THAT:- After going through provision of Chartered Accountant Act, 1949 and Companies Act, 2013 it becomes clear that disciplinary jurisdiction over the Chartered Accountants remain with both the ICAI and NFRA on concurrent basis. However, on carefully reading it reveals that NFRA has superior and overriding powers in matters relating to professional misconduct of the Chartered Accountants in terms of Section 132 of Companies Act, 2013 - On a pointed query to the Appellants to confirm our understanding, the Learned Counsel for the Appellant confirmed that both the ICAI and NFRA have jurisdiction over Chartered Accountant Act, 1949 - it is observed that for all matters, by default, ICAI has disciplinary jurisdiction over Chartered Accountant. However, it is required to be clearly understood that in term of Companies Act, 2013 and NFRA Rules, 2018 over important and serious matters especially involving large alleged accounting or financial frauds, or matters of public interest, etc., NFRA suo-moto can initiate investigation or take for investigating and ICAI will cease to exercise such disciplinary jurisdiction - NFRA has been consciously and deliberately given superior authority over ICAI on oversight of auditors and in disciplinary matters as stipulated in Section 132 of Companies Act, 2013.
Retrospective V/s prospective applicability of provisions as contained in Section 132 of Companies Act, 2013 as well as NFRA Rules, 2018 - HELD THAT:- After taking into consideration the background for forming NFRA, the judgment of the Apex Court, proven scams, need to restore shaken confidence of public and investors at large and prevent any adverse impact on Indian economy, it is held that NFRA has clear and required retrospective jurisdiction over the alleged offences by delinquent Chartered Accountants for period prior to formation of NFRA or prior to coming into effect relevant portion of Section 132 of Companies Act, 2013.
Violation of Principle of natural justice w.r.t. separate division of NFRA - HELD THAT:- Prior to amendment in Rule 2(g) of NFRA Rules 2018, the “division” was not defined but Ministry of Corporate Affairs vide amendment dated 13.11.2018 on NFRA Rule, 2018 specified as to what constitute “division” under Rule 2(g). We note that the Respondent used the division as stipulated in the Companies Act, 2013 and NFRA Rules, 2018, hence there has been no violation of principles of natural justice. This fact was also fairly conceded by the Appellant also during final stage of hearing.
Role of Statutory Auditors of the Company V/s Statutory Auditors of the Branches of the company - HELD THAT:- The role of branch auditor, though limited primarily to the branch, however, is critical for overall audit of the company and the Auditors of the Branch cannot absolve his responsibilities - the fact cannot be overlooked that the allegations of fraud involving Rs. 31,000 Crores by the DHFL including banking fraud of about 3,700 Crores by Directors of DHFL happened and the Auditors clearly failed in their duties.
Are Standards of Auditing (SA) mandatory or Advisory or to be treated as guidance notes to Auditors - HELD THAT:- According to Section 143 (9) of the Companies Act, 2013 every auditor “shall” comply with auditing standard. Section 143 (10) of Companies Act, 2013 further empowers Central Government to prescribe the Standards of Auditing (SAs) as recommended by ICAI in consultation and after examination of the recommendation made by NFRA. As per the proviso to Section 143 (10) until any auditing standard are notified, any standard or standards of auditing specified by ICAI shall be deemed to be auditing standard - the Accounting Standards and Auditing Standards have been defined in the Companies Act, 2013 and both sets of standards are to be mandatorily followed by all stakeholders including the companies and the Chartered Accountants. Thus, the Appellants as Auditors were duty bound to follow these standards which they alleged to have been breached in respect of SA 210, SA 230, SA 315, SA 320, SA 330, SA 700 along with few other paragraphs of other SAs and Section 143(8) of the Companies Act, 2013 - the SAs are mandatory and not as advisory or a guidance note to auditors.
What is professional misconduct for member of ICAI and legal provisions - HELD THAT:- There is no bar on ICAI or NFRA to restrict investigation of professional misconduct covered only under Section 22 of the Chartered Accountants Act, 1949. The powers are far more and wider and any conduct which makes auditor of unbecoming of such profession will make him liable for suitable investigation and if found guilty may face punishment as per law - NFRA derives the power regarding disciplinary action on professional or other misconduct of the members of ICAI under Section 132 (4) (c) of the Companies Act, 2013 - NFRA has far more powers and authority for professional misconduct of members of ICAI in comparison to powers and authority of ICAI itself.
True intent of Standard of Audits and other related standards relevant for audit and issue regarding alleged violation by the Appellants herein - HELD THAT:- Standards on Quality Control (SQC) are for ensuring quality by firms that performs audits and Reviews of Historical Financial Information, and Other Assurance and Related Services Engagements. SQC requires that the firm should establish a system of quality control designed to provide it with reasonable assurance that the firm and its personnel comply with professional standards, regulatory, legal requirements, and that reports issued by the firm or engagement partner(s) are appropriate in the circumstances. SQC is for enhancing the quality of audit.
Alleged violation of the Code of Ethics issued by ICAI and impact on Appeals before this Appellate Tribunal - HELD THAT:- Violation of Code of Ethic will hold the Auditor to be liable for the penalty as stipulated in Section 132 of the Companies Act, 2013 - It is clear from ICAI Code of Ethics, 2009 that it is responsibility of the auditors to ascertain and ensure compliance with the provision of law is applicable and therefore, the Respondent has correctly pointed out that it is incumbent on the part of Auditors to verify the relevant record of the company to ascertain whether the company has complied with the provisions regarding appointment and other relevant issues rather than accepting the statements of the company that they have complied with - It is undisputed fact that the Appellants themselves did not verify if DHFL followed correct procedures for appointment of Branch Auditors before the Appellants accepted the same. The submissions of the Appellants are therefore not convincing.
Excessive V/s adequate imposition of penalties on Appellants, herein - HELD THAT:- NFRA applied the principle of proportionality and imposed minimal permissible penalty i.e., a monetary fine of Rs. 100,000 and the Appellants have been barred from practicing for a period of one year which is 10% of max. penalty permissible - The need to deter fraud or collusive behaviour and reckless behaviour of the Auditors and repercussions of negligent audits are quite evident - the penalty as imposed by NFRA on all four Appellants were imposed as deterrent, perhaps keeping in mind all facts, including limited role as branch auditors. This cannot be considered excessive after all; it is fact that there has been fraud in DHFL of Rs. 31,000 Crores and Auditors can’t pretend to be ignorant of what was happening.
Can automatic stay is triggered on deposit of 10% of penalty and appeal is made before NCLAT - HELD THAT:- This Appellate Tribunal observes that the averments of the Appellants regarding interpretation of Rule 11 & 12 of NFRA Rules, 2018 are not correct as this Appellate Tribunal has discussed at length the interpretation of Rule 11&12 of NFRA Rules, 2018 and clarified that mere filing of appeal does not affect the order on debarment with respect to compliance of Rule 12.
Final Conclusions - It is of utmost importance that Auditors realise their responsibilities which is necessary not only to the company but also to the public. In view thereof, giving effect to the Impugned Orders which highlights the professional misconduct and other misconduct on the part of the appellant vis-à-vis a public listed company become quintessential so as to make public aware and enable them to make informed and sound financial decisions and investments. Any deviation to this will only result is catastrophic effect on economy of the nation and cause immense prejudice and harm to the public, shareholders and various stakeholders such as banks, lenders, and creditors. NFRA, as an independent audit regulator has been entrusted by the Parliament after great debate for protecting public interest including of the creditors by exercising effective oversight over accounting and auditing functions.
There are no error in the Impugned Orders of NFRA as challenged - appeal dismissed.
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2023 (12) TMI 319 - NATIONAL FINANCIAL REPORTING AUTHORITY
Professional Misconduct - Jurisdiction of NFRA - failure to exercise due diligence, and being grossly negligent in the conduct of professional duties - failure to obtain sufficient information which is necessary for expression of an opinion or its exceptions are sufficiently material to negate the expression of an opinion - failure to invite attention to any material departure from the generally accepted procedures to audit applicable to the circumstances - sanctions and penalties.
Jurisdiction of NFRA - HELD THAT:- From the specific wordings of Section 132 and Rule 10, it is clear that NFRA has the sole and exclusive jurisdiction to initiate proceedings in cases of professional misconduct committed in earlier years too or else it would lead to an anomalous situation of a regulatory gap where any misconduct committed before the formation of NFRA will go unpunished. The law enabling investigation into professional and other misconduct, being in existence in the period before 2018, cannot be said to be retrospective and NFRA jurisdiction is established for implementing the process of investigation into misconduct committed in the past as well. Thus, the challenge to the jurisdiction of NFRA with respect to misconduct committed before 2018 does not stand - NFRA has the requisite jurisdiction to monitor compliance with accounting standards, monitor and enforce compliance with the SAS and to investigate matters of professional misconduct of Chartered Accountants falling under the NFRA domain.
Charges of Professional Misconduct - HELD THAT:- The EQCR Partner did not perform his duties as per the Standards and the Law in conducting the Engagement Quality Control Review of the statutory audit of DHFL FY 2017-18. Based on the discussion and analysis, we conclude that the EQCR Partner has committed Professional Misconduct as defined in the Act, as below:
i. CA Amit Vinay Chaturvedi committed professional misconduct as defined by Section 132 (4) of the Companies Act, 2013, read with Section 22 and Clause 7 of Part I of the Second Schedule of the Chartered Accountants Act, 1949 (No. 38 of 1949) as amended from time to time, which states that a Chartered Accountant is guilty of professional misconduct when he "does not exercise due diligence or is grossly negligent in the conduct of his professional duties".
This charge is proved, as the EQCR Partner failed to conduct the review in accordance with the SAS and applicable regulations. He failed to notice and document the serious omissions and commissions by the ET that led to the issue of a baseless audit report by the EP, as explained in paras 28 to 35 above.
ii. CA Amit Vinay Chaturvedi committed professional misconduct as defined by Section 132 (4) of the Companies Act, 2013, read with Section 22 and Clause 8 of Part I of the Second Schedule of the Chartered Accountants Act, 1949 (No. 38 of 1949) as amended from time to time, which states that a Chartered Accountant is guilty of professional misconduct when he "fails to obtain sufficient information which is necessary for expression of an opinion or its exceptions are sufficiently material to negate the expression of an opinion"
This charge is proved, as the EQCR Partner failed to conduct the review in accordance with the SAS and applicable regulations. He failed to notice and document the serious omissions and commissions by the ET that led to the issue of a baseless audit report by the EP, as explained in paras 28 to 35 above
iii. CA Amit Vinay Chaturvedi committed professional misconduct as defined by Section 132 (4) of the Companies Act, 2013, read with Section 22 and Clause 9 of Part I of the Second Schedule of the Chartered Accountants Act, 1949 (No. 38 of 1949) as amended from time to time, which states that a Chartered Accountant is guilty of professional misconduct when he “fails to invite attention to any material departure from the generally accepted procedure of audit applicable to the circumstances”.
This charge is proved since the EQCR Partner failed to conduct the review in accordance with the SA 220 and SQC-I as explained in Paras 28 to 35 above but falsely certified that he had performed the review as per SAS.
Thus, it is concluded that the charges of professional misconduct in the SCN, as detailed above, stand proved based on the evidence in the Audit File, the audit reports on the standalone financial statements and consolidated financial statements for the FY 2017-18 and the submissions made by the EQCR Partner.
Sanctions and penalties - HELD THAT:- Considering the nature and seriousness of violations and principles of proportionality, we, in the exercise of powers under Section 132 (4) (c) of the Companies Act, 2013, following is being imposed:
(i) Imposition of a monetary penalty of Rupees Five Lakh upon CA Amit Vinay Chaturvedi,
(ii) In addition, CA Amit Vinay Chaturvedi is debarred for Five years from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.
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2023 (12) TMI 187 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , CHENNAI
Rectificatory jurisdiction - Willful violation of Orders of Hon'ble Company Law Board - transfer of shares - rectification of Register of Members of Respondent No. 1 Company - whether the rectificatory jurisdiction under Section 59 of the Act, which is summary in nature can be exercised where there are contested facts and disputed questions?
HELD THAT:- Since, the Tribunal has relied upon the decision in the case of Ammonia Supplies [1998 (9) TMI 427 - SUPREME COURT] and IFB Agro [2023 (1) TMI 257 - SUPREME COURT] which has also been relied upon by Counsel for the Respondent, therefore, it would be apt to deal with two decisions to find out as to whether these decisions would apply? In the case of Ammonia Supplies, Section 155 of the Act of 1956 was in question which deal with the power of company court to rectify the register of members maintained by a company. The word ‘rectification’ has been defined as something what ought to have been done but by error not done and what ought not to have been done was done requiring correction. In this case, the question was framed as to whether in the proceedings under Section 155 of the Act of 1956, the court has exclusive jurisdiction in respect of all the matters raised herein or has only summary jurisdiction? The Hon’ble Supreme Court held that the company court under Section 155 has to adjudicate in the facts and circumstance whether the dispute raised really pertains to rectification or under the garb of rectification questions of fact involving contentious issues are raised and if dispute found to be relating to the peripheral field of rectification, then the company court under Section 155 will have exclusive jurisdiction but if finding is otherwise then the civil court’s jurisdiction is not excluded.
In the case of IFB Agro, the Hon’ble Supreme Court was considering the question in regard to the scope of the rectificatory jurisdiction of the NCLT under Section 59 of the Act and was called upon to determine the appropriate forum for adjudication and determination of violations of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations 1997 and Securities and Exchange Board of India (prohibition of insider trading) Regulations 1992 framed under the Securities and Exchange Board of India Act, 1992. It was held that under Section 59 of the Act, in view of the Ammonia Supplies (Supra) the jurisdiction is summary in nature and not intended to be exercised where there are contested facts and disputed questions and in regard to the second issue it was held that transactions falling within the jurisdiction of Regulatory bodies created under a statute must necessarily be subjected to their ex-ante scrutiny, enquiry and adjudication.
Thus, once the legislature has created a complete bar of the jurisdiction of the Civil Court by enacting Section 430 in the Act as per which no civil court shall have the jurisdiction to entertain any suit or proceedings in respect of any matter which the Tribunal or Appellate Tribunal is empowered to determine by or under this Act or any other law for the time being in force and no civil court has the jurisdiction to grant injunction in respect of any action taken or to be taken in pursuance of any power conferred by or under the act or any other law for the time being in force by the Tribunal or Appellate Tribunal, there is no shred of doubt that the jurisdiction to decide the rectificatory jurisdiction under Section 59 of the Act shall be available to be exercised even where there are contested facts and disputed questions and regard may be had to the decision in the case of Shashi Prakash Khemka [2019 (2) TMI 971 - SUPREME COURT] as decided by the Hon’ble Supreme Court while referring to Section 430 of the Act.
The impugned order set aside - appeal allowed.
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2023 (11) TMI 1219 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL NEW DELHI
Admission of Section 7 Application filed by the Financial Creditor - investment made by the Financial Creditor in the Corporate Debtor by means of Share Subscription-cum- Shareholders Agreements, Binding Term Sheet as well as Consent Terms - financial debt in default - HELD THAT:- The Hon'ble Supreme Court in Pioneer Urban Land and Infrastructure Limited and Anr. vs. Union of India and Ors. [2019 (8) TMI 532 - SUPREME COURT] had occasion to consider the concept of 'financial debt' and the meaning of the 'financial debt' as contained in the IBC.
The ratio of the judgment of the Hon'ble Supreme Court is that sub- clause (f) of Section 5(8) would subsume within it amounts raised under transactions which are not necessarily loan transactions so long as they have the commercial effect of a borrowing. In paragraph 76, the Hon'ble Supreme Court had quoted with approval the meaning of expression "borrow" and "commercial" from Collins English Dictionary. The condition which is essentially required to be fulfilled is disbursement against the consideration for the time value of money. On coming to sub-clause (f), the transaction has to have a commercial effect of a borrowing.
It is already noticed the facts and sequence of events of the present case, from which it is clear that Corporate Debtor has time and again acknowledged the debt. It is found that transactions between the parties including the Agreement, Supplementary Agreement and Binding Term Sheet, clearly indicate that there was a debt, due and payable, which debt was in the nature of 'financial debt'. It is further noticed that in the present Appeal, the Appellant has taken several opportunities to make payment to the Corporate Debtor to liquidate his debt, which could not be done by the Appellant. The above is also clear acknowledgement of debt and default on the part of the Corporate Debtor. The Adjudicating Authority has not committed any error in admitting Section 7 Application.
There are no good ground to interfere with the impugned order admitting Section 7 Application. The Appeal is dismissed.
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2023 (11) TMI 1173 - NATIONAL FINANCIAL REPORTING AUTHORITY
Professional Misconduct - Chartered Accountant (CA) - Failure to report non-consolidation of subsidiary - Failure to prepare audit documentation - Failure to report issues related to disclosure of Credit Risk Exposure - Failure to plan the audit of Financial Statements - Failure to perform Analytical Procedures - Failure to determine Materiality - Failure to perform risk assessment procedures and response to such risks - Failure to obtain Sufficient Appropriate Audit Evidence (SAAE) - Failure to prepare documentation regarding Auditor’s responsibilities relating to fraud in an Audit of Financial Statements - Failure to communicate with Those Charged with Governance (TCWG) - Failure to report non-disclosure of Related Party Loans on gross basis - Failure to report non-disclosure of Trade Payable covered under the Micro, Small and Medium Enterprises Development Act, 2006 - Failure to report full particulars of loan to Related Party - Failure to report non-disclosure of Material Information relating to pledge of fixed deposits - Penalty and Sanctions.
Failure to report non-consolidation of subsidiary - HELD THAT:- In the qualified opinion by the EP, when there was sufficient basis for an adverse opinion, was without due diligence and without obtaining sufficient appropriate audit evidence, and thus the EP failed to comply with Para 8 of SA 705 - the EP too during personal hearing has acknowledged this lapse.
Failure to prepare audit documentation - HELD THAT:- The Executive Counsel to the Financial Reporting Council (FRC), the UK Audit Regulator, in the matter pertaining to Deloitte LLP and John Charlton in the audit of Mitie Group plc. for the year ended 31 March 2016, imposed a financial sanction of Two Million Pounds, a published statement in the form of severe reprimand against Deloitte and a financial sanction of 65,000 Pounds and a published statement in the form of a severe reprimand against Charlton besides other things, for breach of ISA 230 as they failed to adequately document the audit work papers.
Failure to report issues related to disclosure of Credit Risk Exposure - HELD THAT:- There is no evidence in the Audit File of the Letter of Credit stated as security for the secured Trade Receivables. There is no evidence of receipts from M/s. Tecnimont after 31.03.2017 and no ageing analysis of the Trade Receivables performed by the EP. In the absence of such evidence, the reply of the EP seems an afterthought and is not acceptable. It is evident that the EP’s conclusion about the credit risk being low was not based on sound documented analysis. In light of the above, we find that the EP was negligent in not reporting the non-disclosure of trade receivables in accordance with Para 35M and 35N of Ind AS 107, not obtaining external confirmation as per SA 505 and not exercising due care in the audit of Trade Receivables.
Failure to plan the audit of Financial Statements - HELD THAT:- Failure to make an appropriate audit plan has been viewed seriously by other regulators as well. For example, PCAOB, the US Regulator, charged L.L. Bradford & Company, LLC (the "Firm") for its failure to develop an appropriate audit plan for the audit of Web:XU Inc.'s ("WebXU") and concluded that the "the Firm violated PCAOB rules and auditing standards with respect to an audit and a quarterly review of one issuer audit client. Specifically, the Firm in conducting its audit of the financial statements of WebXU for the year ended December 31, 2011, failed to properly assess the risks of material misstatement. As a result, the Firm failed to properly identify significant risks in connection with the 2011 WebXU audit. The Firm also failed to properly establish an overall strategy for the audit and develop an audit plan that included planned risk assessment procedures and planned responses to the risks of material misstatement.
Failure to perform Analytical Procedures - HELD THAT:- It is evident that the Audit File does not evidence any analytical procedures performed, which proves that the EP failed to design and perform analytical procedures and enquire with the management regarding fluctuations in the figures from previous FY - It is concluded that the EP has violated Para 3(b) and Para 6 of SA 520.
Failure to determine Materiality - HELD THAT:- The EP’s assertion that nothing has been set out to indicate or prove that alleged misstatements have significantly impacted the usability of Financial Statements is false and misleading. Examination of the Audit File revealed that EP did not even determine materiality or performance materiality in the audit of Financial Statements of MIIL - it is emphasised that materiality is one of the most important concepts in the audit of Financial Statements. Where material information is omitted or misstated, the Financial Statements will not be in compliance with the requirements of the SAs and therefore of the Law as Section 143(9) of the Companies Act, 2013 requires the auditors to comply with the SAs - As there is no working paper in the Audit File evidencing determination of materiality by the EP, it is concluded that the EP has failed to adhere to the mandatory requirements of determining Materiality in accordance with SA 320 and falsely stated in his report that he had conducted the audit in accordance with the SAs specified under Section 143(10) of the Act.
Failure to perform risk assessment procedures and response to such risks - HELD THAT:- It is observed from the Audit File and the reply submitted, that the EP has failed to identify and document the applicable financial reporting framework where he is found wanting with non-identification of Ind AS 101, an Ind AS having most critical impact on the financial statements for the year ending 31.03.2017 under investigation - it is noted that a number of errors in the financial statements and non-compliances of Ind ASs by the Company, which the EP has failed to identify and appropriately modify his audit report. As a result, there are a number of fundamental fatal lapses in the audit work which render the audit of financial statements for FY 2016-17 unreliable.
Failure to obtain Sufficient Appropriate Audit Evidence (SAAE) - HELD THAT:- There is no evidence at all of work done in this fundamental audit area. In the light of the EP’s failure to adhere to the requirements of SAs and failure to report non-compliance of Ind AS and Companies Act, 2013 provisions, it is concluded that the EP has been grossly negligent in his professional duties and has failed to obtain SAAE in critical areas of audit mentioned above, thereby violating SA 200.
Failure to prepare documentation regarding Auditor’s responsibilities relating to fraud in an Audit of Financial Statements - HELD THAT:- There is no evidence in the Audit File that the EP had identified and assessed the risks of material misstatement to comply with the requirements of Para 16 of SA 240 where Auditor is required to perform the procedures as mentioned in Paragraphs 17 to 24 of SA 240, to obtain information for use in identifying the risks of material misstatement due to fraud. Further, the EP failed to evaluate whether the information obtained from other risk assessment procedures and related activities performed indicates that one or more fraud risk factors are present and therefore did not comply with Para 24 of SA 240 - it is nowhere documented in the Audit File whether EP had inquired from the company’s staff in respect of internal control processes or observed the staff performing the controls. The reply is an afterthought to mislead NFRA and hide his deficiencies in conduct of audit. In the light of above, we conclude that the EP failed to comply with the requirements of Para 16 and 24 of SA 240.
Failure to communicate with Those Charged with Governance (TCWG) - HELD THAT:- EP has failed to exercise due diligence and was grossly negligent in not identifying and communicating with TCWG and consequently, failed to comply with the requirements of SA 260 and SA 265.
Failure to report non-disclosure of Related Party Loans on gross basis - HELD THAT:- combined reading of various prescriptions of Ind AS 24 in Para 18, Para 20, Para 21 and Para 24, shows that they require the entities to disclose Related Party Transactions (RPT) on gross basis, since the overarching objective of Ind AS 24 is to disclose information that is relevant to understand the effect on financial position as well as profit or loss of the entity. For example, outstanding receivables and payables to a related party, though arising from transactions in earlier years would affect the financial position or nature of its assets and liabilities. Further, disclosure of RPTs on a net basis would obscure the extent (volume) of quantitative effect of RPTs on the financial performance and cash flows of the entity, if they have been squared off or netted before the year end - it is found that the EP has erred by failing to exercise due professional care by not reporting such non-disclosure.
Failure to report non-disclosure of Trade Payable covered under the Micro, Small and Medium Enterprises Development Act, 2006 - HELD THAT:- The EP has failed to address the non-disclosure in respect of MSME and explain its impact on the Financial Statements. The EP also failed to state his opinion on the Financial Statements, taking into account the inappropriate disclosure. In view of this, we conclude that the EP failed to report the non-disclosure of the amount of principal and interest outstanding as required under the Micro, Small and Medium Enterprises Development Act, 2006 during the year as per Schedule III of the Companies Act, 2013.
Failure to report full particulars of loan to Related Party - HELD THAT:- As Related Party Transactions are often prone to misuse, including diversion of funds and therefore a material area of audit and subject to stricter legal scrutiny, the EP was required to be more cautious and exercise professional skepticism in this sensitive area of audit - It is concluded that this is a clear case of afterthought, and the EP has failed in his attempt to cover up for his nonchalant attitude by not performing the duties of a statutory auditor of a PIE.
Failure to report non-disclosure of Material Information relating to pledge of fixed deposits - HELD THAT:- EP submits that he cannot be held responsible when both external and internal audit evidence gathered reflected that there was no lien on the fixed deposit - In view of the explanation and workpapers submitted by the EP, the charge is dropped.
Penalty and Sanctions - HELD THAT:- Section 132(4) of the Companies Act, 2013 provides for penalties in a case where professional misconduct is proved. The seriousness with which proved cases of professional misconduct are viewed, is evident from the fact that a minimum punishment is laid down by the law - Considering the fact that professional misconducts have been proved and considering nature of violations and principles of proportionalities, in exercise of powers vested under Section 132(4) (c) of the Companies Act,2013, it is ordered that:
(a) Imposition of monetary penalty of Rs.5,00,000 (Rupees Five Lakhs Only) upon CA Nilesh Chheda.
(b) In addition, CA Nilesh Chheda is debarred for 5 (Five) years from being appointed as an auditor or internal auditor or from undertaking any audit in respect of Financial Statements or internal audit of the functions and activities of any company or body corporate.
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2023 (11) TMI 969 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI
Oppression and mismanagement - Reduction of shareholding of the Appellant No. 1 - sale of properties of the Respondent NO. 1 Company without the consent of the Appellant No. 1 - jurisdictional error - mutual settlement of disputes between parties - HELD THAT:- The Tribunal passed the impugned order after duly considering that the jurisdiction of the Tribunal cannot be invoked for giving effect to a compromise between the parties. The impugned order does not suffer from any jurisdictional error and the Tribunal, by passing of the impugned order, ensured that there is no multiplicity of proceedings between the parties. The Tribunal comprehensively dealt with the issues mentioned in the Company Petition. The impugned order was passed on the ground that the parties had already mutually settled their disputes. In view of the mutual settlement, the Company Petition ought to have been dismissed which the Tribunal rightly did by way of the impugned order.
The Appellants’ contention that till the amounts mentioned in the minutes dated 31.05.2018 are not paid, there is a continuous cause of oppression and mismanagement is completely misconceived and unsustainable. The Tribunal and this Appellate Tribunal are not the appropriate forums for adjudicating as to whether the parties have acted in terms of the compromise deed dated 11.04.2018 and whether the alleged minutes dated 31.05.2018 are binding or not - The Hon’ble High Court being seized of the matter, the present Appeal is liable to be dismissed. Further, it has been rightly noted by the tribunal that in the light of the compromise deed dated 11.04.2018, if at all there is any remedy available to the Appellant then it is before the Hon’ble Punjab & Haryana High Court and Civil court at Gurugram.
Thus, the Tribunal while passing the impugned order had rightly taken note of the fact that in view of the settlement between the parties, the said allegations cannot be gone into further and in the circumstances in view of the compromise arrived at outside the Tribunal and nothing survives in the Company Petition.
Appeal dismissed.
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2023 (11) TMI 688 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI
Seeking for restoration of the name of the Company Garg Medical Solutions Private Limited in the register maintained by the Registrar of Companies (RoC) - HELD THAT:- The said Company was struck off on 08.08.2018. The Appellant had complied with the statutory filing for the Financial Year 2016-17 and statutory filing for Financial Year 2017-18 was not due. The said Company had outstanding payable to three Creditor totalling to Rs.21 Lakhs/-. The said Company is also owing one Immovable Property.
In Calcutta Rubber Factory Pvt. Ltd. & Ors. Vs. Registrar of Companies, Delhi and Haryana, 2019 [2019 (12) TMI 342 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL NEW DELHI] it was held that restoration of the Company was considered just and equitable on the grounds that the Company is having Assets.
In the present case, the Company had complied with the statutory filings till Financial Year 2016-17 and the statutory filings for Financial Year 2017-18 were not due as on the date of striking off of the Company. The Company is having assets and liabilities. It owns one property and has liability to repay credits of Rs.21 Lakhs/- Since the Company has substantial assets and liabilities, it cannot be said that the Company is not carrying on any business for operations.
The impugned order set aside - The name of the Appellant Company is restored to the Register of Companies subject to the compliances imposed - appeal allowed.
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2023 (11) TMI 529 - DELHI HIGH COURT
Refusal of registration of shares of the Respondents - ambit of Section 111A of Companies Act - sufficient cause for refusal to register shares or not - NCLAT directed the appellant to register the shares of respondents - HELD THAT:- The interpretation of the expression ‘sufficient cause’ in the context of refusal by a Company to register shares has to be pragmatic, reasonable and in consonance with the purpose of the legislation. Moreover, it has to be kept in mind that the legislature deliberately used the expression “sufficient cause” in proviso to Section 111A (2) as against the expression “contravention of any of the provision of law” used in proviso to Section 111A (3) of the Companies Act, 1956.
In the opinion of the Court, the import of the expression ‘sufficient cause’ cannot be reduced to mean only violation or contraventions of law. Any mala fide transfer done with the intention of obstructing the functioning of the company can also constitute sufficient cause for refusing the registration of transfer of shares.
In the case at hand, Respondent No. 4 was associated with the Appellant company in the past. Respondent No. 1 is stated to be his wife while Respondent No. 5 is his daughter. On the other hand, Respondent Nos. 2 and 3 are alleged to be relatives of the Ex-statutory director of the Appellant company. The Respondents have filed multiple complaints against the Appellant company to various statutory authorities - the allegation of the Appellant company is that the Respondents seek to cause hurdles in the way of bona-fide corporate decisions taken by the Appellant Company. The Respondents have chosen not to appear before this Court to rebut the allegation of the Appellant.
These facts constitute ‘sufficient cause’ and the Appellant company has rightly refused to register the shares of the Respondents - Appeal allowed.
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2023 (11) TMI 317 - DELHI HIGH COURT
Transfer of pending proceeding to NCLT - substitution of ICICI Ltd to Edelweiss - HELD THAT:- A conjoint reading of Rule 5 of the notification dated 7th December, 2016 along with the decision in Citicorp International Limited v. Shiv-Vani Oil & Gas Exploration Services Limited [2023 (7) TMI 1188 - DELHI HIGH COURT] would show that in cases where the petition is not at an advanced stage, the matter is to be transferred to the NCLT.
In the present petitions, apart from issuance of notice, no steps have been taken. None appear for the parties as well. Accordingly, the present petitions are directed to be transferred to the NCLT.
List before the NCLT on 1st November 2023 - petition allowed.
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2023 (10) TMI 1389 - DELHI HIGH COURT
Levy of penalty on appellant for the negligence of its counsel - respondent/plaintiff despite being aware of the reference under the SICA did not apprise the Court of such proceedings - jurisdiction of impugned order - Suit for recovery - sick company - HELD THAT:- Evidently, an appearance had been put on behalf of the appellant/defendant on the service of summons by publication, however not only was the written statement not filed but the Court was also not apprised about the registration of the reference or pendency of the proceedings before BIFR. Thus, there was no due diligence on the part of the appellant/defendant in contesting the proceedings.
It is well settled that there was legal duty cast upon the appellant/defendant to bring it to the notice of the Court that it had qualified for the protection under the SICA, and this obligation was not discharged.
Learned Single Judge rightly found that appellant/defendant merely took a lame excuse, most conveniently blaming its previous counsel but then it is also borne out from the record that the respondent/plaintiff on becoming aware of the reference before the BIFR, filed an application before the BIFR on 23 July 2012, seeking its permission to execute the decree. Although the appellant/defendant was provided with an opportunity to file a reply to the said application, it was not filed so much so that the respondent/plaintiff was impleaded in the said proceedings before the BIFR on 12 December 2012 and admittedly the appellant/defendant came out of purview of SICA on 18 September 2014. And yet no legal proceedings were initiated by the appellant/defendant up until 2019.
The learned Single Judge has committed no illegality, perversity or adopted an incorrect approach in passing the impugned order dated 27 May 2009.
Appeal dismissed.
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2023 (10) TMI 1369 - BOMBAY HIGH COURT
Grant of bail - diversion of funds or not - accusation is that the applicant defrauded the bank by declaring false value of stock offered as collateral - bail sought on medical grounds - Section 447 of the Companies Act, 2013 - HELD THAT:- The Forensic Audit Report which SFIO is relying upon indicates that JACPL has faced genuine business losses and that there is no financial irregularities. It appears that there is no independent stock audit done by SFIO. The SFIO has arrived at value of the stock based on the statement of the store keepers and there are some substance in the contention of learned senior advocate for the applicant that SFIO did not carry out any independent forensic analysis relating to valuation of the stock.
So far as the accusation that Rs. 550 crores have gone to ‘Jagat Overseas’ from the account of the company which amounts to siphoning is concerned, it appears that in the financial year 2014-2015 Rs. 522.60 crores were transferred from ‘Jagat Overseas’ account to the account of JACPL and Rs. 552.41 crores was received back from JACPL to ‘Jagat Overseas’. Prima facie, this may be a transaction squaring up of the amount credited and debited. In prima facie opinion, there is a reasonable ground to believe that the offence punishable under Section 447 of the said Act may not be attracted in the present case.
The applicant is 63 years of age. It is thus seen that the applicant needs constant medical treatment. No doubt the same is available and provided to the applicant at Sir J. J. Hospital and in prison hospital. However, there are no hesitation in opining that the applicant needs constant medical attention considering his age and ailment. The age and medical condition of the applicant is one of the circumstance which is taken into consideration for enlarging the applicant on bail.
Though it is stated that the applicant is willing to furnish a surety having valuation of upto Rs. 5 crores for the purpose of releasing him on bail, on behalf of the applicant, learned counsel on instructions of the applicant through his son who is personally present in the Court submitted that a sum of Rs. 5 crores will be deposited with the Special Court by way of Fixed Deposit in the name of the concerned Registrar/ Superintendent of the Special Court within a period of two months from the date of the applicant’s enlargement on bail. The statement is accepted as an undertaking to this Court. The affidavit to that effect be filed by the applicant in this Court before his release. Registry to accept. The said deposit will abide by the orders passed by the Special Court.
The applicant is in custody for more than 18 months with no possibility of the trial concluding any time soon. The investigation is complete. The charge-sheet has been filed. There are no criminal antecedents reported against the applicant. The applicant does not appear to be a flight risk. Further incarceration will only be by way of a pre-trial punishment.
The applicant- Sant Lal Aggarwal shall be released on bail on his furnishing P.R. Bond of Rs. 1,00,000/- with one or more local sureties in the like amount and subject to fulfilment of conditions imposed.
Bail application allowed.
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2023 (10) TMI 1347 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, CHENNAI
Seeking permission from this Tribunal to withdraw the instant Comp Appeal - HELD THAT:- The Learned Counsels are permitted to raise before this ‘Tribunal’ and this ‘Tribunal’, by taking into consideration the pleas, averments made in this regard, pass a reasoned / speaking Order, of course, uninfluenced and untrammelled by any of the observations made by this ‘Tribunal’, in this ‘Appeal’, in the interest of ‘Justice’.
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2023 (10) TMI 1259 - DELHI HIGH COURT
Seeking transfer of winding up proceedings to National Company Law Tribunal (NCLT) - HELD THAT:- The said issue of transfer of pending cases has also been considered by this Court in Citicorp International Limited v. Shiv-Vani Oil & Gas Exploration Services Limited [2023 (7) TMI 1188 - DELHI HIGH COURT] wherein the Court relying on the decision of the Supreme Court in ACTION ISPAT AND POWER PVT. LTD. VERSUS SHYAM METALICS AND ENERGY LTD. [2020 (12) TMI 535 - SUPREME COURT] has held that It is only where the winding up proceedings have reached a stage where it would be irreversible, making it impossible to set the clock back that the Company Court must proceed with the winding up, instead of transferring the proceedings to the NCLT to now be decided in accordance with the provisions of the Code.
A conjoint reading of Rule 5 of the notification dated 7th December, 2016 along with the aforementioned judgment would show that in cases where the petition is not at an advanced stage, the matter is to be transferred to the NCLT.
Considering the fact that the winding up proceedings are at a nascent stage and only initial publication/citation was done in the newspapers, this Court is of the opinion that the matter cannot proceed before two fora - IBC being a statute which is meant to encourage revival of the company, it is deemed appropriate to transfer the present petition to NCLT, Allahabad Bench, Prayagraj.
Petition disposed off.
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2023 (10) TMI 1222 - DELHI HIGH COURT
Seeking transfer of proceedings pending before High Courts relating to winding to the NCLT - HELD THAT:- Clearly, the winding up petition is at a nascent stage and no proceedings have been taken after the issuance of notice in these petitions. Only pleadings have been completed. In the meantime, the Companies Act, 1956 has been amended and a provision has been enacted for transfer of winding up proceedings pending before the High Courts. Transfer of proceedings pending before High Courts relating to winding to the NCLT has been provided in Section 434 of the Companies Act, 2013.
The Supreme Court in ACTION ISPAT AND POWER PVT. LTD. VERSUS SHYAM METALICS AND ENERGY LTD. [2020 (12) TMI 535 - SUPREME COURT], has held that winding up proceedings which have not reached an advanced stage ought to be transferred to the National Company Law Tribunal (NCLT).
In the opinion of this Court, since hardly any proceedings have been taken towards winding up of the company, the petition no longer deserves to be continued before this Court. The petition is itself at the very nascent stage and no substantive orders have been passed towards winding up of the company. Accordingly, in view of this position and in view of the settled law, the petition is liable to be transferred to the NCLT.
The NCLT shall now proceed in accordance with law in all three petitions. The Registry to transfer all these petitions as also the electronic record of this Court to NCLT. Parties to appear before the NCLT on 5th December, 2023.
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2023 (10) TMI 1221 - BOMBAY HIGH COURT
Re transfer of shares on account of non fulfillment of MoU by Arcadia - whether the Arcadia can be restrained from taking any decision which will hamper the interest of Hexogon while protecting their right to two mortgaged flats?
Grievance is when the full amount is not advanced, the transfer of shares of defendant nos. 5 and 6 are ineffective.
HELD THAT:- The law is well settled in case of Life Insurance Corporation of India [1985 (12) TMI 289 - SUPREME COURT] and it is reiterated by the Division bench of this Court in case of Invesco Developing Markets Fund and Ors. [2022 (3) TMI 1175 - BOMBAY HIGH COURT]. Court cannot restrain holding of any Extra Ordinary General meeting. There are only certain exceptions, where Court can interfere and it can be only when procedural and numerical requirements are not fulfilled.
The Division bench of this Court has also cautioned what will be situation if the Court will start interfering in holding of the meeting of the Company. Ultimately, it is part of the Corporate democracy. No ground is made out for stalling of EOGM. The Court cannot stall holding of any meeting of the company. This is the prerogative of the shareholders.
About offering corporate guarantee by Hexagon - when the proceeding will be go on with DRT, there will be conflict of the interest in between the Defendant No. 4 being managed only by Arcadia on one hand and Arcadia as borrower of the Kotak Mahindra Bank Limited on the other hand - HELD THAT:- No doubt, it is true that Plaintiff or Hexagon does not say that they have paid dues of the Arcadia. It is an independent issue. It is also true that the Arcadia being lender has got right as per the Memorandum of Understanding to sell those flats by giving a notice. No doubt notices are also given. That right is an independent right. However, when the question of the proceeding before the DRT arises, certainly the interest of the Hexagon needs to be protected to certain extent. The issue raised about notice by India bulls to the Hexagon cannot be considered in this application. So also the argument of by plaintiff’s counsel about newspaper articles about the antecedents of directors of Arcadia is not impressing.
This Court is aware that the issue of those flats is not subject matter of the inquiry before this Court. However, when it is question of taking decision by Arcadia being in management of the Hexagon, on limited extent, this Court can certainly interfere. It may also happen that the Arcadia being in control of the Hexagon may pass a resolution about their possible stand before DRT or may even submit to the Orders of DRT - the interest of the Plaintiff and shareholder of the Hexagon needs to be protected.
As a shareholder of defendant No. 4, Defendant No. 1 is restrained from taking any decision which may amount to giving consent/NOC for handing over possession of two flats before DRT in proceedings involving Kotak Mahindra Bank Limited. - application disposed off.
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2023 (10) TMI 1220 - DELHI HIGH COURT
Seeking transfer of proceedings pending before High Courts relating to winding to the NCLT - HELD THAT:- The petition was filed some time in 2015 and since then, the pleadings have been completed in the matter. However, no further orders have been passed. In the meantime, the Companies Act, 1956 has been amended and a provision has been enacted for transfer of winding up proceedings pending before the High Courts. Transfer of proceedings pending before High Courts relating to winding to the NCLT has been provided in Section 434 of the Companies Act, 1956.
The Supreme Court in ACTION ISPAT AND POWER PVT. LTD. VERSUS SHYAM METALICS AND ENERGY LTD. [2020 (12) TMI 535 - SUPREME COURT], has held that winding up proceedings which have not reached an advanced stage ought to be transferred to the National Company Law Tribunal (NCLT).
In the opinion of this Court, since hardly any proceedings have been taken towards winding up of the company, the petition no longer deserves to be continued before this Court. The petition is itself at the very nascent stage and no substantive orders have been passed towards winding up of the company.
The petition is liable to be transferred to the NCLT. Parties to appear before the NCLT on 2nd November, 2023.
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2023 (10) TMI 1122 - NATIONAL FINANCIAL REPORTING AUTHORITY
Professional Misconduct - Chartered Accountant (CA) - Lapses in evaluation of writing-back of liabilities - Failure in evaluation and attendance at physical verification of Inventory - Inappropriate reporting of matters through KAM - Forming inappropriate Audit Opinion - Non-evaluation of utilisation of IPO proceeds - Non-evaluation of Related Parties Transactions - Non-implementation of Quality Control Measures - Failure on the part of audit firm - Penalties and sanctions.
Lapses in evaluation of writing-back of liabilities - HELD THAT:- It is expected that the Auditors would show a high level of professional skepticism and be alert to the possibility of mis-statement if restrained by the management from obtaining external confirmations, which is an essential component of independent audit. The Auditors should not only have re-assessed the risks posed by this restraint on their audit and performed alternative audit procedures to mitigate such risk (Para 8 of SA 505) but also considered this informing their audit opinion. Instead, it is found that the auditors have given unmodified opinion ignoring the restraint imposed by the management on their independent audit. The procedures referred to by the Auditors neither meet the requirements of alternate audit procedures, nor were appropriate or documented. Therefore, the Auditors responsible for carrying out the audit without due diligence and in a perfunctory manner.
Failure in evaluation and attendance at physical verification of Inventory - HELD THAT:- There are no audit documentation regarding the physical count of the inventory. It is noted that SA 501 mandates an auditor to attend physical count of the inventory (para 4) and if it is impracticable to attend the physical count and not possible to apply alternative audit procedures, then the auditor is required to modify the audit opinion (para 7). In the case of LGIL, inventory constituted 49.85% of the current assets in FY 2017-18, 65.10% in FY 2018-19 and 65.53% in FY 2019-20, making it a significantly material item for the Auditors to attend its physical count, but they failed to do the same. As per section 143 (9) of the Act, it is the statutory duty of the auditor to comply With the SAS and Para 18 of SA 200 also requires the auditor to comply with all the SAS relevant to the audit. Failure to attend the physical count of the inventory was a serious non-compliance of SA 501 and the provisions of the Act - the charge that the Auditors did not comply with the provisions of SA 200, 230, 315 and 501 to obtain sufficient appropriate audit evidence for the audit of the inventory, is established.
Inappropriate reporting of matters through KAM - HELD THAT:- When enquired by NFRA with the company, replied vide email dated 14.09.2023 that there was a failure on the part of the company as there was error on printer side while composing the Annual Report for better presentation. LGIL said that the error was unintentional and regretted the same. However, it is observed that this does not appear to be a printing error, as there were differences not only in the number of the KAMs issued, but also there were differences in the subject matter of KAMs - Para 13 of SA 720 requires an auditor to determine through discussion with the management, the documents that comprise the annual report; the entity's planning and timing of the issuance of such documents; make appropriate arrangements with the management to obtain the final version of the documents comprising the annual report in a timely manner and, if possible, prior to the date of the auditor's report. Therefore, the reply of the Auditors attributing the errors to the company also shows ignorance of SA 720 and its eventual non-compliance.
Forming inappropriate Audit Opinion - HELD THAT:- It is observed earlier that the accounting policy regarding unilateral extinguishment of liabilities and valuation of finished goods was not in accordance with the FRF, and the Auditors were restrained from obtaining external confirmation in respect of extinguishment of liabilities. Therefore, the Auditors could not conclude that they had obtained sufficient appropriate audit evidence to state that the FS were free from material misstatements and to issue unmodified opinion, which they did.
Non-evaluation of utilisation of IPO proceeds - HELD THAT:- The audit procedures mentioned by the Auditors in their reply to the SCN is not evidenced from the Audit File. Mere obtaining a certified copy from the management regarding utilisation of the IPO proceeds, does not relieve the Auditors from the responsibility of performing the required audit procedures. There is no evidence in the Audit File that the auditors had performed risk analysis of potential misstatements before the issuance of IPO (over statement of revenue / assets or understatement of expenses / liabilities to present rosy picture to the investors) and after realization of the IPO proceeds (misappropriation of the proceeds for purposes other than the declared purpose). The Auditors did not show the skepticism expected from them while reporting under CARO 2016 about proper utilization of money raised from the IPO, especially in light of the observed instances of artificial inflation of profits and reduction of liabilities by unilateral write-back of outstanding payables, and significant payments (44.29% of the IPO proceeds) to the related party from the IPO proceeds - the Auditors responsible for not performing the due audit procedures, for failure to obtain sufficient appropriate audit evidence for reporting under CARO 2016 about proper utilisation of IPO proceeds, and for their failure to comply With SA 315.
Non-evaluation of Related Parties Transactions - HELD THAT:- There are no audit documentation by the Auditors in respect of verification of the RPTs, except for obtaining the list of Related Parties and their transactions. It is also observed that the Auditors are frequently mentioning of keeping the data in the digital files, which could easily be made part of the audit files, but the same was not done. The Auditors while replying to the SCN submitted minutes of meeting of the Audit Committee for three FYs and price comparison statement of purchase of coal from the related party with the price from the other parties etc. as a token of their performance in accordance with SA 550. This is not evidenced from the audit files, and therefore is deemed an afterthought, as Para S and 1 4 of SA 230 requires the assembling of such documents in the audit file within 60 days after the date of the auditor's report, which the Auditors failed to do.
Non-implementation of Quality Control Measures - HELD THAT:- There are no audit documentation establishing that CA Ashok Holani was appointed as EQCR. Name of CA Ashok Holani has been referred at only one of the workpapers named 'Activity Log' at page no. 3.1 of the audit files, however it does not establish his appointment as EQCR. The EQCR is duty bound to document his work as per Para 25 of SA 220, however we did not find any working of EQCR in the audit files, establishing performance of his work during the audit. Therefore, the Auditors' failure in implementation of quality control measures and ensuring of independence is established.
Failure on the part of audit firm - HELD THAT:- M/S Ashok Holani & Co. was the statutory auditor of LGIL for the FYs 2017-18 to 2019-20 and, the Audit Firm and the EP have made departures from the SAS and the Companies Act, 2013 and have been grossly negligent in performing the audit of LGIL, by placing blind reliance on the assertions of the management in accounting of unilateral extinguishment of liabilities, valuation of inventory, verification of the utilisation of IPO proceeds and RPTs etc. The contention that they are a small audit firm, cannot be accepted as auditors are duty bound to comply with the requirements of the statutes to safeguard the interest of public. Therefore, in addition to the EP, we hold the Audit Firm also responsible for the lapses discussed.
Penalties and sanctions - HELD THAT:- Considering the fact that professional misconducts have been proved and considering the nature of violations and principles of proportionality, in exercise of powers under Section 132(4)(c) of the Companies Act, 2013, it is ordered:
i. Imposition of a monetary penalty of Rupees Ten Lakhs upon the Audit Firm M/S Ashok Holani & Co., the appointed Statutory Auditor
ii. Imposition of a monetary penalty of Rupees Five Lakhs upon CA Rahul Jangir, the Engagement Partner. In addition, CA Rahul Jangir is debarred for three years from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial Statements or internal audit of the functions and activities of any company or body corporate.
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2023 (10) TMI 1002 - TELANGANA HIGH COURT
Failure to get its cost accounting records to be audited by a Cost Auditor and failed to file Cost Audit Report to the Central Government - time limitation for filing such reports - violation of Section 148(8) of Companies Act, 2013 - HELD THAT:- According to the notice sent by the Registrar of Companies, it was observed from the records of the accused company that the cost audit report was not filed with the Central Government for the financial year ending 31.03.2014 within the stipulated time.
The period of limitation is dealt under Code of Criminal Procedure under Section 468 to 473. Admittedly, punishment prescribed under the Section 147 of the Companies Act is one year in the present facts of the case. Accordingly, under Section 468 of Cr.P.C, the period of limitation for an offence punishable is one year under Section 468(2)(b) of Cr.P.C. Under Section 469 of Cr.P.C, the commencement of period of limitation is prescribed - In view of Section 469 of Cr.P.C, the commencement of period of limitation would be from the date of knowledge to the Registrar of Companies. The said date can be taken as 14.06.2016 on which date the show-cause notice was sent to the accused company.
Since complaint was filed on 30.05.2017, complaint is well within time. The date of filing the complaint would be criteria and not the date on which the Court takes cognizance of the offences in the said complaint. For the said reason, the ground of complaint being barred by limitation cannot be accepted - Since the company itself had mentioned that the industry is “Edible Oil Seeds and Oils (including vanaspati) industry, the same cannot be determined in the proceedings for quashing the complaint. If the ROC has no provision of seed manufacturing companies and for which reason, the company had entered the name as “Edible Oil Seeds and Oils (including vanaspati)”, to enable themselves to upload the relevant documents into the ROC, the said ground can be agitated only before the trial Court.
Petition dismissed.
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2023 (10) TMI 962 - SUPREME COURT
Scope of an asset and security freeze order - assignment or not - documents executed by IL&FS by which rents were made over to the respondent, Housing Development Finance Corporation Ltd (HDFC or the lender) - HELD THAT:- The Lease Rental Discounting (LRD) arrangement - a new kind of financial agreement by which a banker allows credit facilities to a commercial property owner, has the flexibility of ensuring that the asset owner is given access to credit. The dominant condition is that a substantial portion or the entire rent or receivables which the owner would be entitled to are made- sold or assigned, absolutely to the creditor bank. This is with the intention that the borrower’s liabilities are discharged automatically from the proceeds payable in respect of the property. Such amounts virtually are by way of unsecured debts. In other words, future rent payable is actually an unsecured debt that the owner/borrower would have been otherwise entitled to claim, but for the assignment or transfer, to the lender/creditor.
The borrower is correct in arguing that the expression LRD is nowhere used in any of the documents executed at the time - An application of the rule that all the contemporaneous documents are to be read together, to discern the true purport of the contract, it is evident that what the parties intended was the assignment of the debt, i.e., the rents payable.
The reference to pledge, in some places in the documents, did not undermine the fact that the rents payable to and receivable by the lender (IL&FS) stood absolutely assigned to HDFC. The provisions of the TPA and the discussion of the various authorities support the conclusion that there can be a transfer of debts, which are defined as actionable claims. In the present case, the rents payable by IL&FS tenants, lessees and licensees are debts, which stood transferred to the creditor, i.e. HDFC Bank. Therefore, the NCLAT’s conclusions are unexceptionable; the challenge to its correctness, therefore fails.
This court holds that there is no merit in the appeal - Appeal dismissed.
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2023 (10) TMI 897 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI
Prayer for recall of the order dated 21.08.2023 - by order dated 21.08.2023, Appeals filed by the Appellant were dismissed on the ground of delay in filing the Appeals - HELD THAT:- When the Appellants themselves filed an application which was also disposed of by this Tribunal on 14.02.2023, they cannot be heard to say that they are not served the order. Thus, as per Section 421, Appeals were barred by limitation.
In the judgment of Sagufa Ahmed [2020 (9) TMI 713 - SUPREME COURT], it was held that till the free of cost copy is not supplied, the limitation will not commence. In the said case, the certified copy was also applied and then the Court held that when certified copy is applied, the claim on the basis of that till the free of cost copy is received limitation will not run, was rejected. The said judgment does not in any manner help the Appellant.
Moreso, present is an application for recall of the judgment. The order passed by this Tribunal was passed after hearing the counsel for the Appellant. The ground for recall has already been settled by Five Member Bench’s Judgment of this Tribunal in “Union Bank of India (Erstwhile Corporation Bank) vs. Dinkar T. Venkatasubramanian & Ors. [2023 (7) TMI 209 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI] where grounds for recall are clearly laid down.
There is no ground for recall of the judgment. Applications are rejected.
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