2025 (5) TMI 491 - AT - Companies Law

Non-existence of the companies at the given address where notices were issued by the bank - HELD THAT - When the adjudicating authority had called for the report from the RoC to investigate and verify the existence of the companies at the address mentioned authority ought to have awaited the report for proceeding further in the matter and it was not necessary for the adjudicating authority to ask the director to submit a explanation or be physically present before the adjudicating authority on the next date. The directions of the adjudicating authority for directing the director to physically present is not called for at this stage and in the facts of the present case no order was required for imposing cost of Rs. 25000/- each upon the Respondents for submitting the reply within a week. Appeal allowed in part.

Summary

Issues Presented and Considered

The core legal questions considered by the Tribunal are:

1. Whether the Adjudicating Authority was justified in directing the directors of the respondent companies to personally appear and file an explanation regarding the non-existence of the companies at their registered addresses, despite having already directed the Registrar of Companies (RoC) to investigate and verify the existence of these companies.

2. Whether the imposition of costs of Rs. 25,000/- on each respondent for failure to file a response within the stipulated time was appropriate.

3. The procedural propriety and scope of the Adjudicating Authority's powers in relation to investigation and verification of the registered office addresses of companies under the Companies Act, 2013, particularly vis-`a-vis the role of the RoC.

Issue-Wise Detailed Analysis

Issue 1: Justification for Directing Personal Appearance and Explanation by Directors

Legal Framework and Precedents: Under the Companies Act, 2013, the Registrar of Companies is the designated authority to investigate and verify the registered office of companies. The Adjudicating Authority's powers are circumscribed by this statutory framework, and it must act in consonance with the procedural mandates and jurisdictional limits.

Court's Interpretation and Reasoning: The Tribunal noted that the Adjudicating Authority had already issued directions to the RoC to investigate and verify the existence of the respondent companies at their registered addresses. Given this, the Tribunal held that it was unnecessary and procedurally improper for the Adjudicating Authority to independently require the directors to file an explanation or to appear physically before it at this stage.

Key Evidence and Findings: The Adjudicating Authority's orders dated 18.12.2024 and 21.01.2025 were examined. The order of 18.12.2024 directed an explanation and physical presence of directors, while paragraph 8 of the same order directed the RoC to investigate. The subsequent order imposed costs for non-filing of response.

Application of Law to Facts: The Tribunal reasoned that since the RoC is the competent authority to investigate the registered office of companies, the Adjudicating Authority ought to have awaited the RoC's report before proceeding further. The demand for personal appearance and explanation from the directors was therefore premature and unwarranted.

Treatment of Competing Arguments: The Appellant contended that the Adjudicating Authority's additional inquiry was unnecessary and that the directors should cooperate with the RoC's investigation instead. The Respondents concurred that no further proceedings should be initiated until the RoC's report is received and agreed that directors should cooperate with the RoC.

Conclusions: The Tribunal set aside the directions requiring personal appearance and explanation by the directors, holding that such directions were not called for at this stage.

Issue 2: Appropriateness of Imposing Costs on Respondents for Non-Filing of Response

Legal Framework and Precedents: Imposition of costs is a discretionary power exercised to ensure compliance with procedural directions and to penalize non-cooperation or delay. However, such imposition must be justified by the circumstances and the authority's jurisdiction.

Court's Interpretation and Reasoning: The Tribunal observed that given the ongoing investigation by the RoC, the imposition of costs on the respondents for failure to file a response within a week was unwarranted. The respondents were not at fault for awaiting the RoC's investigation.

Key Evidence and Findings: The order dated 21.01.2025 imposed costs of Rs. 25,000/- on each respondent. The Tribunal found no justification for this penalty in the context of the procedural posture of the case.

Application of Law to Facts: Since the Adjudicating Authority was not entitled to proceed with the inquiry until the RoC's report, penalizing the respondents for non-compliance with a premature direction was inappropriate.

Treatment of Competing Arguments: The Appellant criticized the cost imposition as excessive and unnecessary. The Respondents did not oppose the setting aside of the cost order.

Conclusions: The Tribunal set aside the cost imposition order dated 21.01.2025.

Issue 3: Scope of Adjudicating Authority's Powers vis-`a-vis RoC Investigation

Legal Framework and Precedents: The Companies Act, 2013 vests the RoC with the authority to investigate the registered office and existence of companies. The Adjudicating Authority must respect this statutory delegation and avoid duplicative or conflicting inquiries.

Court's Interpretation and Reasoning: The Tribunal emphasized that the Adjudicating Authority should await the RoC's investigative report before proceeding further on the issue of existence of the companies at their registered addresses. However, the Adjudicating Authority is not precluded from proceeding on other issues pending before it.

Key Evidence and Findings: Paragraph 8 of the order dated 18.12.2024 directed the RoC to investigate and submit a report. The Tribunal upheld this direction and clarified that the Adjudicating Authority may proceed with other issues independently.

Application of Law to Facts: By deferring to the RoC's investigation, the Tribunal reinforced the statutory scheme and avoided procedural duplication, ensuring proper administrative functioning.

Treatment of Competing Arguments: Both parties agreed that the RoC's report should be awaited and that directors should cooperate with the RoC.

Conclusions: The Tribunal maintained the direction to the RoC and clarified that the Adjudicating Authority may proceed with other issues but must await the RoC's report on the existence of companies before acting on that specific issue.

Significant Holdings

"When the adjudicating authority had called for the report from the RoC to investigate and verify the existence of the companies at the address mentioned authority ought to have awaited the report for proceeding further in the matter and it was not necessary for the adjudicating authority to ask the director to submit a explanation or be physically present before the adjudicating authority on the next date."

"Directions of the adjudicating authority for directing the director to physically present is not called for at this stage and in the facts of the present case no order was required for imposing cost of Rs. 25000/- each upon the Respondents for submitting the reply within a week."

"Directions contained in paragraph 3 of the order dated 18.12.2024 need to be set aside while maintaining the directions issued in paragraph 8 of the order and the cost imposed by order dated 21.01.2025 is also set aside."

"The Adjudicating authority may await the report of the RoC with regard to existence of the companies, however may proceed in accordance with law with regard to any other issue before it."

"After a report is received as directed in paragraph 8 of the order by the adjudicating authority, it shall be open for the parties to take such steps as permissible in law."

"It shall be open for the adjudicating authority to proceed to decide IA No. 1214 of 2023 either by awaiting the report or without awaiting the report."

"We make it clear that we have not expressed any opinion with regard to existence of companies."