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Showing 101 to 120 of 15082 Records

• 2024 (12) TMI 1153
  

  Legality of Articles 13 and 14 of the Concession Agreement - direction to NTBCL to cease the imposition of user fees or toll upon commuters using the DND Flyway - maintainability of Writ Petition purportedly filed in public interest, before the High court - non-floating of tenders - power to levy fees could be delegated to the Appellant or not - excessive delegation - Article 14 of the Concession Agreement, opposed to public policy or not - recovery of Total Project Cost and Returns - recovery of dues from the Appellant, in regards to the display of outdoor advertisements.

  Maintainability of the Writ Petition before the High Court - Locus standi of Respondent No. 1 - HELD THAT:- In the instant case, Respondent No. 1 is a Society duly registered under the Societies Registration Act, 1860, with the primary objective of promoting the welfare of NOIDA residents. The society acts as a bridge between the residents and public authorities, catering to the former’s needs for essential civic amenities. Given this object, it is clear that Respondent No. 1 approached the High Court in good faith, with a view to safeguard the interests of NOIDA residents, who had been subjected to the levy of toll at the DND Flyway under the guise of user fees by NTBCL. Consequently, there are no merit in NTBCL’s contention that Respondent No. 1 lacked locus standi in approaching the High Court - As regard to NTBCL’s contentions pertaining to the alleged collusion between Respondent No. 1 and NOIDA, there is not an iota of material on record to substantiate these sweeping insinuations.

  Delay and laches - HELD THAT:- The High Court rightly observed that the plea of delay lacks substance, as the commuters, including Respondent No. 1, were justified in trusting that NOIDA would protect their interests. However, in 2012, after learning that they were being misled and subjected to an illegal toll based on an audit report from NTBCL’s Auditor and Chartered Accountant—indicating that as of 31.05.2012, Rupees 2340 crores were still to be recovered from the public, and the recovery period had extended from 30 years to 100 years—they were prompted to immediately approach the High Court - the challenge laid by Respondent No. 1 before the High Court, regarding the levying of toll or user fees, being rooted in public interest and involving en masse potential violations of Fundamental Rights of citizenry, warrants thorough examination.

  Scope of judicial intervention - HELD THAT:- The High Court was justified in entertaining the petition filed by Respondent No. 1 in public interest. The continued levy of toll and the Concession Agreement were directly impacting the rights and interests of commuters. NTBCL’s attempts to classify the Concession Agreement as a purely private contractual matter, sequestered from such scrutiny, thus holds no ground. The Project, having been developed for public benefit, cannot escape judicial oversight, particularly when the allegations pertain to the public’s rights and interests, which are being infringed upon by the levying of user fees. The contention of NTBCL seeking dismissal of Respondent No. 1’s petition at the threshold was thus rightly rejected by the High Court.

  The contention that there were no suitable companies capable of undertaking such infrastructural development during that period lacks any substantiation or material on record to support such sweeping claims - The selection of NTBCL without following proper procedure and without giving any opportunity to bid, to other competitors, was nothing but an opaque device resorted to, in contravention of Article 14 of the Constitution of India.

  Delegation of power to levy fees and its validity - HELD THAT:- NTBCL cannot assert that NOIDA has a genuine 'choice' or the ability to 'withhold consent' from extending the Concession Agreement. NOIDA effectively has no choice and is perversely being browbeaten to continue enforcing the Concession Agreement. Despite the supposed 'choice,' it is burdened with the obligation to repay an exorbitant sum, which we have already established is unreasonably calculated.

  This ‘consensual’ extension is solely a show of smoke and mirrors and has been cunningly engineered by NTBCL and IL&FS. They successfully ensured that: first, the formula was designed in such a way that the Total Project Cost and returns would escalate each year; second, inflated and unnecessary expenses could be included in the Total Project Cost, making repayment impossible; third, the Concession Agreement would only terminate upon full repayment of the Total Project Cost and returns, knowing as early as 2007 that 30 years would not suffice for recovery; and finally, NOIDA was left with no real choice but to extend the concession period due to the ultimatum presented in Article 18, masked as ‘consent.’

  An exhaustive reading of the CAG Report highlights the extent to which the public has been defrauded. The general public has been forced to part with hundreds of crores by IL&FS and NTBCL, under the guise of providing necessary public infrastructure. This could not have been done but for the collusion of the then officers of the two State Governments and of NOIDA, who closed their eyes while the contractual obligations were incurred. Had Respondent No. 1 not been vigilant of their rights, the public funds would have continued to be misappropriated for private profiteering. Furthermore, the role played by IL&FS in this entire scheme is highly questionable.

  Since NTBCL has recovered the costs of the project and substantial profits thereon by virtue of imposition of user fees/tolls and given the existing position of law, there are no error in the High Court’s judgment and its directions in restraining the imposition and collection of user fees/tolls.

  Recovery of dues arising out of display of outdoor advertisements - HELD THAT:- The question pertaining to outdoor advertisements does not constitute the subject matter of the present appeal, where the matter assailed by the Respondent Welfare Association before the High Court was restricted to the imposition and levy of user fees or toll by NTBCL and concomitantly, the validity of certain provisions of the Concession Agreement. Regardless, Respondent No. 2, NOIDA, has alleged that NTBCL owes substantial dues to them, accrued through outdoor advertising, for which the license had been granted by NOIDA - NOIDA shall be at liberty to initiate recovery proceedings as per the dispute resolution mechanism outlined in the Delhi Land Lease and NOIDA Land Lease Agreements. Such a process shall be subject to the defence and objections that may be available to NTBCL before the appropriate forum. Consequently, this issue does not fall within the scope of the instant appeal and therefore we have not expressed any opinion on its merits.

  Application disposed off.

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• 2024 (12) TMI 957
  

  Enforceability of the Deed of Guarantee as against the Plaintiff - statutory bar to the reliefs sought - non-existence of Deed of Guarantee before the Tribunals in which proceedings have been initiated - suit barred by time limitation - whether the personal guarantee became effective? - HELD THAT:- The recitals and clauses in the Deed of Guarantee, on their plain reading, leave no manner of doubt that the guarantee was conditional. The condition being the CDR package sanctioned by CDR EG accepted by all the lenders. The communication dated 23 March 2016 addressed by the Corporate Debt Reconstructing Cell (Exhibit C) to the Indian Overseas Bank, the leader of consortium of lenders, records that the company stood exited from the CDR mechanism as failure, in terms of the decision taken at the meeting held on 22 February 2016 - The recitals and covenants in the Deed of Guarantee make it abundantly clear that the sanction of CDR package by CDR EG and acceptance thereof by all the lenders, was a condition precedent for the guarantee to spring to life. As the CDR package was not approved, the Deed of Guarantee, prima facie, did not become operative.

  Whether in view of the pendency of these proceedings before DRT, jurisdiction of this Court is ousted? - HELD THAT:- On a plain reading of Section 17 (1) of the RDB Act, 1993, the Tribunal constituted under the said Act, shall exclusively exercise jurisdiction, power and authority to entertain and decide applications from the banks and financial institutions for recovery of debts due to such banks and financial institutions. In clause (b) of Section 2 of RDB Act, 1993, “application” means an application made to a Tribunal under Section 19 of the Act - Sub-section (9) of Section 19 declares that the counter-claim shall have the same effect as a cross-suit so as to enable the Tribunal to pass a final order on the same application, both on the original claim and on the counter-claim.

  DRT is a creature of statute. It exercises jurisdiction within the province of authority conferred by the RDB Act, 1993. The bar under Section 18 of the Act, 1993 is, thus, required to be considered keeping in view this nature of jurisdiction exercised by the DRT. The bar under Section 18, thus, cannot be considered de hors the provisions contained in Section 17 and 19 of the RDB Act, 1993.

  From the phraseology of Order VII Rule 11 of the Code of Civil Procedure, 1908, which empowers the Court to interdict the suit if the plaint does not disclose a cause of action or suit appears to be barred by any law, indicates that the said power can be exercised at any stage of the suit. It is not peremptory that the Defendant must raise a ground either in written statement or by filing an independent application that the plaint is liable to be rejected. In a sense, a duty is cast on the Court to carefully examine the plaint and read the averments in the plaint in a meaningful manner, and, if upon such reading, the Court finds that an illusion of cause of action is created or the suit is otherwise, barred by any law, the Court can reject the plaint even without any intervention by the Defendant.

  In the case of Dahiben V/s. Arvindbhai Kalyaniji Bhanusali (Gajra) and Ors. [2020 (7) TMI 786 - SUPREME COURT], the Supreme Court emphasised the peremptory nature of the provisions contained in Order VII Rule 11 and upheld the order of rejection of the plaint where the suit appeared to be barred by limitation.

  The aforesaid enunciation of law would indicate that the provisions of Order VII Rule 11 of CPC are of mandatory nature. The stage of the suit does not matter. The said power can be exercised by the Court, de hors any contention in the written statement or an application seeking rejection of the plaint. If the Court upon a meaningful reading of the plaint comes to the conclusion that the plaint does not disclose a cause of action or the suit is otherwise barred by any law, the Court is enjoined to pass an order of rejection of the plaint - re-adverting to the facts of the case, the bar of limitation was premised on the fact that the Defendant-Banks had started enforcing the guarantee by instituting proceedings since the year 2016.

  Whether a declaration in respect of or an order for cancellation of the Deed of Guarantee in question is strictly warranted? - HELD THAT:- Tthe recitals in the covenants in the Deed of Guarantee make it, prima facie, beyond contestation that the sanction of CDR package by CDR-EG and acceptance thereof by the lenders was peremptory to infuse life into the contract of guarantee. The non-approval of CDR package, prima facie, dismantled the very edifice on which the contract of guarantee could have been built. The deed of Guarantee, thus, did not come into force - Prima facie, in the facts of the case, it appears that the contract of guarantee, sans approval of CDR by CDR-EG, did not come into existence and become operable. The challenge to the instrument is, thus, not on the count of non-enforceability of the contract, but to the very formation of the jural relationship on the basis of the said contract.

  Whether in such a situation the bar of limitation would be attracted. Can the Court on the basis of the plain terms of the Deed of Guarantee and indubitable position that the CDR package was not sanctioned, enforce the terms of the Deed of Guarantee? - HELD THAT:- Prima facie, the Court may not enforce the Deed of Guarantee on its plain terms upon being apprised that the condition precedent has not been fulfilled. If the Deed of Guarantee is, prima facie, found to be an inoperative instrument, a declaration to that effect is not a must.

  In the case of Gouri Amma Vaidehi Amma V/s. Parameshwaran Pillai Madhavan Pillai and Anr. [1955 (8) TMI 53 - KERALA HIGH COURT] the distinction between voidable documents on the one hand, and void documents, on the other, was highlighted and it was enunciated that there can be no doubt that Article 59 is applicable only in cases where it is necessary to have a document set aside. Whether the document will have to be set aside or not for the purpose of ensuring the rights of the Plaintiff bears upon the principle of substantive law and the distinction has always been maintained between voidable documents on the one hand and void documents on the other.

  In view of the enunciation of law by the Supreme Court in the case of Bank of Rajasthan Limited [2022 (11) TMI 1325 - SUPREME COURT], in a suit of the present nature, the Plaintiff, who has already been proceeded against before the DRT, cannot interdict those proceedings before the DRT under the RDB Act. The Supreme Court has made it explicitly clear that the claim Petition under RDB Act would continue to proceed in terms fo the procedure established therein, notwithstanding the nature of the relief claimed by the borrower in an independent suit filed before the civil court.

  The order passed by this Court should not have the effect of staying the proceedings which have been instituted against the Plaintiff by the banks before the DRT under the RDB Act or the proceedings before the Tribunals under the IBC, 2016. Such a fine balance can be achieved by making an interim declaration that the Deed of Guarantee has not become operative. Such a relief may not styme the proceedings before the Tribunals under the RDB Act and IBC 2016. The Tribunals may, however, take into account the interim declaration made by civil Court, while exercising their statutory jurisdiction.

  Interim Application stands partly allowed - By way of interim relief, it is declared that the Deed of Guarantee dated 10 April 2014 has not become operative.

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• 2024 (12) TMI 887
  

  Refusal of prayer of the plaintiffs/appellants for interim injunction - locus standi of the plaintiffs/appellants to initiate the suit - seeking declaration that the decision taken by the defendants/respondent-Company to obtain leasehold rights in their favour is illegal, null and void - limited scope of interference in a Letters Patent appeal, which is a unique power vested in the High Courts, more particularly, Chartered High Courts.

  Locus standi of the plaintiffs/appellants to initiate the suit - Whether the plaintiffs, as universal legatees of the estate of Late Smt. Priyamvada Debi Birla, have the legal standing to initiate the suit? - HELD THAT:- Section 104 of the 1925 Act provides that the legatee has a vested interest in the estate of the deceased testator from the date of death of the testator. However, the said Section is circumscribed by Section 211 of the said Act which operates to vest all the property of the deceased person in the Executor or Administrator, as the case may be. Since the APL Committee has been appointed by order of the Testamentary Court in respect of the estate of late PDB, Section 211 vests the property of the estate in the said APL. Also, as per Section 211(1) of the 1925 Act, it is the APL which is the legal representative of the estate for all purposes. Thus, the plaintiffs, in the capacity of universal legatees of the estate, cannot jump the queue bypassing the APL and directly assert their rights in respect of the estate.

  Section 332 of the 1925 Act provides that the assent of the executor or administrator is necessary to complete a legatee‟s title to his legacy. Thus, although the rights of legatees relate back to the date of death of the testator, such right/title is conferred only upon probate/Letters of Administration being granted and assent to the legacybeing completed by distribution of the property by the Executor or Administrator as the case may be - Hence, it is premature for the universal legatees to assert their rights by bypassing the total control of the APL over the estate through the testamentary court.

  Jurisdiction of the Civil Court in relation to the Companies Act, 2013 - HELD THAT:- Section 247 of the 1925 Act, under which the APL has been appointed, stipulates that the APL shall have all the rights and powers of a general administrator other than distribution of the estate and shall be subject to the immediate control of the (testamentary) court and act under its direction. Hence, the appropriate remedy for the universal legatees, if at all aggrieved by the functioning of the APL, would be to approach the testamentary court. The mere fact that as per the Division Bench order passed in connection with the testamentary matter no injunction can be passed or intermeddling can be undertaken by the testamentary court or the APL in respect of third-party properties is not sufficient justification for approaching the Civil Court.

  The dissenting/minority APL member could not seek to achieve indirectly through the plaintiffs/universal legatees what he could not obtain directly by contravening the majority decision of the APL. Admittedly, one of the major components of the cause of action pleaded in the plaint by the plaintiffs/appellants is the instigation caused by the letter of the dissenting member of the APL with regard to difference of opinion with the decision of the majority members. The Civil Court cannot grant its blessings to such attempt on the part of the dissenting member to frustrate the majority decision of the APL. At best, if aggrieved and otherwise entitled in law, the legatees could approach the testamentary court in that regard - From the Company Law perspective, the plaintiffs are not “members” of the defendant-companies and, as such, cannot invoke the jurisdiction of the NCLT under Sections 241 and 242 of the 2013 Act.

  A careful perusal of the impugned order refusing interim relief shows that all the above aspects were duly considered by the learned Single Judge. Hence, let alone meet the strict yardsticks and parameters of interference in an Intra-Court Appeal, the order impugned does not call for interference even by way of a regular first appeal. The learned Single Judge having taken a plausible and justified view backed by cogent reasons, there arises no occasion to interfere with the same.

  Application dismissed.

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• 2024 (12) TMI 848
  

  Compromise or not - recourse to filing of a Miscellaneous Application for orders - permission to Applicants to do something indirectly which they are not otherwise able to do directly - extension of Order by resorting to the proceedings by filing the Miscellaneous Application, could at all be permitted to be carried, beyond the terms of the compromise or settlement, which may have a bearing of revival of power of the erstwhile Director, who otherwise, stands removed from the post of Managing Director - invocation of Section 421 of the Companies Act, 2013 in a proceedings which was otherwise drawn under Sections 397, 398, 402 & 403 of the Companies Act, to be read with Regulation 14 of CLB Regulations of 1991.

  HELD THAT:- The directions given in the Impugned Order only intends to meet the terms of Settlement of Sub Clause (d) of Para 5 of the Settlement is absolutely a mis-normer for the reason being that the power of Mr. R.P. Trivikram, was not a power which was enshrined to him in relation to the affairs contemplated under Sub Clause (d) of Para 5 of the Settlement of 14.06.2017 - the powers conferred by the directions given in Sub-para 1 of Para 11 of the Impugned Order runs contrary to the spirit of the Order of 07.08.2018, which was only limited to confirming the Settlement of 14.06.2017 particularly when, the Settlement or the Order of 07.08.2018 is not in dispute nor under challenge before any Superior Forum.

  The directions issued in Sub-para 1 of Para 11 of the Impugned Order since being contrary to the earlier Order of 07.08.2018, is not maintainable particularly, when the same has been obtained by way of filing of a Miscellaneous Application in a Company Petition which has already been decided, especially when the case is being sought to be re-opened in a manner of review / recall and modify the Order which was not permissible under the terms of the earlier Order of 07.08.2018.

  The observations made in Sub-para 1 of Para 11 of the Impugned Order to the extent “the Respondents are directed to involve the Applicant / Petitioner (Shri. R.P. Trivikram) in all the affairs of Respondent No. 1 Company”, would hereby stand quashed - Appeal allowed.

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• 2024 (12) TMI 747
  

  Dismissal of application filed by the appellant herein by which the appellant had offered the attachment of a flat in lieu of the requisite pre-deposit as mandated under Section 43 (5) of the RERA - Section 58 of the Real Estate (Regulation & Development) Act, 2016 - HELD THAT:- The learned NCLAT has clarified that the Insolvency Resolution Process is only with respect to one of the projects being undertaken by the appellant company, which, we are informed, is not the same as the one which is the subject matter of the proceedings before the Real Estate Appellate Tribunal. The appellant, therefore, cannot seek any benefit of the moratorium that has been issued by the learned NCLT for seeking an exemption from making the pre-deposit in terms of Section 43 (5) of the RERA.

  There are no merit in the submission of the learned senior counsel for the appellant that as the appellant is offering security of a flat, it should be granted an exemption from making the pre-deposit in terms of Section 43 (5) of RERA. The condition of making a pre-deposit as a pre-condition for the hearing of the appeal has been upheld by the Supreme Court in New Tech Promoters and Developers Pvt. Ltd. vs. State of Uttar Pradesh & Ors. [2021 (12) TMI 892 - SUPREME COURT]. The said provision does not leave any scope for granting an exemption from making the pre-deposit and instead accepting a security.

  There are no merit in the present appeal. The same is, accordingly, dismissed.

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• 2024 (12) TMI 616
  

  Oppression and mismanagement - Respondent No. 1 company is a quasi-partnership or not - Family settlements - Alleged acquisition of shares by Respondent No. 2 and Late Trimbak Bedekar with a view to reduce the petitioners to minority - Non-payment of gratuity dues of Petitioner No. 1 - Entitlement of Petitioner No. 2 to be appointed as a director of the Respondent company - Petition barred by time limitation or not -

  Whether Respondent No. 1 company is a quasi-partnership? - HELD THAT:- According to the petitioners, the company was incorporated in 1943 under the Companies Act, 1913. Prior to that, business was being run by the HUF of Bedekar family headed by late Vishwanath Parsharam Bedekar, the then Karta of the family. Subsequently, it was converted into a partnership business with the co-parceners (the sons of Vishwanath Parsharam Bedekar) and the current account balances of five partners of HUF (VP Bedekar and sons) were converted to the share capital of the company. It has also been claimed that from the very beginning, shareholding and the board control has been with the members of the Bedekar family only except one instance when initially Shri Chitale was inducted as a director.

  Admittedly, at the time of filing the petition, the petitioners jointly held only 7.5% of the shares and prior to that, it was 15% which stood reduced to 7.5% after the respondent company brought a rights issue in 1997, which was not subscribed to by the petitioners. Therefore, the facts remains that there has been unequal shareholding since 1997 as from then onwards, respondent no. 2 to 5 collectively hold 92.55% as against 7.45% of the petitioners. Thus, the fact remains that there has been no equality in shareholding since the year 1997. Therefore, this militates against the plea of the petitioners that the company is in fact quasi-partnership on account of the fact that equality in shareholding has been the primary feature of the company.

  The claim of the Petitioners that the shareholding was restricted to only male lineal descendants also does not seem to be correct in the light of the fact that admittedly Mukund Chitale held 50% of the shares at the time of the incorporation though he was inducted only to run the company in a professional manner. However, petitioner no.1 himself admittedly transferred shares to M/s Esquire Press which was not in any manner connected to the Bedekar family. In this regard, the plea of the Petitioners is that the shares were transferred to raise money for the company from M/s Esquire Press as otherwise as per the provision of the Companies Act, then in force, no money or loan could be availed from anybody except a member of the company. However, this plea raised by the petitioners has also not been substantiated as no worthwhile evidence led by the petitioners on record.

  It is the admitted case of the Petitioners that at the time of inception of business in the 1920s, it was being single handedly run by Vasudeo Bedekar. It is also not disputed by the Petitioners that after the death of Vasudeo Bedekar, managerial control was based only on majority shareholding and the minority shareholders were kept out of management and since 1986, not even a single member of the family of the petitioners has been on the Board or has held any managerial position in the company. Therefore, it has been wrongly claimed by the Petitioners that the company was a continuation of the erstwhile partnership firm, especially when there has been admittedly unequal shareholding for almost more than two decades prior to the filing of the petition.

  The plea of the respondent company being a quasi-partnership does not seem to have been established at all. Besides, the petitioners have also been able to make out a for winding up of the company which is sine qua non before a corporate body can be treated as quasi-partnership.

  Family settlement - Petitioners have alleged in the Petition itself that in the year 1986, an amicable settlement was arrived at in the Bedekar family that the property of the company would be divided not only between the existing management of five directors but also between all the branches of the Bedekar family in proportion to their shareholding which would be an equitable distribution of the assets of the company - HELD THAT:- The Respondents have emphatically denied the execution of any such family agreement. In the event of the categoric denial of the alleged family settlement of 1986, it was incumbent upon the petitioners to prove the execution of the alleged family settlement. However, the Petitioners have not led any evidence of the purported agreement. No agreement has been placed on record. It is not even clear from the pleadings whether such agreement or family settlement was reduced to writing or not. The terms and conditions of purported family settlement have also not been spelled out by the Petitioners. Thus, the Petitioners have failed to discharge the onus of proof with regard to the existence/execution of a family settlement of 1986 - the very existence of the alleged family settlement of 1986 is doubtful. Moreover, there is no explanation forthcoming as to why the Petitioners kept sleeping over a long period of time and did not take any steps to enforce these alleged family settlements of 1986. All these circumstances lead to the only irresistible conclusion that no such agreement/family settlement was ever executed between the parties nor is there any evidence of the existence/execution of such a settlement. Even otherwise, such an agreement, on the face of it, does not appear to be enforceable considering the fact that a shareholder by virtue of his shareholding cannot claim a share in the properties of the company, much less the partition of its assets.

  Alleged acquisition of shares by Respondent No. 2 and Late Trimbak Bedekar with a view to reduce the petitioners to minority - HELD THAT:- Admittedly, the Respondent company brought a rights issue in February 1997. The Petitioners have claimed that the act of bringing the rights issue was an act of oppression as it reduced the Petitioners' shareholding from 15% to 7.5%. The Petitioners have not led any evidence that they challenged the rights issue at any point of time nor took any steps to get the alleged rights issue set aside, being illegal or oppressive in nature. The relief of cancellation of the rights issue was also not sought from any forum or court of law. The Petitioners also did not subscribe to the rights issue and it is not the case of the Petitioners that they were prevented in any manner from subscribing to the rights issue by the Respondents. Thus, having not voluntarily subscribed to the rights issue nor challenging the same before any court of law since 1997, at this belated stage, in our considered view, the Petitioners cannot be heard harping that the rights issue was illegal or prejudicial to the interest of the Petitioners in any manner.

  It has been repeatedly held by the Higher Courts the denial of the access of the books of the company or non-compliance of statutory formalities/compliances cannot be considered as acts of oppression and mismanagement of the affairs of the company.

  Non-payment of gratuity dues of Petitioner No. 1 - HELD THAT:- The Respondents have pointed out that Petitioner No. 1 had a filed suit in the Civil City Court claiming his outstanding salary and other dues including gratuity and the said suit was dismissed by the Civil City Court, Greater Bombay by the Judgment dated 24.06.2013 which is annexed with the reply as Exhibit R- 6. Therefore, the Petitioner having already availed a remedy before the Civil Court cannot now be reagitate the same in the Petition under Sections 397-398 of the Companies Act 1956. Even otherwise, non-payment of gratuity cannot be an act which can be said to be an act of oppression and mismanagement.

  Entitlement of Petitioner No. 2 to be appointed as a director of the Respondent company - HELD THAT:- It would be suffice to say that Article of Association do not confer any such right upon Petitioner No. 2 to be appointed as a director of company. Even otherwise, under Section 152 of the Companies Act, a director can be appointed only by the shareholders at a general meeting. Since Petitioner No. 2 does not have the requisite number of votes, he has not been legally appointed as director - reference can also be made to the law laid in G. Vijayalakshmi Alias Brinda & Another v. Triupur Textiles Private Limited [2013 (10) TMI 31 - MADRAS HIGH COURT] whereby it has been held that the principle of legitimate expectation cannot be extended in company law as it is mostly confined to the right of a fair hearing before a decision which results in negativing a promise or withdrawing of an undertaking.

  Petition barred by time limitation or not - HELD THAT:- The alleged acts of oppression and mismanagement do not constitute a continuing cause of action, it is constrained to hold that the Petition is barred by time so far as the aforesaid alleged acts of oppression and mismanagement are concerned.

  The Petition is only partly allowed as against the Respondents No. 1 to 5 with an order that Respondents No. 1 to 5 shall buy out the shareholding of the Petitioners on a fair value to be determined by an independent registered valuer to be appointed on the basis of consensus between the parties within a period of one month from today. In case, no consensus is arrived at between the parties within a period of one month, they will be at liberty to seek intervention of this Tribunal for appointment of an independent valuer.

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• 2024 (12) TMI 539
  

  Rejection of appellants’ application for release of the amounts deposited by the respondent - HELD THAT:- The appellants herein did not take any steps, at that stage, for seeking release of the amount deposited by the Company with the Registry of this Court and in our view, rightly so, the appellants were not entitled to any preferential payment, once the learned Company Court had decided to proceed with the winding up of the company.

  The contention advanced by the appellants that since their petition was prior in point of time and an amount was deposited during the course of the said petition, they would have a right to recover the amount deposited in precedence to other creditors, is unmerited. It is necessary to bear in mind that the petition filed by the appellants was for winding up of the Company. In a sense their stand was vindicated, and they had effectively succeeded in their petition as the learned Company Court had proceeded to initiate steps for winding up of the Company. Accordingly, the appellants would now have to stand with other similarly placed creditors for recovering their dividends in accordance with Section 529 of the Act.

  The winding up petition that was admitted, Company Petition No. 885/2015, ultimately culminated in the order for winding up the Company. Clearly at that stage, the petition filed by the appellants would have been rendered infructuous. This is for obvious reason that a company can be wound up only once. In terms of Rule 101 of the Company Court Rules 1959, the appellants also have a right to pursue the Company Petition No. 885/2015 if for any reason the petitioner in that case sought to withdraw from the same.

  The application filed by the appellants now seeking withdrawal of the amount deposited in this Court in a disposed of company petition, is clearly not maintainable. Although, the appellants have faulted their counsel for not pursuing their interest with due diligence, however, it cannot be accepted that the appellants could have any better right with respect to the properties of the Company, than other similarly placed creditors of the Company.

  Appeal disposed off.

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• 2024 (12) TMI 475
  

  Challenge to Impugned Order u/s 241 / 242 of the Companies Act, 2013 - failure to consider rival contentions and assigning the reasons, for either acceptance or the reasons for non-acceptance of the arguments while granting an Interim Order - violation of principles of natural justice - HELD THAT:- It is needless to say that, the assigning of the reason is the basic guiding principles for the Court of Law to justify the logic, as to what has transpired under the given set of circumstances to pass an order, which impeaches upon the rights of the either of the parties to the proceedings.

  But, owing to the argument extended by the Appellant and the opposition as extended by the Respondents, there could not be any valid reason forthcoming, as to why the learned Tribunal while passing the order had not considered the arguments and assigned reasons, which was extended by the Respondent / the Appellant herein, while granting an Interim Order which was directed to continue till the closure of the Company Petition, even without meeting the principles of inviting objection, to the application for grant of interim protection.

  Since the parties are at the consensus, a consenting order is being passed that, it would be open for the Appellant to file an appropriate Stay Vacation Application, before the learned Adjudicating Authority, seeking vacation of the order dated 20.11.2024. The same could be filed within a period of one week from today and if it is filed within the aforesaid time period, the learned Tribunal is requested to decide the aforesaid Stay Vacation Application considering all the contentions, even the one raised in this Company Appeal, within a period of three weeks thereafter, and it goes without saying, obviously after considering the rival contentions, which are to be extended by the parties and after assigning reasons to justify, either to grant or denial of the Interim Order - It is made clear that whatsoever observations has been made in the Impugned Order of 20.11.2024 or by this Tribunal too in today’s order, would not have any effect qua the decision to be taken on the Stay Vacation Application which will be independent to the findings recorded by the Impugned Order or by this Tribunal.

  Appeal disposed off.

  ---

• 2024 (12) TMI 230
  

  Professional Misconduct - Section 132(4) of the Companies Act 2013 read with Rule 11(6) of National Financial Reporting Authority Rules 2018 - Failure to plan the audit and understand the nature of the audited entity and its environment as per SA 300 and SA 315 - Failure to verify opening balances required as per SA 510 - Failure to report material misstatement due to non-provisioning of the ECL on trade receivables (Vikas had trade receivables of 171.46 crores in FY 2020-21 which was more than seven times the sales of 23.60 crores) and not charging depreciation on lease hold land and plant & machinery - Failure to demonstrate sufficiency and appropriateness of audit work in several critical aspects of the audit of the Financial Statements i.e., determining materiality, failure to report on the entity's ability to continue as a going concern, failure to determine TCWG and communicate with them and failure to assemble the Audit File - Failure to carry out proper audit of Related Party Transactions ('RPTs' hereafter) of Vikas (trade payables to related parties were high as 93.09% of total trade payables and trade receivables from related parties were 68.38% of total trade receivable) - Failure to carry out external confirmation for Trade Receivables or any other alternative audit procedure to verify the audit assertions relating to Trade Receivables - Failure of the audit firm to demonstrate compliance with the requirement of the Standards on Auditing concerning the Engagement Quality Control Reviewer - penalty and sanctions.

  HELD THAT:- The EP committed professional misconduct as defined by clause 5 of Part I of the Second Schedule of the Chartered Accountant Act, 1949 which states that a Chartered Accountant is guilty of professional misconduct when he "fails to disclose a material fact known to him which is not disclosed in a financial statement, but disclosure of which is necessary in making such financial statement where he is concerned with that financial statement in a professional capacity". This charge is proved as the EP failed to disclose in his report the material non-compliances by the company.

  The EP committed professional misconduct as defined by clause 6 of Part I of the Second Schedule of the Chartered Accountant Act, 1949 which states that a Chartered Accountant is guilty of professional misconduct when he "fails to report a material misstatement known to him to appear in a financial statement with which he is concerned in a professional capacity". This charge is proved as the EP failed to disclose in his report the material non-compliances by the company.

  The EP committed professional misconduct as defined by clause 7 of Part I of the Second Schedule of the Chartered Accountant Act, 1949 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 EP failed to exercise due diligence in the audit of the company in accordance with the SAs and applicable regulations.

  The EP committed professional misconduct as defined by clause 8 of Part I of the Second Schedule of the Chartered Accountant Act, 1949 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 EP failed to conduct the audit in accordance with the SAs and applicable regulations and failed to analyse and report the appropriateness of accounting policy.

  The EP committed professional misconduct as defined by clause 9 of Part I of the Second Schedule of the Chartered Accountant Act, 1949 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 EP failed to conduct the audit in accordance with the SAs.

  It is thus concluded that the charges of professional misconduct against the EP (CA Priyank Mittal) and the audit firm (M/s Singh Ajay & Co.) enumerated in the SCN dated 18.01.2024 stand proved based on the analysis of the evidence in the Audit File, the Audit Report issued by auditors, the submissions made by auditors, the annual report of Vikas for the FY 2020-21 and other materials available on record.

  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 proven cases of professional misconduct are to be viewed, is evident from the fact that a minimum punishment is laid down by the law - The EP in the present case was required to ensure compliance with SAs to achieve the necessary audit quality and lend credibility to Financial Statements. As explained in this Order, deficiency in the conduct of Audit, abdication of responsibility and inappropriate conclusions on the part of CA Priyank Mittal establish his professional misconduct.

  Considering the proven professional misconduct, the nature of violations, principles of proportionality and deterrence against future professional misconduct, in exercise of powers under Section 132(4)(c) of the Companies Act, 2013, it is hereby ordered:

  I. Imposition of a monetary penalty of ₹3,00,000/- (Three Lakhs) upon the Audit Firm M/s Singh Ajay & Co.

  II. Imposition of a monetary penalty of 2,00,000/- (Two Lakhs) upon CA Priyank Mittal.

  III. In addition, CA Priyank Mittal is debarred for two 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.

  ---

• 2024 (12) TMI 229
  

  Professional misconduct - Failure to plan the audit and understand the entity and its environment - Failure to evaluate the Internal Audit Function - Failure to determine Materiality and Performance Materiality - Failure to report non-provisioning in respect of the Expected Credit Loss - No evaluation of the arm's length pricing for Related Party Transactions - Failure to assemble the Audit File within 60 days of audit completion - Failure to report non-charging of depreciation of leasehold land and plant & machinery - Failure to obtain sufficient and appropriate audit evidence through external confirmations - Failure to determine the appointment of Engagement Quality Control Reviewer (EQCR) - Penalty and Sanctions.

  HELD THAT:- The EP committed professional misconduct as defined by clause 5 of Part I of the Second Schedule of the Chartered Accountant Act, 1949 which states that a Chartered Accountant is guilty of professional misconduct when he "fails to disclose a material fact known to him which is not disclosed in a financial statement, but disclosure of which is necessary in making such financial statement where he is concerned with that financial statement in a professional capacity".

  The EP committed professional misconduct as defined by clause 6 of Part I of the Second Schedule of the Chartered Accountant Act, 1949 which states that a Chartered Accountant is guilty of professional misconduct when he "fails to report a material misstatement known to him to appear in a financial statement with which he is concerned in a professional capacity". This charge is proved as the EP failed to disclose in his report the material non-compliances by the company.

  The EP committed professional misconduct as defined by clause 7 of Part I of the Second Schedule of the Chartered Accountant Act, 1949 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 EP failed to exercise due diligence in the audit of the company in accordance with the SAs and applicable regulations.

  The EP committed professional misconduct as defined by clause 8 of Part I of the Second Schedule of the Chartered Accountant Act, 1949 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 EP failed to conduct the audit in accordance with the SAs and applicable regulations and failed to analyse and report the appropriateness of accounting policy.

  The EP committed professional misconduct as defined by clause 9 of Part I of the Second Schedule of the Chartered Accountant Act, 1949 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 EP failed to conduct the audit in accordance with the SAs.

  The charges of professional misconduct against the EP, as enumerated in the SCN dated 18.01.2024, stand proved based on the evidence in the Audit File, the Audit Report issued by EP, the submissions made by EP, the annual report of Vikas for the FY 2018-19 & 2019-20 and other materials available on record.

  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 proven cases of professional misconduct are to be viewed, is evident from the fact that a minimum punishment is laid down by the law - The EP in the present case was required to ensure compliance with SAs to achieve the necessary audit quality and lend credibility to Financial Statements of a listed company. As explained in this Order, deficiency in the conduct of Audit, abdication of responsibility and inappropriate conclusions on the part of CA Yogesh Mahipal establish his professional misconduct.

  Considering the proven professional misconduct, the nature of violations, principles of proportionality and deterrence against future professional misconduct, in exercise of powers under Section 132(4)(c) of the Companies Act, 2013, it is hereby ordered:

  I. Imposition of a monetary penalty of 2,00,000/- upon CA Yogesh Mahipal;

  II. Debarment of CA Yogesh Mahipal and the audit firm M/s Yogesh Mahipal & Associates (FRN: 030845N), for two 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.

  ---

• 2024 (12) TMI 228
  

  Professional misconduct - Legality of the appointment of branch auditors - Compliance with Standards on Auditing (SAs) - Maintenance of proper audit documentation - penalty and sanctions - Section 132(4) of the Companies Act 2013 - HELD THAT:- It is established that CA Krishna Bihari Chaturvedi did not comply with the stipulations in the Chartered Accountants Act, 1949, ICAI Code of Ethics 2009 & SAs. The subject matter assignment was accepted and executed as a Statutory Branch Audit. However, CA Krishna Bihari Chaturvedi was grossly negligent in performing his professional duties by not adhering to the requirements laid down by the relevant SAs, despite stating in his audit reports that he had complied with SAs. The following failures on the part of CA Krishna Bihari Chaturvedi as contained in the Articles of Charges in the SCNs are established.

  a) Failure to comply with the requirements of Clause 2 of Part 1 of Second Schedule to Chartered Accountants Act, 1949 which states "a chartered accountant in practice shall be deemed to be guilty of professional misconduct, if he- certifies or submits in his name, or in the name of his firm, a report of an examination of financial statements unless the examination of such statements and the related records has been made by him or by a partner or an employee in his firm or by another chartered accountant in practice",

  b) Failure to exercise due diligence and being grossly negligent in the conduct of professional duties.

  c) Failure to obtain sufficient information which is necessary for the expression of an opinion or its exceptions are sufficiently material to negate the expression of an opinion.

  Thus, it is found that CA Krishna Bihari Chaturvedi committed professional misconduct, as defined in the respective clauses of the CAs Act, the meaning of which is conceived under Section 132 (4) of the Companies Act as amounting to professional misconduct.

  Penalties and sanctions - HELD THAT:- Section 132(4) of the Companies Act, 2013 provides for penalties in a case where professional misconduct is proved. The law lays down a minimum punishment for such misconduct - despite being a qualified professional, CA Krishna Bihari A Chaturvedi has not adhered to the Standards on Auditing and provisions of the law.

  Considering the fact that professional misconducts have been proved and considering the nature of violations and principles of proportionality and keeping in mind the deterrence, proportionality, signalling value of the sanctions and time required for improvement in knowledge gaps in exercise of powers under Section 132(4)(c) of the Companies Act, 2013, it is proceeded to order the following sanctions:

  i. Imposition of a monetary penalty of 1 Lakh upon CA Krishna Bihari Chaturvedi;

  ii. CA Krishna Bihari Chaturvedi is debarred for One Year 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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• 2024 (12) TMI 227
  

  Professional Misconduct - Acceptance of audit engagement without valid authorization - Failure to comply with Standards on Auditing (SAS) - Section 132(4) of the Companies Act, 2013 - penalty and sanctions - HELD THAT:- It is established that CA Kashinath Chaturvedi did not comply with the stipulations in the Chartered Accountants Act, 1949 regarding the acceptance of the statutory audit engagement and showed gross negligence and lack of due diligence while accepting an invalid appointment as auditor. In addition to accepting a legally invalid appointment, the CA also did not ensure the audit quality. The CA was grossly negligent in performing his professional duties by not adhering to the requirements laid down by the relevant SAs. This has resulted in the issuance of an audit report not backed by valid audit evidence and the absence of quality in the audit work. Specifically, the following failures on the part of CA Kashinath Chaturvedi as contained in the Articles of Charges in the SCN, are established.

  a) Failure to ascertain from the audited Company whether the requirements of Sections 139 & 140 of the Act in respect of such appointment had been duly complied with. (As per Section 22 and Clause 9 of Part I of the First Schedule to the CAs Act);

  b) Failure to exercise due diligence and being grossly negligent in the conduct of professional duties, because of the lapses and omissions. (As per Section 22 and Clause 7 of the Part I of Second Schedule to the CAs Act);

  It is found that CA Kashinath Chaturvedi committed professional misconduct, as defined in the respective clauses of the CAs Act, the meaning of which is conceived under Section 132 (4) of the Companies Act, 2013 as amounting to professional misconduct.

  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 law lays down a minimum punishment for such misconduct.

  There were deficiencies in the Audit and abdication of responsibility on the part of CA Kashinath Chaturvedi right from the acceptance of the Audit without due diligence in ascertaining the validity of the offer, which establishes his gross negligence resulting in professional misconduct. In fact, accepting an audit assignment in contravention of the Law and continuing it in non-conformity with the SAs, constitutes a flagrant violation of the Law. It is also concluded that despite being a qualified professional, CA Kashinath Chaturvedi has not adhered to the Standards on Auditing and provisions of the law.

  Considering the nature of violations and principles of proportionality and keeping in mind the deterrence, proportionality, signalling value of the sanctions and time required for improvement in knowledge gaps, in exercise of powers under Section 132(4)(c) of the Companies Act, 2013, it is ordered to proceed the order with the following sanctions:

  i. Imposition of a monetary penalty of 1 Lakh upon CA Kashinath Chaturvedi;

  ii. CA Kashinath Chaturvedi is debarred for One year 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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• 2024 (12) TMI 226
  

  Professional Misconduct - Failure to disclose a material fact known to him which is not disclosed in a financial statement, but disclosure of which is necessary in making such financial statement where the statutory auditors are concerned with that financial statement in a professional capacity - Failure to report a material misstatement known to appear in a financial statement with which the EP is concerned in a professional capacity - Failure to exercise due diligence and being grossly negligent in the conduct of professional duties - Failure to obtain sufficient information which is necessary for the expression of an opinion, or its exceptions are sufficiently material to negate the expressions of an opinion - Failure to invite attention to any material departure from the generally accepted procedures of audit applicable to the circumstances - Failure to accept a position as auditor previously held by another chartered accountant after first communicating with him in writing - Section 132(4) of the Companies Act 2013 - penalty and sanctions.

  HELD THAT:- M/s Shridhar & Associates and the EP CA Ajay Vastani committed professional misconduct as defined by Section 132(4) of the Companies Act, 2013, read with Section 22 and Clause 5 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 CA is guilty of professional misconduct when he “fails to disclose a material fact known to him which is not disclosed in a financial statement, but disclosure of which is necessary in making such financial statement where he is concerned with that financial statement in a professional capacity" - This charge is proved as the Auditors failed to disclose in their report the material non- compliances the Company.

  M/s Shridhar & Associates and CA Ajay Vastani committed professional misconduct as defined by Section 132 (4) of the Companies Act, 2013, read with Section 22 and Clause 6 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 an Auditor is guilty of professional misconduct when he "fails to report a material misstatement known to him to appear in a financial statement with which he is concerned in a professional capacity" - This charge is proved as the Auditors failed to disclose in their report the material misstatements made by the Company.

  M/s Shridhar & Associates and CA Ajay Vastani 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 an Auditor 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 Auditors, conducted the Audit of a Public Interest Entity in total disregard of their statutory duties, evidenced by multiple critical omissions and violations of the standards. The instances of failure to conduct the audit in accordance with the SAs and applicable regulations, and failure to report the material misstatements in the financial statements and non-compliances made by the Company.

  M/s Shridhar & Associates and CA Ajay Vastani 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 an Auditor 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 Auditors failed to conduct the audit in accordance with the SAs and applicable regulations as well as due to their total failure to report the material misstatements and non-compliances made by the Company in the financial statements.

  M/s Shridhar & Associates and CA Ajay Vastani 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 an Auditor 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 Auditors failed to conduct the audit in accordance with the SAs but falsely reported in their audit report that the audit was conducted as per SAs.

  M/s Shridhar & Associates and CA Ajay Vastani 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 First Schedule of the Chartered Accountants Act, 1949 (No. 38 of 1949) as amended from time to time, which states that an Auditor is guilty of professional misconduct when he “fails to communicate with outgoing Auditor” - This charge is proved since the Auditors failed to accept the audit in accordance with the law.

  It is concluded that the charges of professional misconduct in the SCN, as detailed above, are established based on the evidence in the Audit File, the audit reports on the financial statements for the FY 2018-19 dated 14th August 2019 and the submissions made by the Auditors, and the Annual Report of Reliance Commercial Finance Limited for the FY 2018-19.

  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.

  Because professional misconduct has been proved and considering the nature of violations and principles of proportionality, in the exercise of powers under Section 132 (4) (c) of the Companies Act, 2013, it is ordered as follows:

  a. Imposition of a monetary penalty of Rupees Two Crore upon M/s Shridhar & Associates.

  b. Imposition of a monetary penalty of Rupees Fifty Lakhs upon CA Ajay Vastani and in addition, CA Ajay Vastani is debarred for 5 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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• 2024 (12) TMI 168
  

  Professional misconduct - Section 132(4) of the Companies Act, 2013 - gross negligence in relation to his obligations to report fraud under Section 143(12) of the Companies Act, 2013 and SA 240 - reliance placed on the valuation report of the management's expert without challenging the assumptions and methods and without independently assessing the impairment requirements of these investments - deficiencies in the audit working papers - non-compliances with Ind AS 16 - Disclaimer of Opinion was based only on the NCLT, Mumbai Bench Order dated 14.05.2018.

  HELD THAT:- It is concluded that even though the EP has issued a Disclaimer of Opinion, he failed to exercise due diligence and displayed gross negligence in failure to adequately address the risks related to fraud, disclosures requirements and deficiencies in audit documentation and make appropriate reports under Section 143(12).

  The EP has committed professional misconduct as defined in Section 132 (4) of the Companies Act, read with Section 22 the Chartered Accountants Act 1949 (the CA Act), as amended from time to time, as detailed below:

  a. The EP committed professional misconduct by not exercising due diligence and being grossly negligent in the conduct of his professional duties. (refer to Clause 7 of Part I of the Second Schedule of the CA Act).

  b. The EP committed professional misconduct by failing to invite attention to any material departure from the generally accepted procedure of audit applicable to the audit engagement (refer to Clause 9 of Part I of the Second Schedule of the CA Act).

  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 - Absent a robust system of auditing, investors, creditors and other users of Financial Statements would be handicapped and their interest compromised. The best of systems fails if the professionals implementing the system do not perform their job. This could lead to a serious failure of the financial system which could ultimately result in a breakdown in trust and confidence of investors and the public at large.

  Considering the professional misconducts have been proved and keeping in mind the nature of violations, principles of proportionality and deterrence against future professional misconduct, in exercise of powers under Section 132(4)(c) of the Companies Act, 2013, it is hereby ordered imposition of monetary penalty of Rs. 5,00,000/-.

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• 2024 (12) TMI 167
  

  Professional misconduct of the statutory auditors of Coffee Day Enterprises Limited under Section 132(4) of the Companies Act 2013 - diversion of funds and evergreening of loans/advances - HELD THAT:- After a detailed examination of facts and circumstances, it is observed that the failure in this audit engagement was due to violations of SAs, and the Act. Hence the role of the Audit Firm, whose responsibilities are mandated by the Act, is equally important as that of EP and EQCR Partners, whose responsibilities are delineated in the SAs and SQC -1. Given the fact that the Audit Firm is the legal body appointed as the auditor and EP mandatorily takes responsibility for the individual audits subject to firm-level supervision, both have joint and several responsibilities for the Audit. Section 132 (4) of the Act emanates from this basic premise. However, there is not adequate evidence of effective supervision and oversight by Mis Venkatesh & Co. Providing the ET with a quality policy and tools are not good enough to establish effective supervision as envisaged in SQC-1. Had the Audit Firm discharged its supervisory responsibilities timely and effectively such major lapses in the audit could have been avoided. Therefore, Mis Venkatesh & Co. is responsible for the misconducts committed by the EP and EQCR.

  Due to these fraudulent transactions the consolidated financial statements of CDEL were grossly misstated. The Auditors in audit reports issued by the Audit Firm had disclaimed the opinion. Their contention about disclaiming the audit opinion is not logical as an auditor is required to comply with Laws and auditing standards even if he disclaims his opinion. Further, the Auditors were required to comply with section 143(12) of the Act and CARO even in case of Disclaimer of Opinion - The lack of professional skepticism in challenging the management about clearly visible fraud is not expected from an auditor of a listed company. Such omissions and commissions by an experienced audit firm cannot be taken lightly, as these are detrimental to the public interest.

  The "Firm and Engagement Performance Metrics" published by PCAOB on October 12, 2022, provides a detailed study of engagement level and firm-level quality matrices. Engagement­ level metrics provide information about a particular engagement of the firm, and Firm-level metrics address an audit firm's overall strategy in complementing the engagement-level matrices. The study covers all major jurisdictions in the world, including India and top tier Audit Firms.

  The Auditors and EQCR have made a series of serious departures from the Standards and the Law, in conduct of the audit of CDEL for FY 2019-20. Based on the above discussion, it is proved that the Auditors and EQCR had failed to report fraudulent diversion of funds to related parties and failed to exercise due diligence in performance of audit. Based on the foregoing discussion and analysis, it is concluded that the Auditors and EQCR have committed Professional Misconduct as defined under Section 132 (4) of the Companies Act 2013 in terms of section 22 of the Chartered Accountants Act 1949 (CA Act).

  Penalty and sanctions - HELD THAT:- Section 132(4)(c) of the Companies Act 2013 provides that National Financial Reporting Authority shall, where professional or other misconduct is proved, have the power to make order for

  (A) imposing penalty of-- (I) not less than one lakh rupees, but which may extend to five times of the fees received, in case of individuals; and (II) not less than five lakh rupees, but which may extend to ten times of the fees received, in case of firms;

  (B) debarring the member or the firm from-(I) being appointed as an auditor or internal auditor or undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate; or (II) performing any valuation as provided under section 247, for a minimum period of six months or such higher period not exceeding ten years as may be determined by the National Financial Reporting Authority.

  Considering the seriousness of proved professional misconduct and keeping in mind the nature of violations, principles of proportionality and deterrence against future professional misconduct, in exercise of powers under Section 132(4)(c) of the Companies Act, 2013, it is hereby ordered imposition of a monetary penalty of Rs Two crores upon M/s Venkatesh & Co.; Rs Ten lakhs upon CA Dasaraty V.; and Rs Five lakhs upon CA Desikan G. In addition, CA Dasaraty V. and CA Desikan G are debarred for a period of Ten years and Five years respectively 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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• 2024 (12) TMI 166
  

  Professional misconduct - financial irregularities in the company and the failure of the auditor to qualify or emphasize in his independent audit report, any matter related to misstatement/ irregularities in the transactions - Section 132(4) of the Companies Act 2013 read with Rule 11(6) of National Financial Reporting Authority Rules 2018 - Penalty and sanctions.

  HELD THAT:- The EP committed professional misconduct in terms of by Section 132 (4) of the Companies Act, read with Section 22 and clause 5 of Part I of the Second Schedule of the Chartered Accountants Act 1949 (as amended from time to time), which states that an auditor is guilty of professional misconduct when he "fails to disclose a material fact known to him which is not disclosed in a financial statement, but disclosure of which is necessary in making such financial statement where he is concerned with that financial statement in a professional capacity" - This charge is proved as the EP failed to obtain sufficient and appropriate audit evidence to draw conclusions about the existence and valuation of the inventory, failed to perform his duty of evaluation and reporting the non-compliance of Ind AS-110 and Ind AS-28 related to consolidation of financial statements of SCL, failed to fulfil his duty related to the audit of investments.

  The EP committed professional misconduct as defined by Section 132 (4) of the Companies Act, read with Section 22 and clause 6 of Part I of the Second Schedule of the Chartered Accountants Act 1949 (as amended from time to time), which states that an auditor is guilty of professional misconduct when he "fails to report a material misstatement known to him to appear in a financial statement with which he is concerned in a professional capacity" - This charge is proved as the EP failed to obtain sufficient and appropriate audit evidence to draw conclusions about the existence and valuation of the inventory, failed to perform his duty of evaluation and reporting the non-compliance of Ind AS-110 and Ind AS-28 related to consolidation of financial statements of SCL, failed to fulfil his duty related to the audit of investments.

  The EP committed professional misconduct as defined by Section 132 (4) of the Companies Act, read with Section 22 and clause 7 of Part I of the Second Schedule of the Chartered Accountants Act 1949 (as amended from time to time), which states that an auditor is guilty of professional misconduct when he "does not exercise due diligence and is grossly negligent in the conduct of his professional duties" - This charge is proved as the EP failed to conduct the audit in accordance with the SAS and applicable rules as well as due to his failure to report the material misstatements and non-compliances of the Company in its financial statements.

  The EP committed professional misconduct in terms of by Section 132 (4) of the Companies Act, read with Section 22 and clause 8 of Part I of the Second Schedule of the Chartered Accountants Act 1949 (as amended from time to time), which states that an auditor 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 EP failed to conduct the audit in accordance with the SAs and applicable rules as well as due to his failure to report the material misstatements and non-compliances of the Company in the financial statements.

  The EP committed professional misconduct as defined by Section 132 (4) of the Companies Act, read with Section 22 and clause 9 of Part I of the Second Schedule of the Chartered Accountants Act 1949 (as amended from time to time), which states that an auditor 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 EP failed to conduct the audit in accordance with the SAs but reported in his audit report that the audit was conducted as per SAs.

  Penalty and sanctions - HELD THAT:- Independent Auditors of Publicly Listed Companies are expected to demonstrate sufficiency and appropriateness of audit work in every aspect of the critical building blocks of an audit of Financial Statements of a PIE. Failure of the auditor to meet the requirements envisaged under the Law and Professional Standards on Auditing are conspicuous in this audit engagement performed by the EP - the manner in which the audit was conducted, failed to meet the requirements of the SAs, the Act and the Code of Ethics in a number of significant aspects which demonstrated gross negligence on the part of the EP. This can be gauged from the failure of the EP to critically assess the existence and valuation of inventories, failure to comment in the audit report about the non-consolidation of financial statements, failure to verify the impairment testing of the investments of SCL and failing to apply the mandatory SAs in the audit - it is concluded that the EP's failure to comply with the provisions of SAs, exhibit professional skepticism, and fulfill the necessary audit procedures led to significant deficiencies in the audit. This non-compliance, combined with the consequent reporting failures, constitutes a breach of professional responsibilities and statutory requirements. The EP's actions (or inactions) constitute a serious violation of audit standards, leading to significant repercussions for the integrity and reliability of the financial statements.

  The professional misconduct of CA Santosh Deshmukh has been detailed in the foregoing paragraphs of this Order. Considering the proved professional misconducts and keeping in mind the nature of violations, principles of proportionality and deterrence against future professional misconduct, we, in exercise of powers under Section 132(4)(c) of the Companies Act, 2013, hereby order imposition of monetary penalty of 5,00,000/- (Rupees Five Lakhs) and also debars CA Santosh Deshmukh for 1 (One) year 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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• 2024 (12) TMI 165
  

  Professional misconduct - failure to disclose complete information about revenue earned from related parties - determination of related party status under Section 2(76) of the Companies Act, 2013 - HELD THAT:- It is proved that CA Lavitha Shetty committed professional misconduct of failure to exercise due diligence in the conduct of her professional duties by not providing complete information about revenue earned by her from related parties of MACEL. This professional misconduct is defined in para 7 of part I of second schedule of the Chartered Accountants Act 1949.

  CA Lavitha Shetty vide our Orders dated 13.04.2023 and 25.04.2023 is sanctioned. However, the misrepresentation of facts during those proceedings cannot be overlooked. CA Lavitha Shetty has misrepresented the facts relating to revenue earned by her from MACEL and its related parties and this information was crutial in evaluation of her independence in this matter. It is also found that misleading the regulator leads to interference with the statutory functions of the regulator. Having already penalised her, it is found that in these proceedings a token penalty would be appropriate given the facts and circumstances of the current professional misconduct. Accordingly, in exercise of powers under section 132(4)(c) of the Act, imposition of monetary penalty of Rs One lakh only upon CA Lavitha Shetty imposed.

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• 2024 (11) TMI 1290
  

  Rejection of Application filed by Petitioner for rectification/change in the name of the Respondent No. 4 Company - Section 16 (1) (b) of the Companies Act, 2013 - HELD THAT:- Section 16 of the Companies Act gives the power to the Central Government through the Office of the concerned Regional Director [hereinafter referred to as “RD”] to rectify the name of a company. Sub-Section (1) of Section 16 of the Companies Act contemplates two circumstances under which the name of a company can be rectified. If such name resembles the name of an existing company or is identical to the name of an existing company, the RD may suo moto under the provisions of Section 16 (1)(a) of the Companies Act issue directions to a company to change its name, which directions require compliance within three months.

  A Coordinate Bench of this Court in a case CGMP Pharmaplan (P) Ltd. v. Regional Director, Ministry of Corporate Affairs [2010 (7) TMI 272 - HIGH COURT OF DELHI] has while explaining this provision, relied on a Judgment of the Division Bench in Montari Overseas Ltd. v. Montari Industries Ltd. [1995 (12) TMI 268 - HIGH COURT OF DELHI] to explain that the powers of a Civil Court while examining and determining in a passing off action, if one name is confusingly deceptive or similar to another name, is independent of the jurisdiction of the Regional Director in respect of registering of a company’s name. It was however held that the Regional Director cannot approach the case, as it would in a trademark dispute.

  In the facts of the present case, both the parties have claimed ownership and rights over the mark ‘Panchhi’ and have disputed each other's submissions. Admittedly, both Petitioner and Respondent No. 4 form part of the same extended family. Both are also engaged in legal proceedings in various fora including against each other in relation to the impugned trademark and other intellectual property related rights. The Impugned Order refers to these disputes, however, it goes on to give a finding of ownership on the mark ‘Panchhi’, which cannot be sustained.

  In the present case, the parties are two entities which are from the same lineage, which are embroiled in disputes over the intellectual property of a brand. The Regional Director while deciding an Application under Section 16 of the Companies Act cannot undertake an examination of the marks as the Intellectual Property Division of a Court would. It cannot also decide the ownership of a mark while deciding such an Application under Section 16 of Companies Act, where these are disputed contentions. The same is not the subject matter of jurisdiction of the Regional Director under the Companies Act.

  The Impugned Order is set aside - Petition disposed off.

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• 2024 (11) TMI 1083
  

  Oppression and mismanagement under Sections 241 and 242 of Companies Act, 2013 - seeking a waiver for initiation of the proceedings under Section 244(1)(b) of the Companies Act, 2013 - HELD THAT:- The intention of legislature by introducing the proviso to Section 244 of the Companies Act, to grant a waiver is by way of an exception to the general law. It is not a waiver by conduct or by way of a right. Waiver herein would mean that a person is granted an exemption, in special circumstances from satisfying the pre-established conditions for instituting a judicial proceeding. In that eventuality, the concept of waiver under the proviso to Section 244, has to be strictly and rigidly followed, as it is a waiver by implication of law, which is carving out an exception, to the general provision to litigate, for the reason being that, if the said waiver is not granted, it would amount to that, the apparent legal disabilities to initiate the proceedings, were declined to be granted, due to non-satisfaction of the mandatory pre-conditions contained under Section 244 for initiating proceedings under Section 241 and 242.

  In this eventuality in the instant case, where the appellant has sought a waiver, by placing his case under Section 244 of the Companies Act, there has had to be an incidental consideration of, as to what would be the elements which would be required to be satisfied to permit the appellant to initiate proceedings under Section 241 of the Companies Act, against the respondents.

  In the instant case, since the waiver is a concept, added by the proviso to Sub-Clause (b) of Sub-Section (1) of Section 244, the philosophy of waiver shall not be read in exception to the principle provision, but it should be read as to be in addition to qualifying the conditions of the principal provisions of law. At times, the concept of waiver is under either of the circumstances, that, waiver by conduct or waiver by prescription of law. It normally resembles as to be a form of election of a right, but that may not be the case at hand, it is rather not an election, but rather a grant of a right claimed by attracting the proviso, and once it overrides or attempts to or intends to override the principal provision, a very rigid attitude has to be adopted for granting a waiver and that too particularly, when in the instant case where a right to proceed under section 241 was being sought by only one member of the club, that is the appellant herein, which is nowhere near to the prescribed strength of 1/5th of the total number of members as contemplated under Sub-Clause (b) of Sub-Section (1) of Section 244.

  The Hon’ble Apex Court, as back as in 1965 in a matter reported in S. P. Jain versus Kalinga Tubes Limited [1965 (1) TMI 17 - SUPREME COURT], had an occasion to deal with the precepts of “oppression” and in the said matter the Hon’ble Apex Court was dealing with Section 153C in relation to The Indian Companies Act, 1913 and Section 397 in relation to the Companies Act of 1956. The Hon’ble Apex Court had elaborately dealt with as to what would the term ‘oppression’ would actually mean.

  The Tribunal has taken a view that, a waiver under the proviso could not be granted, because none of the other members have ever raised any grievances and since the proceedings under section 244 was sought by only one member in a company limited by guarantee the waiver under the proviso was denied. The proviso of Section 244 Sub-Section (1)(b) provides that “provided that the Tribunal ‘may’ on an application made to it in its behalf, waive all or any of the requirements specified in Clause (a) or Clause (b), so as to enable the member to apply under Section 241”. The use of word ‘May’ is directory in nature.

  The waiver sought for, under the proviso is not an absolute waiver, which could be granted by the Tribunal as a matter of course because that would always depend upon the facts and circumstances of each case and grant of such waiver will be only when there is a strong case made out and not merely based on self-generated allegations. Further in the instant case the appellant has already instituted two Civil Suits, on the same subject matter, as it has been pleaded in his application under Section 244(1) and therefore the waiver has rightly been rejected.

  There are no merit in the appeal - appeal dismissed.

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• 2024 (11) TMI 1010
  

  Liquidation of Corporate Debtor - seeking for issue of an appropriate direction to the liquidator to put on hold the auction of the immovable asset of the Corporate Debtor, to consider his proposal to sell the Corporate Debtor as a going concern - It is the contention of the Appellant that his Resolution Plan was rejected without due diligence - principles of res-judicata - HELD THAT:- This Application came up for consideration before the Learned Adjudicating Authority and the Learned Adjudicating Authority after considering the text of the relief sought in IA No.140/2022, had dismissed by observing that it was on the same grounds / prayers the Appellant had already approached before the NCLAT by filing IA No.436/2021 in CA (AT) (CH) (Ins) No.314/2020 which has been rejected, that the relief as sought for in IA No.140/2022 has already been denied by the NCLAT while deciding IA No.436/2021, that, the Appellant has suppressed the material fact regarding the orders passed on IA No.436/2021 in CA (AT) (CH) (Ins) No.314/2020, and therefore, the relief as it was sought for in IA No.140/2022 would not be tenable owing to the bar created by the decision taken on IA No.436/2021 preferred in CA (AT) (CH) (Ins) No.314/2020. Apart from the aforesaid reason, the Learned Adjudicating Authority has concluded that the relief sought for by the applicant by invoking the provisions contained under section 60(5) of the Insolvency and Bankruptcy Code, 2016 to be read with Rule 11 of the NCLT Rules cannot be granted to the Appellant for the following reasons.

  (1) The Resolution Plan which was submitted by the Appellant was already rejected.

  (2) The Application filed for modification of the Resolution Plan also stood rejected vide Order dated 30.12.2019.

  (3) More importantly, the two orders affirming the rejection of the Resolution Plan was not challenged by the Appellant by invoking the provisions contained under Section 61 of the Insolvency and Bankruptcy Code, 2016 and the same would attain finality, against the Appellant.

  (4) Once the rejection of the Resolution Plan submitted by the Appellant had attained finality no cause of action would survive qua the Appellant for filing this instant Appeal as against the order passed in IA No.140/2022.

  Besides this, the relief itself as prayed for would be barred by the principle of Res judicata because the same already stood denied by the NCLAT vide its order dated 20.09.2021 passed in IA No.436/2021. In view of the above and primarily on the ground that in the absence of the challenge given to the order of rejection of the Resolution Plan submitted by him, the Appellant relinquishes his right to put a question to an order of appointment of liquidator, as well as, to seek for the relief he has sought in IA No.140/2022, which is the subject matter of Comp App (AT) (CH) (Ins) No.329/2022.

  For the aforesaid reasons, this Appeal too would stand dismissed.

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