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Companies Law - Case Laws
Showing 261 to 280 of 15082 Records
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2024 (3) TMI 1243
Oppression and Mismanagement - denial of inspection of the books of accounts - EOGM not called for - purchase of loan without consent - failure to comply with statutory compliances - Validity of direction for independent forensic audit - HELD THAT:- The appellant was directed to file reply affidavit. Admittedly the appellant neither filed its reply affidavit nor documents as are now filed before us. It is in these circumstances it is needed to examine if the impugned order was wrong. Admittedly if the reply affidavit and documents were not filed before the Ld. NCLT then there was nothing before the Ld. Tribunal except to proceed on submissions made in the petition or in an application for interim relief. Such submissions have been duly noted in the impugned order. Para 9 of the impugned order rather says it is only in view of the averments made by the petitioner in its petition the interim order is passed.
There are no infirmity in the impugned order before us, specially in view of the fact only oral submissions were made before the Ld. NCLT as alleged, without support of any documents or reply. Even otherwise conduct of forensic audit does not determine the rights and liabilities of the parties but merely would enable the Ld. Tribunal to appreciate the issues involved. The issues raised in the petition before Ld. NCLT are allegations of siphoning of funds, grave lapses in the appointment of statutory auditors, lack of approval of petition on reserved matter, non-maintenance of proper books of accounts and hence this conduct of forensic audit will only come to the aid of the Tribunal to adjudicate the petition.
Thus in view of the allegations of serious lapses and non-compliance in the financial statements, no proper disclosure of related party transactions, non-reporting, non-disclosure and non-compliance of statutory compliances, as alleged in the petition before Ld. NCLT, the interim order passed by the Ld. NCLT is justified and there are no reason to interfere in the impugned order.
Appeal dismissed.
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2024 (3) TMI 1242
Seeking restoration of name of the company on ROC - failure to file the Financial Statement and Annual Returns since incorporation - Section 252 of Companies Act, 2013 - HELD THAT:- It is not the case of the respondent that appellant company was ever engaged in the transfer of the funds to its own sister concerns or that it is a Shell company or is engaged in siphoning of funds of another company. Rather the appellant claims to have carried commercial transactions with a view to establish a relationship with DPIL in order to commence its operations in consonance with the objectives of the appellant company and had amassed substantial assets but due to the fact DPIL went into insolvency in the year 2017, the company suffered a loss.
On going through the auditor reports for the financial years 2016- 17, 2017-18, 2018-19, 2019-20, 2020-21 which show the Non-Current Liabilities to the tune of Rs.7,36,23,359/-; Current Liabilities to the extent of Rs.88.00 Crores; Non-Current Assets to the extent of Rs.06.00 Crores (approximately), the Current Assets of Rs.25.94 Crores, the Fixed Assets of Rs.56.32 Crores; the Loan & Advances of Rs.25.93 Crores etc., and further since it is not a case of RoC the appellant is a Shell company and was at any time engaged in siphoning of the funds, hence, if the company’s name is restored it shall cause no prejudice to RoC. Admittedly, Nil revenue from operations cannot be a sole cause for striking of the name.
The appellant undertakes to be more cautious and vigilant in future in filing compliances under the applicable Laws and would adhere to all stipulated timelines designated without fail and shall pay cost imposed as per law. An affidavit in this regard be filled within a week from today before this Tribunal.
It is just and equitable to restore the name of the appellant company to the record of RoC - the impugned order set aside - RoC, New Delhi is directed to restore the name of the company to the Register of Companies subject to the fulfilment of compliances imposed - appeal disposed off.
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2024 (3) TMI 1241
Sanction of composite scheme of amalgamation - Section 230-232 of the Companies Act read with Companies (Compromises, Arrangements and Amalgamation) Rules, 2016 - The appellants contested the impugned order, alleging it was passed without considering the relevant clauses of the scheme of amalgamation - HELD THAT:- The impugned order doesn’t discuss if the scheme of amalgamation was separable as pointed out in clauses no. 1.2.2 and 23.1. The impugned order is completely silent on these clauses.
Even otherwise, section 231(1) (b) of the Companies Act duly empowers the Ld. NCLT to exercise discretion to “give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for the proper implementation of the compromise or arrangement”. The Ld. NCLT was thus duly vested with sufficient powers under the Companies Act, to even partly sanction the scheme.
The impugned order dated 23.02.2023 is set aside - the Ld. NCLT, New Delhi Bench is directed to revisit the application of second motion in the light of the observations made by this Tribunal above and after considering the observations/clarifications of Regional Director, may dispose of the petition in accordance with law within six weeks from the date of communication of this order.
Appeal disposed off.
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2024 (3) TMI 1240
Professional mis-conduct by CA - SCN was not accompanied with documents relied upon against the Appellant and only a reference to the documents has been made in Annexure A appended with the show cause notice - non-compliance/violation of principle of natural justice by the NFRA - HELD THAT:- The fact remains that the Appellant has relied upon the reply filed by the Firm to the SCN which is pari materia the same in which he was working as engagement partner and shall knock the bottom of his case as now he cannot be allowed to take a different stand. The Appellant was required to file the reply to the show cause notice dated 15.11.2022 within a period of 30 days up to 15.12.2022. No such reply was filed within this period, rather, the Appellant sought extension of time of 45 days to submit his response vide his letter dated 14.12.2022. The NFRA considered the request made by the Appellant and on 03.01.2023 the period was extended till 29.01.2023. The Appellant during this period did not ask for any documents from the Respondent and rather relied upon the reply filed by the Firm which is apparent from the letter dated 30.01.2023, in which the Appellant has categorically stated that “the Auditor (firm) has submitted detailed reply dated 24.01.2023 to the SCN issued on the Firm.
Since the Appellant himself has relied upon the reply filed by the Firm to whom all the documents had already been served and has made a statement that the reply filed by the Firm shall be considered as his reply to the show cause notice then the nothing remains in this case to raise hue and cry for the alleged violation of principle of natural justice especially when the Appellant also did not ask for a personal hearing as well. No other point has been argued.
There are no merit in the submission made by the Appellant and hence the appeal fails and the same is hereby dismissed though without any order as to costs.
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2024 (3) TMI 1144
Oppression and Mismanagement - Appointment of Whole Time Director to the Company for a period of three years under Section 408 of the Companies Act, 1956 - control and interference by the Central Government appointees in the Board to cease consequent to the repeal of Section 408 of the Companies Act, 1956 or not - Advocates representing the appellants argued against the CLB's orders, focusing on the irregularities in the appointment of directors, the lack of effective management, and the adverse impact on the residents due to undeveloped infrastructure.
HELD THAT:- It is a matter of record that the Government nominated Directors, over the last four decades, have been unable to undertake any appreciable measures so as to develop the site in question despite having sold over 300 plots of the company. Even the CLB in the impugned order dated 24.05.2011, had the occasion to comment that the Directors nominated by the Central Government had thoroughly mismanaged the affairs of the company and yet on account of inter se disputes amongst the appellant/shareholders that exhibited lack of interest in managing and running the affairs of the company, it was not possible to give them back the control of the company.
It is pertinent to mention that although doubts have been orally raised on the status of the unsold inventory described vide Annexure- C, no one has filed any objections disputing it, except the Greenfields Plot Holders-cum-Residents Association, the appellant in CO. A (SB) NO. 37/2011, but apparently there are just levelled bald allegations in their reply to the affidavit dated 03.01.2024, without substantiating the same with any categorical averment and/or documents - It is also pertinent to mention that the entire mess has been created due to inter se disputes amongst the shareholder. There is no plea except for the mismanagement of the affairs of the company by the erstwhile shareholders and that none of the promoters and/or the directors have been proceeded with any kind of cheating, fraud or misappropriation in any criminal court or by the Serious Fraud Investigation Office (SFIO).
In view of the dismal track record of the shareholders which demonstrates a history of lack of credibility on their part, the disposition agreed as per the MOU dated 18.04.23 with regard to the sale, alienation or disposal of the properties of the company, is quite understandably, not acceptable to the other stakeholders. All said and done, there is no gainsaying that the proposal put forth by the MCF is worth consideration.
The crux of the problem is that there are too many stakeholders and each wants to have a say in the matter. While that is understandable as they have suffered insurmountable problems due to lack of basic amenities and facilities for a very long and difficult forty years, that were promised by the company - This Court finds that certain calculated and strategic measures can be initiated so to commence development work at the site and ameliorate the suffering of the stakeholders.
In view of the aforesaid disposition laid down by this Court, all the pending applications shall stand answered with regard to the management and running of affairs of the company. However, it is provided that in case this disposition does not fructify and the desired results are not reached on being assessed objectively, the concerned applicants shall be at liberty to revive the applications in future, for hearing and disposal.
Re-notify for compliance on 15.05.2024.
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2024 (3) TMI 991
Validity of SCN proposing to declare the petitioners as wilful defaulters - Classification of Account as NPA - Impact of CIRP proceedings under IBC - Declaring the petitioners as wilful defaulters in terms of the Master Circular on Wilful Defaulters issued by the Reserve Bank of India (RBI) on July 1, 2015 - whether the injunction order passed by the writ court against the respondent-Bank, on the premise that the NPA classification was de hors the Master Circular, can be a relevant consideration for vitiating the Show-cause Notice? - HELD THAT:- In the present lis, even if the best case of the petitioners is taken into consideration, applying the Pandemic Circulars of the RBI extending the time for making good defaults, on and from November 30, 2020, the petitioner no. 1 was a defaulter. Apparently, no repayment has been made since then. Thus, it cannot be said that merely because the NPA classification is clouded in a writ petition, the respondent-Bank cannot proceed with the wilful defaulter proceeding.
However, it is made clear that the purported communications of the petitioners handed over by the Bank at the time of arguments cannot be looked into at this stage, having not been referred to in the Show-cause Notice. The principle laid down in MOHINDER SINGH GILL & ANR. VERSUS THE CHIIEF ELECTION COMMISSIONER, NEW DELHI & ORS. [1977 (12) TMI 138 - SUPREME COURT] is squarely applicable as well, precluding the respondent from furnishing new grounds which were not there in the original Show cause Notice.
Show-cause Notice contains reference to the assets of the petitioner nos. 2 to 9, who were Directors of the Company, which assets are not part of the assets of the borrower-Company - HELD THAT:- A Show-cause Notice need no plead in detail the full particulars of the requirements of the Master Circular but is required merely to outline the broad spectrum of offences committed by the borrower, its Directors and the guarantors to be labelled as wilful defaulters. The proper stage for consideration of compliance of Clause 2.6 on all other aspects is the order passed by the Wilful Defaulter Identification Committee on consideration of the Show-cause Notice and the reply thereto. Hence, the merits of the said allegation cannot be considered in detail.
Sufficient ingredients to justify the allegations have been spelt out in the Show-cause Notice to bring the same within the broad purview of the Master Circular. The said ingredients, read in conjunction with the FAR and other documents which may be relied on by the Bank, are to be taken in conjunction at the time of consideration by the Wilful Defaulter Identification Committee and not at the show-cause stage. The composite effect of the documents and the broad allegations made in the Show-cause Notice are the subject-matter of adjudication by the said Committee, and thereafter the Review Committee. At the stage of Show-cause Notice, the court cannot adopt a fault-finding approach but such a Notice is to be seen in the perspective of disclosing sufficient ingredients to make the noticee aware of the nature of allegations made against it.
Moreover, it is well-settled that under normal circumstances, courts are loathe to interfere at the show-cause stage since the noticee has the remedy of giving a reply thereto available to it. The merits of the allegations and defences can only be gone into by the first committee while deciding the matter.
Thus, a wilful defaulter proceeding does not come within the contemplation of Section 14 or Section 96 of the IBC, which primarily pertains to legal actions to foreclose, recover or enforce security interest, or recovery of any property of the debt-in-question.
In P. MOHANRAJ & ORS. VERSUS M/S. SHAH BROTHERS ISPAT PVT. LTD. [2021 (3) TMI 94 - SUPREME COURT], the Supreme Court has repeatedly highlighted, particularly in paragraph nos. 35.2 and 35.3, that the moratorium concerns not merely recovery of debt but any legal proceeding even indirectly relatable to recovery of any debt. Hence, the moratorium applies to recovery proceedings and proceedings which directly or indirectly “relatable” to such recovery. A wilful defaulter proceeding cannot, by any stretch of imagination, be said to be even remotely relatable to recovery of debt but is merely an off-shoot of the debt. The corpus of debt is not the subject-matter of a wilful defaulter proceeding, unlike a recovery proceeding, but is a mere stimulus to spur the wilful defaulter proceeding into motion.
Petition is disposed of by directing the respondent-bank to serve a copy of the Forensic Audit Report and/or any other document, on which the bank intends to rely to substantiate the show-cause allegations, on the petitioners within a week from date.
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2024 (3) TMI 990
Declaration of Wilful Defaulter of the petitioner - Liability of Directors - It is argued that in none of the Committee Orders, any cogent ground has been made out under the Master Circular of the Reserve Bank of India (RBI) for declaration of Wilful Defaulters - HELD THAT:- The petitioner admittedly parked some amounts from its sales realizations not in the cash credit account but in a different account opened with a different Bank, that is, the ICICI Bank, Darjeeling Branch. Hence, at a time when the borrower-Company was duty-bound to channelize its entire funds through the respondent no. 1-Bank due to its agreement with the latter, it failed to meet such obligation, which was a condition of the cash credit facility, and routed some money through a different bank account. Such act is sufficient to come within the purview of diversion of funds as contemplated in the Master Circular.
Admittedly, an agreement was entered into in the year 2004 which was much prior to the directions of the Central Government to take over management from the borrower-company. Even the Division Bench order of this Court directed the management to be continued by the borrower-Company. Hence, the lame excuse of the workers’ interest is mere lip-service in the mouth of the petitioner, since the borrower-company, evidently without knowledge or permission of the lender-Bank, had transferred the security, invoking the umbrella of the Central Government directions - The moratoria contemplated in the IBC were introduced for the protection of the corporate debtor in order to facilitate resolution. Such legal fiction, however, was created only in order to sustain the business of the company in the hands of the successful resolution applicant, inter alia, to protect the interests of the workers and the business of the unit in general. However, even if CIRP commences, the Directors, who were the masterminds in control and charge of affairs of the Company at the relevant juncture, cannot be absolved of any wilful default committed by the borrower-Company at the relevant juncture.
In the present case, the petitioner was a Director and at the helm of affairs, responsible for the business operations of the company. The business decisions of the Company are attributable to the Directors, who are the living hands of the company which is a juristic person. Thus, the petitioner cannot be absolved of the wilful default committed by the borrower-Company in his capacity as a director and promoter, irrespective of an ongoing Corporate Insolvency Resolution Process.
There are no patent irregularity or perversity in the impugned decisions or the procedure adopted by the Committees for arriving at the same, sufficient to interfere under Article 226 of the Constitution of India.
The petition is dismissed on contest without any order as to costs.
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2024 (3) TMI 989
Seeking winding up of respondent company - Failure to pay outstanding dues - section 434 of the Companies Act, 1956 - HELD THAT:- The affairs of the respondent company in liquidation appear to be completely wound up. It is not feasible to proceed further in the winding up company. On perusal of OLR No.6/2024 including the documents on record, no other assets are available for realization of the dues of the creditors. All the assets of the company in liquidation had already been sold by the Bank and realized its dues. No secured creditors are available despite the issuance of notice. Therefore, this Court is of the considered opinion that this company petition deserves to be closed under the provisions of Section 481 of the Companies Act, 1956 and Rule 282 of the Companies (Court) Rules, 1959.
Accordingly, it would be just and reasonable in the circumstances to pass the order that the company in liquidation be dissolved from the date of this order. Consequently, the company is in liquidation viz. M/s. STI Phoenix Wear Private Limited stands dissolved - Petition disposed off.
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2024 (3) TMI 697
Criminal proceedings against the Directors - Petitioner contending that financial transactions, inherently civil in nature, were wrongly dragged into criminal litigation - Applicability of vicarious liability in criminal proceedings - Invocation of inherent jurisdiction of this Court under Section 482 CrPC - criminal breach of trust, cheating, dishonestly inducing delivery of property, forgery and criminal conspiracy - HELD THAT:- It is manifested that the criminal contents are emanated from the alleged financial transaction took place between the present applicants along with their company namely M/s Dignify Builtech Private Ltd. and opposite party No. 2. Although financial transaction between them is admitted, however, route of money transaction has been disputed by both the parties. Opposite party No. 2 came with the case that there was bipartite financial transaction/agreement between the opposite party No. 2 and the accused company. Thus, opposite party No. 2 has directly transferred the amount in the account of accused company, having considered the negotiation took place between them. However, present applicants came with the case that it was a tripartite agreement between the parties involving one more company namely M/s Shubhkamna Builtech Private Ltd. Thus, it appears that there was circuitous route in transferring the money through another corporate being M/s Shubhkamna Builtech Private Ltd.
It would not be befitting to make any comment on the summoning order, however, technicality, if any, is not sufficient to drop the entire criminal proceeding initiated at the behest of opposite party No. 2. In this eventuality, it is always open to the present applicant to raise this objection before the court concerned, who is not bound with the police report submitted under Section 173 CrPC and the court can issue summons, having considered the facts and circumstances of the case and the material available on record, against the other person as well, who has not been arraigned in the charge sheet. He would be at liberty to take action under Section 319 CrPC. Sections 190 and 204 of the CrPC does not restrict the jurisdiction of the court concerned in issuing process against any accused, if warranted.
It is admitted to the parties that no final winding up order has been passed under the Companies Act and, while appointing provisional liquidator, company court/tribunal can impose certain conditions/limitations upon the provisional liquidator. Thus, it is evident from the relevant portion of order dated 20.9.1997 passed by Hon’ble Delhi High Court that provisional liquidator had been appointed with limited power to take all the assets, books of account and the record of the company. Exhaustive power has been given to the liquidator under the provisions of the Companies Act which, in fact, is applicable after the conclusion of winding up proceedings, therefore, there are no force in the submission that criminal proceedings should not have been initiated without sanction of the court competent - Even assuming that there is requirement of prior sanction of the court competent to institute a case on behalf of company under liquidation, no limitation has been imposed on the power of the court concerned to entertain the criminal prosecution launched in the ordinary course under the provisions of the code of criminal procedure. Provision relating to the prior sanction before filing litigation on behalf of the company is required only to ascertain the financial liabilities of the company and to secure its funds.
The opposite party No. 2 has not committed any illegality in instituting a criminal proceeding against the present applicants, who have been arraigned in the FIR for the offence under several sections of the IPC.
The criminal proceeding initiated on behalf of respondent No. 2 against the present applicant is maintainable and learned Magistrate has rightly taken cognizance on the police report submitted under Section 173 CrPC. On the facts as mentioned in the FIR prima facie commission of offence is made out against the present applicants, who are the directors of the accused company and were throughout instrumental in inducing the present applicant to purchase the land situated near NOIDA Express Way and dishonestly misused the money for other work which they had received from opposite party No. 2 in lieu of transferring the land which was agreed upon between the parties to be purchased for opposite party No. 2. Disputed question of fact has been raised by the learned counsel for the applicants in order to prove the innocence of the present applicants which can more appropriately be scrutinized by the trial court.
In the facts and circumstances of the present case, there are no abuse of the process of Court nor any justifiable ground to pass an order so as to secure the ends of justice. No ground is made out warranting indulgence of this Court in exercise of inherent jurisdiction under Section 482 CrPC to quash the criminal proceeding as prayed for.
The instant application under Section 482 CrPC, being misconceived and devoid of merits, is dismissed.
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2024 (3) TMI 647
Initiation of prosecution proceedings for the alleged offence of non-copliance with Corporate Social Responsibility (CSR) obligation - Company fall within the purview of section 135 of Companies Act or not - whether the reserves created out of amalgamation (as in this case), can be kept out of “Net Worth” in the years following the year of amalgamation? - HELD THAT:- Corporate social responsibility (CSR) or corporate social impact is a form of international private business self-regulation which aims to contribute to societal goals of a philanthropic, activist, or charitable nature by engaging in, with, or supporting professional service volunteering through pro bono programs, community development, administering monetary grants to non-profit organizations for the public benefit, or to conduct ethically oriented business and investment practices.
In the present case the amalgamation took place on 01.04.2008 - All assets, liabilities, properties & interest of the Transferee Company was vested into the Transferee Company (petitioner no. 1) vide order dated July 14, 2009 of the Hon’ble Court and order dated 09.08.2011 when the other companies (2) merged with the petitioner Company - Thus as per Section 2(57) of the Act. The Company gets the benefit of Section 2(57) of the Act, for the said financial year and not there after (subsequent financial years) - But the Company herein continued filing the Balance Sheet for the subsequent financial years being 2011-2012, 2012-2013, 2013-2014 & 2014-2015 in this case to take the benefit of amalgamation, year after year, to avoid their corporate social liability for which the case has been initiated by the complainant.
There is thus sufficient materials on record making out a prima facie case against the petitioners in respect of the offences alleged, and as such the case is required to be permitted to proceed towards trial. Interference at this stage would amount to abuse of the process of Court.
Revision dismissed.
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2024 (3) TMI 411
Seeking grant of bail - long incarceration of the applicant without any hope of commencing the trial at least for a few years - serious ailments with which the applicant has been suffering at the age of 62 years - offences punishable under Section 447 of the Companies Act, 2013 and Sections 417, 420 r/w 120-B of the Indian Penal Code, 1860 - HELD THAT:- The Hon’ble Supreme Court in case of Jainam Rathod [2022 (4) TMI 1421 - SUPREME COURT] has granted bail to the applicant who was being prosecuted for violation of the provisions of Section 447 of the Act of 2013 as well as various provisions of the Indian Penal Code, 1860, including Sections 406, 417, 418, 420, 467, 468, 471, 474 and 477A. A Special Leave petition preferred by the appellant was dismissed by the Supreme Court on 27th January, 2020 with observations that it was always open for the appellant to move a fresh application for bail - The Hon’ble Supreme Court has also noted it’s judgment in the case of Serious Fraud Investigation Office V. Nittin Johari [2019 (9) TMI 570 - SUPREME COURT] while granting bail to the appellant Jainam. The appellant was released in light of the fact that in the absence of a fair likelihood of the trial being completed within a reasonable period, personal liberty of the appellant is to be protected in case of delay in conclusion of the trial.
It is well settled that if co-accused in the case are equally placed, meaning thereby, on the same pedestal then there is no reason to deny bail to the accused where other co-accused are not in custody.
Indubitably, investigation is over and the applicant’s detention is no more required in judicial custody. Nothing is to be recovered at the instance of the applicant. Almost all the evidence is in the form of documents, which is in the custody of the respondent No. 1. Learned Senior Counsel would contend that there is no reasonable apprehension of the applicant absconding or fleeing away from justice since he has always been co-operating with SFIO’s investigation for which he has been called for almost 30 times. A look out notice has already been issued against the applicant which shall deter him from leaving the country. Learned Senior Counsel submits that the applicant would surrender his passport - Since the case is predominately based on documentary evidence and investigation will mainly involve analysis of accounting entries and financial statements and other documents, the Counsel submits that there would no question of tampering with the same.
Dehors merits and demerits as well as the statutory embargo as contemplated in Section 212 (6) (ii) of the Act of 2013, powers of this Court under Article 21 of the Constitution are unfettered, in the sense, while exercising constitutional jurisdiction, statutory restrictions, per se, do not oust the ability of this Court to grant bail on the ground of violation of part – III of the Constitution; inarguably, statutory restrictions vis-a-vis constitutional jurisdiction will have to be harmonized.
The applicant – Hari Sankaran be enlarged on bail subject to fulfilment of conditions imposed - bail application allowed.
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2024 (3) TMI 359
Seeking grant of Anticipatory bail - maintainability of application under Section 438 of the Cr.P.C. - reasons to believe - non-bailable offences contained in Sections 437, 438 and 439 of the Cr.P.C. - HELD THAT:- Section 437 and Section 439 of the Cr.P.C. relate to grant of Bail to any person who has been ‘arrested’ or is in ‘custody’. Section 438 of the Cr.P.C., on the other hand, gives a power to the Court to grant Anticipatory Bail to a person who is yet to be ‘arrested’ or taken into ‘custody’.
In BHARAT CHAUDHARY AND ORS. VERSUS STATE OF BIHAR AND ORS. [2003 (10) TMI 692 - SUPREME COURT] the Supreme Court has held that the power under Section 438 of the Cr.P.C. is available to the High Court and the Court of Sessions, even when cognizance is taken or a chargesheet has been filed.
In RAVINDRA SAXENA VERSUS STATE OF RAJASTHAN [2009 (12) TMI 1063 - SUPREME COURT], the Supreme Court reiterated that Anticipatory Bail can be granted to an accused at any time, so long as the accused has not been arrested. The High Court or the Court of Sessions cannot refuse to exercise its powers under Section 438 of the Cr.P.C. and leave the matter to the Magistrate only on the ground that the challan has now been presented.
Coming to the principles that would be applicable while considering the application of the Applicant(s) for grant of Anticipatory Bail, there is no gainsay that the Applicant(s) would have to show that they have ‘reason to believe’ that they may be arrested - As held by the Supreme Court in GURBAKSH SINGH SIBBIA VERSUS STATE OF PUNJAB [1980 (4) TMI 295 - SUPREME COURT], the belief that the Applicant(s) may be so arrested must be founded on reasonable grounds and not on mere ‘fear’ or a ‘vague apprehension’.
In the present case, the applicant(s) have met the above test. The learned counsel(s) for the Applicant(s) have placed reliance on various judgments of this Court wherein the accused, who had been similarly summoned by the same Magistrate, were taken into custody and had to suffer the ignominy of being in jail for a long period of time before they were granted Bail by this Court.
As far as merit is concerned, in SATENDER KUMAR ANTIL VERSUS CENTRAL BUREAU OF INVESTIGATION & ANR. [2022 (8) TMI 152 - SUPREME COURT], the Supreme Court had placed cases where additional conditions of compliance of provisions of Bail are to be met, including Section 212 (6) of the Act, in ‘Category C’. It was held that where the accused has not been arrested consciously by the prosecution, there is no need for further arrest of the accused at the instance of the Court.
In the entire process of investigation leading to the filing of the complaint, the Applicant(s) were never arrested by the respondent and it is not disputed that the Applicant(s) have cooperated in the investigation. Applying the test as laid down by the Supreme Court in Satender Kumar Antil, therefore, the Applicant(s) are entitled to grant of Anticipatory Bail.
It is, therefore, ordered that in case of arrest, the Applicant(s) be released on bail subject to fulfilment of conditions imposed - bail application allowed.
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2024 (3) TMI 292
Restoration of struck name of the company from its register - default in non-filing of the Financial Statements and Annual Returns - Section 248(5) of the Companies Act, 2013 - HELD THAT:- Admittedly the impugned order was passed since the appellant had failed to produce documents to show it was still in possession of the asset and it had paid all water bills, electricity bills and rent receipt(s). It is submitted the financial statement could not be filed with the ROC inadvertently since father of the present directors was old and ill and it being a joint family set up with an incomplete professional/legal guidance and even their Chartered Accounts had unfortunately expired - the act of the Respondent in striking off the appellant from the rolls of ROC had caused a grave prejudice to the appellant herein, more specifically when the public notice issued by ROC was aimed at weeding out shell companies.
Though the annual accounts of the years stated above though were duly prepared but could not be filed, for the reasons stated above, the non-compliance appear to be inadvertent, non-deliberate and unintentional. Admittedly the appellant is ready to comply with all the statutory provisions once the name of the company is restored by the ROC. Thus there are no reason why its name should not be restored as no prejudice would be caused to the ROC if its name is restored. It is not the case of the ROC that the appellant is a shell company or was at any time engaged in syphoning of funds.
It is deemed just and equitable to restore the name of the appellant company to the record of ROC and thus the impugned order set aside to restore the name of the company to the Register of Companies subject to the compliances fulfilled - appeal alowed.
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2024 (3) TMI 189
Oppression and Mismanagement - inherent powers of NCLT to cause audit of accounts or to make such orders as may be necessary - Section 241 & 242 of the Companies Act, 2013 - allegations of siphoning funds, breach of agreements, and failure to maintain proper books of account - whether NCLT is empowered to direct audit and is it required to give a finding of fraud before ordering the audit by independent Auditor? - HELD THAT:- As per Rule 11 of the National Company Law Tribunal Rules, 2016, Tribunal may make such Order as may be necessary for meeting the ends of justice or to prevent, abuse of the process of Tribunal - It is seen that no pre-conditions are given in the said Rules for exercising of these inherent powers by the Tribunal. The Tribunal has directed conduct of audit through independent Auditor to ascertain the correct facts in the light of allegations and counter allegations by the parties to the dispute in Company Petition filed under Section 241 & 242 of the Companies Act, 2013, which was being adjudicated upon by them.
The issues raised in this appeal were considered by Three Member Bench of this Tribunal in the case of Archer Power System P. Ltd. Vs. Cascade Energy P. Ltd. & Ors. [2020 (8) TMI 583 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI] where it was held that We are of the opinion that imposition of forensic audit and calling for the report of forensic audit before the Tribunal is a measure to help the Tribunal to appreciate the issue on the basis of an independent report so as to ensure that the case is processed with due regard to rights and obligations of contesting parties would be in the interest of justice.
The Tribunal under Rule 11 of NCLT Rules, 2016 has the inherent powers to cause audit of accounts or to make such orders as may be necessary for meeting the ends of justice and there are no fault in the impugned order on this account - the present Appeal fails and is accordingly dismissed.
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2024 (3) TMI 27
Professional Misconduct - Chartered Accountant (CA) - Significant failures to adhere to Standards on Auditing (SAs), gross negligence, and lack of professional skepticism - Non-recognition of interest cost on Bank Borrowings classified as NPAs - False reporting under CARO - Failure in performing of required audit procedures - Inappropriate Opinion on the Financial Statement for the FYs 2014-15 to 2016-17 - Non-implementation of Quality Control Measures at the Engagement Level - Non-submission of Audit File for the FY 2014-15 - penalty and sanctions.
HELD THAT:- The EP has made departures from the Standards and the Law, in his conduct of the audit of Bilcare Limited for the FYs 2014-15, 2015-16 and 2016-17. In light of the foregoing discussion, findings on each article of charge listed out in the SCN, are stated below:
(a) The EP committed professional misconduct as defined by clause 5 of Part I of the Second Schedule of the CA Act, 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 EP failed to disclose in his report the material non-compliances by the company as explained in Para 16-22 above.
(b) The EP committed professional misconduct as defined by clause 6 of Part I of the Second Schedule of the CA Act, which states that a CA 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 as explained in Para 16-22 above.
(c) The EP committed professional misconduct as defined by clause 7 of Part I of the Second Schedule of the CA Act, which states that a CA 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, as explained in Para 16-44 above.
(d) The EP committed professional misconduct as defined by clause 8 of Part I of the Second Schedule of the CA Act, which states that an EP 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 for recognition of interest cost on NPA loans in the financial statements as explained in Para 16-44 above.
(e) The EP committed professional misconduct as defined by clause 9 of Part I of the Second Schedule of the CA Act, which states that an EP 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 as explained in Para 16-44 above.
Therefore, it is concluded that the charges of professional misconduct enumerated in the SCN dated 14.07.2023 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 Bilcare for the FYs and other materials available on record.
Penalty and sanctions - HELD THAT:- It is the duty of an auditor to conduct the audit with professional skepticism and due diligence and report his opinion in an unbiased manner. Statutory audits provide useful information to the stakeholders and public, based on which they make their decisions on their investments or do transactions with the public interest entity - 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.
Considering the proven professional misconduct, 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:
I. Imposition of a monetary penalty of Rs 3,00,000/- upon CA Ratan Laxminarayan Rathi;
II. In addition, CA Ratan Laxminarayan Rathi is debarred for 2 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 (2) TMI 1514
Seeking to restrain the defendant from proceeding with the proposed Resolution until the disposal of the main suit - Re-appointment of the plaintiff as Executive Chairperson/Managing Director at its 40th Annual General Meeting [AGM] - Order XXXIX Rule 1 and 2 of the CPC - HELD THAT:- It is evident that an applicant seeking an injunction must establish all three essential ingredients, i.e., prima facie case, balance of convenience, and irreparable injury. These ingredients must be satisfied concurrently, and the inability of the applicant to establish even one would render the applicant ineligible for obtaining the injunctive relief.
The cardinal principles for the grant of temporary injunction were further considered in DALPAT KUMAR VERSUS PRAHLAD SINGH [1991 (12) TMI 282 - SUPREME COURT], wherein the Supreme Court observed 'If on weighing competing possibilities or probabilities of likelihood of injury and if the Court considers that pending the suit, the subject matter should be maintained in status quo, an injunction would be issued. Thus the Court has to exercise its sound judicial discretion in granting or refusing the relief of ad interim injunction pending the suit.' - The Court further held in Dalpat Kumar, that the phrases “prima facie case”, “balance of convenience” and “irreparable loss” are not rhetoric phrases for incantation, but words of width and elasticity, to meet myriad situations presented by ingenuity in the given facts and circumstances of each case. These principles are to be applied with judicial discretion, such that, the relief granted aligns with the ends of justice.
Where monetary compensation can provide full restitution, an injunction preventing termination is unwarranted. Therefore, as the Court should be hesitant in interfering with corporate governance decisions, particularly where alternative remedies in the form of monetary compensation remain available, applying this principle to the facts of the instant case, even if the plaintiff succeeds in the suit, the relief at best available to her would be in the form of financial compensation.
Whether the ingredient of a prima facie case operates in favor of the plaintiff? - HELD THAT:- It is pertinent to note that while the plaintiff was appointed on 24.02.2023 for a fixed tenure of five years, a careful perusal of the minutes of the Board Meeting dated 10.08.2022 and the Annual General Meeting dated 23.09.2022 reveals that both explicitly stipulated the retirement of the plaintiff by rotation. This clearly indicates that the understanding of the plaintiff that she is liable to retire is not something that was introduced for the first time in 2025, but was well embedded in the earlier Resolutions passed in the aforementioned board and general meetings.
In the instant case, it is a clear case of the plaintiff having knowledge of being subjected to retirement by rotation and thus, if the plaintiff is not found to be vigilant and diligent having regard to the circumstances, the relief sought ought to be refused. In light of these considerations, it is evident that the plaintiff has failed to establish a prima facie case for injunction in her favour.
With respect to the balance of convenience, it is a well-settled principle that every shareholder of a company has the right, subject to statutory procedures and requisite numerical thresholds, to participate in the affairs of the company. This participation is essential to uphold the principles of corporate democracy and to maintain transparency in corporate governance. The shareholders must be allowed to regulate and determine the affairs of the company through General Meetings, which serve as the primary forum for decision-making within a corporate entity. Given this framework, the jurisdiction of the Court in such matters is limited, and judicial interference in the internal management of a company should be exercised with caution. Courts have consistently maintained that unless there is a clear violation of statutory provisions or principles of natural justice, they should refrain from intervening in the internal governance of a company.
The similar position was upheld in LIFE INSURANCE CORPN. OF INDIA VERSUS ESCORTS LTD. [1985 (12) TMI 289 - SUPREME COURT], wherein it was observed that in a company, every shareholder possesses the right to call for a general meeting for the purpose of passing a Resolution, and such an exercise of corporate democracy cannot be restrained by way of an injunction.
In the present case, upon a careful examination of the facts and arguments advanced, assessed on the anvil of the established legal principles governing injunctions, the Court is of the considered view that the plaintiff has failed to demonstrate that the essential conditions for granting an injunction stand satisfied in her favor. The plaintiff has neither demonstrated a prima facie case, nor has shown that the balance of convenience tilts in favour. Furthermore, the alleged injury, if any, is quantifiable in monetary terms, thereby negating any irreparable harm. In the absence of these fundamental elements, the grant of an injunction would be unwarranted.
Conclusion - i) The plaintiff's appointment was subject to retirement by rotation, as evidenced by her past conduct and the resolutions passed in previous meetings. ii) The proposed resolution for the plaintiff's re-appointment was found to be legally tenable and in accordance with the company's established procedures.
The application stands dismissed.
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2024 (2) TMI 1494
Time limitation on filing petition - Initiation of Corporate Insolvency Resolution Process against Personal Guarantor - service of demand notice - HELD THAT:- Clause 12 r/w Clause L of the recital of the Deed of Guarantee dt. 10.04.2014 makes it clear that this Guarantee was to come into force only upon implementation of CDR package in full and signed by all the lenders in terms of LOA issued. Ld. Counsel for the Personal Guarantor place on record a letter dt. 23.03.2016 having reference No BY.CDR(DAP)No. 749/2015-16, stating that the Company M/s Parekh Aluminex Limited stands exited from the CDR mechanism as failure.
Time limitation - HELD THAT:- It is found that the Financial Creditor invoked the Guarantee on 18.05.2016 by Notice u/s 13(2) of SARFAESI Act, 2002 and the Corporate Debtor came to be admitted into CIRP on 01.02.2019. Since, it is already returned the finding that this Guarantee had not become effective on account of failure in implementation of CDR Package, it is not required to deal with the issue of limitation any further.
Petition dismissed.
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2024 (2) TMI 1451
Wilful defaulter - resignation from a company per se - validity of an event of Wilful Default under Master Circular - as argued Petitioner resigned as the Executive Director of MBSL and Form-32 to that effect was filed with the Registrar of Companies (“RoC”) - Satisfaction to issue Show Cause Notice in the instant case - HELD THAT:- Under the Master Circular, to declare a person as a Wilful Defaulter, lender banks have to independently find that the “Wilful Default” is “intentional, deliberate and calculated” and the said conclusion must be based on “objective facts and circumstances of the case”. The Forensic Audit Report can act as a piece of corroboration for the said exercise, but not the sole basis. The lender banks must record their satisfaction of commission of Wilful Default which according to them are “intentional, deliberate and calculated”.
Under Clause 2.1.3 of the Master Circular, the lender banks have to keep in mind the track record of the borrower. The decision to declare an entity or person as Wilful Defaulter cannot be taken on the basis of isolated transactions/incidents. A similar obligation is cast on lender banks in Clause 2.5 of the Master Circular, which require the lender banks to put in place a transparent mechanism for the entire process so that the penal provisions are not misused and the scope of such discretionary powers are kept to the barest minimum. It is required to be ensured that solitary or isolated instances are not made the basis for imposing the penal action under the Master Circular.
In the present case, the satisfaction to issue Show Cause Notice, does not appear to have been recorded in accordance with the requirements of the Master Circular. Keeping the object of the Master Circular in mind and the consequences that it entails, both civil and penal, the lender banks have an obligation to comply with the inbuilt safeguards in the Master Circular. Lest, the line between persons who commit mere default in repayment of loan obligations and those who commit Wilful Default in terms of the Master Circular, would get obliterated.
Whether the Petitioner committed acts of Wilful Default? - Under the Master Circular, a lender bank has to record a finding of an act of Default to be Wilful if the same is “intentional, deliberate and calculated” on objective assessment of facts and circumstances. However, the said burden is not discharged by merely quoting the Forensic Audit Report, which itself has not drawn any conclusion of diversion of funds.
In the meeting held on 27.5.2014, the lender banks agreed to reduce the collateral security of Rs. 33 Crores to Rs. 25.53 Crores in lieu of the Petitioner’s personal guarantee. The Petitioner did not furnish his personal guarantee for the CDR package nor did he participate in any of the deliberations for the approval of the CDR package. The lender banks still approved the CDR package and acted upon it without the presence and personal guarantee of the Petitioner. The lender banks, therefore, tacitly acquiesced to the Petitioner’s exit from MBSL and approved the CDR package of MBSL without his presence in any capacity or personal guarantee. In this view of the matter, it is not open for the lender banks to contend that when MBSL was about to default in its repayment obligations, the Petitioner made an easy escape. In any case, resignation from a company per se is not an act of Wilful Default under the Master Circular.
Effect of Forensic Audit Report - The nature of Forensic Audit Report in respect of a company is discussed by the Calcutta High Court in Prashant Bothra & Anr. v. Bureau of Immigration & ORs [2023 (9) TMI 702 - CALCUTTA HIGH COURT] It was held that a Forensic Audit Report, at best, is a piece of evidence in liquidation proceedings and is in no manner a conclusive proof of any illegality committed under a law. The Forensic Audit Report is merely an opinion of the author, which is based on several disclaimers. The Forensic Audit Report cannot be conclusive proof of its observations.
Even under the Indian Evidence Act, 1872, the opinion of an expert witness under Section 45 is not a conclusive proof. It is subject to cross examination and the opinion and conclusions of an expert are subject to challenge.
The lender banks must follow the mandate of Clause 2.1.3 read with Clause 2.5 of the Master Circular and independently find acts of “Wilful Default” which are “intentional, deliberate and calculated” and the said conclusion should be based on “objective facts and circumstances of the case”. Any other view would lead to consequences where mere cases of default would be categorised as acts of Wilful Default under the Master Circular. The Master Circular is not to be invoked in every case of default but only when the default is Wilful Default as construed under the scheme of the Master Circular.
Identification of Wilful Default has to be made keeping in view the track record of the borrower and not on the basis of isolated transactions/incidents - In the Flash Report, it is noted that MBSL could service all its debts till 30.11.2011 and even repaid the principal sum of the term loans.
The aforesaid position, which is accepted by the lender banks in their own document i.e., the FRS, does not show a consistent negative track record of MBSL. MBSL was seen as a global player in photovoltaic cells. It had presence in several countries. It had serviced its debt and largely repaid the principal dues. The Respondent Bank, under Clause 2.1.3 read with Clause 2.5 of the Master Circular, was obligated to reflect upon the entire track record of MBSL and then conclude whether there existed events of Wilful Default and not on the basis of isolated transactions/incidents.
Consequences of admitting MBSL for CDR under the CDR Scheme - This Court is of the view that it is incumbent upon banks who are dealing with public funds and discharging a public duty to make appropriate enquiries as to whether a borrower is in genuine financial difficulty or whether there exists events of fraud and malfeasance. If the lender banks find fraud or malfeasance, the CDR-EG must either refuse CDR completely or impose such additional onerous conditions as provided in the CDR Scheme itself.
In the present case, the lender banks were fully aware of all the transactions, which are now alleged to be acts of Wilful Default. This fact is part of the documents leading to the finalization of the CDR scheme. Despite noting all transactions, financial statements, balance sheets, TEV Report and Stock Audit Report, the lender banks placed MBSL in Class-B of CDR Master Circular which cannot be assigned if there is diversion of funds. They found no occasion to order a forensic audit of MBIL before finalization of CDR scheme. The lender banks, therefore, never treated the alleged acts of Wilful Default as an act of diversion or siphoning either during finalization of CDR scheme or after its failure.
It may not be open for lender banks to classify known acts as events of Wilful Default merely because subsequently, in respect of the same known acts, the Forensic Audit Report has made certain observations. To declare a person as a Wilful Defaulter, lender banks have to independently find that the “Wilful Default” is “intentional, deliberate and calculated” and the said conclusion is based on “objective facts and circumstances of the case”, as required under the Master Circular. The Forensic Audit Report, at best, can act as a piece of corroboration for the said exercise, but not the sole basis.
To take any other view would entail the transfer of jurisdiction to determine acts of Wilful Default to Forensic Auditors, which by law under the Master Circular is vested in the Identification Committee and Review Committee of the Respondent Bank. When a law requires a particular act to be done in a particular manner, then it has to be done in that manner alone and no other. [See: Tata Chemicals Ltd. v. Commr. of Customs [2015 (5) TMI 557 - SUPREME COURT] and Krishna Rai v. Banaras Hindu University [2022 (6) TMI 1436 - SUPREME COURT]
Thus orde passed by the Review Committee, confirming the Petitioner as Wilful Defaulter under the Master Circular, are unsustainable and the impugned order is accordingly, quashed and set aside.
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2024 (2) TMI 1444
Sanction of the Scheme of Amalgamation - Sections 230 to 232 and other applicable provisions of the Companies Act, 2013 and the Rules framed thereunder - HELD THAT:- Upon considering the approval accorded by the members of the Petitioner Companies to the proposed Scheme, and the affidavits filed by the Regional Director, the rejoinder and undertakings of the Petitioner Companies and the report of the Official Liquidator and the reply of the Petitioner Companies thereto, there appears to be no impediment in sanctioning the present Scheme.
The sanction is hereby granted to the Scheme under Sections 230 to 232 of the Companies Act, 2013, subject to the compliance with the directions imposed - application disposed off.
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2024 (2) TMI 1294
Maintainability of complaint against the petitioner - Dishonour of Cheque - vicarious liability of Non-Executive Director - issuance of a legal demand notice to the accused company and its directors - HELD THAT:- It is trite that the Non-Executive Director is not involved in the day to day affairs of the company or in the running of its business. Further, when a complaint is filed against the Director of the company, who is not a signatory of the dishonoured cheque, specific averments have to be made in the pleadings to substantiate the contentions in the complaint that such Director was incharge of and responsible for conduct of the business of the company unless such Director is designated Managing Director or Joint Managing Director.
A bare reading of para 3 of the complaint shows that in the complaint it has not been substantiated that in what manner the petitioner/accused no. 4 was incharge of and responsible for conduct of the business of the accused company, which elaboration was mandatory since the petitioner is neither a signatory to the cheque nor was he the Managing Director or Joint Managing Director of the accused company. This being the position, the complaint is not maintainable against the petitioner.
In view of the undisputed status of the petitioner as a Non-Executive Director and further regard being had to the fact that the petitioner is neither signatory to the cheque nor Managing Director or Joint Managing Director of the accused company, making him stand the trial would be an abuse of process of Court.
Appeal disposed off.
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