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2023 (9) TMI 308
Prosecution proceedings against the Directors of the company - Falsification of accounts of A1 Company for the financial year 2001 – 2002 to 2007 – 2008 - whether the Petitioners / Directors of the Companies during the relevant period, false statements made wilfully knowing them to be false? - HELD THAT:- On perusal of the records, it is seen that the falsification is alleged to have been done on 27.12.2010 and the same was submitted on 20.05.2011. In the complaint, date of resignation of the respective petitioners, and cessation of being directors given, which is not disputed by the complainant, which would clearly confirm that they resigned from the Directorship much before the alleged commission of offence and to that effect, the petitioners filed Form 32 with the Registrar of Companies - there is no specific averment of any irregularity committed by the petitioners during the relevant period. From the facts, it is clearly seen that, when the petitioners were not Directors of the Companies at the relevant period. Admittedly, the offence and the cause of action taken place during the years 2010 and 2011, but the present complaint is filed in the year 2014.
The admitted case of the respondent is that the offence of submission of falsification of accounts have been taken place during the year 2010-11. The cessation of Directors has been admitted and the same tabulated in the complaint. In view of such admitted position, the case against the petitioners to be considered along with the Balance sheet submitted by them - In the document submitted it was found that maximum data manipulation and falsification of accounts have been done by the Company and the Company Balance sheet do not project fair picture of the affairs of the Company.
As regards the persons, who have signed and submitted return, report, certificate, balance sheet, prospectus, statement or other documents with false material particulars knowing it to be false or omitted any material fact knowing it to be material, they can be prosecuted for offence under Sections 628 and 629 of the Companies Act. Since the Petitioners 7, 8 and 9, who are A8, A10 and A12 have signed the above documents with the other Director, the case against them has to be proved whether they had requisite mens rea or guilty mind only during trial.
Complaint against the persons where not the Directors during the relevant period, quashed - Proceedings against the persons who singed and verified the Balance Sheet shall continue.
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2023 (8) TMI 1615
Prayer for admission of petition - compounding of offences - advancement of an inter-corporate loan - violation of Section 185 of the Companies Act, r/w. Section 441 of the Companies Act, 2013 - HELD THAT:- In the instant case, it cannot be forgotten that the Appellant, Suo moto, voluntarily had sought Compounding of the Non-compliance / Violation of the Statutory Mandate, enshrined in Section 185 of the Companies Act, 2013, by filing a Petition, before the Tribunal, for Compounding of the Offence.
It is to be remembered that in Law, a Company, is a Separate Juristic Entity vis-à-vis its Directors, and therefore, can neither claim Reliefs nor Plead on their behalf. As such, the Appellant / Managing Director of ‘2nd Respondent / Company, to the extent of claiming Reliefs, for its Erstwhile Directors, is not maintainable in Law, as opined by this Tribunal.
The Appellant Company / a subsidiary of a Foreign Company, the Company and the Directors, are expected to comply with the provisions of Law, true letter and spirit. In fact, the Company and its Directors, are liable, for the relevant period, to the maximum Fine of Rs.25,00,000/-, in terms of Section 185 of the Companies Act, 2013. 50. In the light of foregoing deliberations, on a careful consideration of contentions advanced, on behalf of the respective sides, taking into account of the facts and circumstances of the present case, in a holistic and conspectus manner, keeping in mind that the Default, remained for one year and six days, this Tribunal, comes to a consequent conclusion, that in as much as the Appellant is liable for the Violations, and Non-compliances committed by it, by means of Section 185 of the Companies Act, 2013, the impugned order, dated 20.12.2018, in CP No. 615 / BB / 2018, passed by the National Company Law Tribunal, Bengaluru Bench, to the extent of imposing Compounding Fee on the Appellant and its Directors, and Prosecution against Former Directors, is free from any Legal Infirmities.
Conclusion - The Appellant Company / a subsidiary of a Foreign Company, the Company and the Directors, are expected to comply with the provisions of Law, true letter and spirit. In fact, the Company and its Directors, are liable, for the relevant period, to the maximum Fine of Rs.25,00,000/-, in terms of Section 185 of the Companies Act, 2013.
Appeal dismised.
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2023 (8) TMI 1614
Seeking to Compound the Offence u/s 185 of the Companies Act, 2013 - prayed for an Imposition of Minimum Compounding Fees - advancement of an inter-corporate loan by Hewlett Packard Enterprise India Private Limited (HPE) to Hewlett Packard Enterprise GlobalSoft Private Limited (HPEG) - Violation of Section 185 of the Companies Act, in respect to the ‘Inter-Corporate Loan or not - HELD THAT:- The 1st Respondent / Registrar of Companies, Bengaluru, had addressed a Letter dated 23.10.2018 to the 2nd Respondent / Company, stating that the Compounding Application, filed for Violation, under Section 185 of the Companies Act, was examined and further, that Mr. Neelam Dhawan and Mr. Kiran Ramaswamy Belavadi, the Appellants (in the instant Appeal), were also Officers in Default, for the said Violation, during the relevant period and they had not filed any Application, to Compound the said Offence. The 2nd Respondent was directed by the 1st Respondent, in the Letter dated 23.10.2018, to submit an Affidavit and Application, in respect of the Appellants / Directors, directly to the National Company Law Tribunal, Bengaluru Bench, within 15 days thereof, failing which, necessary Prosecution, will be launched, as per the Orders / Directions of the concerned Compounding Authority.
In the instant Appeal, the Appellants, have come out with a plea that the Prohibition, under the Unamended Section 185 of the Companies Act, does not get attracted, because of the Loans, falls under one of the exceptions of the Unamended Section 185 of the Companies Act. Further the 2nd Appellant, had resigned from the Board of HPEG on 05.01.2018, and the Loan, was repaid by M/s. HPEG, on 09.01.2018.
Going by the definition of the term Officer and Officer, who is in Default, as mentioned in Sub-section 59 and 60 (2) of the Companies Act, 2013, unerringly, points out that the Appellants, as Directors of the 2nd Respondent / Company, were coming within the ambit of Officers, as per Section 2 (59) of the Companies Act, 2013, of the 2nd Respondent / Company- It cannot be brushed aside that Section 450 of the Companies Act, 2013, enjoins the Statutory Authorities, to fix Liability of the Officer in Default of the Offending Company.
In the present case, the Appellants, have not filed a Petition for Compounding, and in this regard, the direction, issued by the Tribunal, to prosecute the Appellants, cannot be found fault with, as opined by this Tribunal - As per the Letter of the 1st Respondent / RoC, Bengaluru, dated 23.10.2018, the Two Directors, have not filed the Application, during the Defaulting Period, and they are the Appellants, in the instant TA No. 128 of 2021 (Comp. App (AT) No. 67 of 2019, on the file of the Principal Bench). Therefore, the direction issued by the Tribunal, in the impugned order, dated 20.12.2018 in CP No. 615 / BB / 2018, to Prosecute the Appellants / Directors, for not applying for Compounding of an Offence, in terms of the Provisions of the Companies Act, 2013, and the Rules, made thereunder, is free from any Legal Infirmities.
Conclusion - The directors are liable for violations of Section 185 of the Companies Act, 2013. The amendments introducing new penalties do not absolve directors of liability for past violations.
Appeal dismissed.
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2023 (8) TMI 1613
Restoration of name of the company in the Register of Companies - Section 252(1) of the Companies Act, 2013 - HELD THAT:- It is evident from the impugned order that the company petition was preferred under Section 252(1) of the Companies Act, 2013. However, since the date of striking off the name of the company is not mentioned it is difficult to infer as to whether the petition was filed within three years from the striking off the name of the company or not. The order does not reflect any plausible reason for passing an order for restoration. Similarly nothing has been indicated as to under what circumstances the cost of Rs.5 lakhs was imposed.
It is evident that from the date of striking off the name of the company from the register of Registrar of Companies, one can prefer an appeal within a period of three years from the date of striking off the name of the company. In the order impugned date of striking off under Section 248(5) of Companies Act, 2013 has not been mentioned. On examination of the impugned order it is evident that though date of striking off was not mentioned, the appeal was preferred after four years. The order on this issue appears to be completely vague - since the appeal was preferred under Section 252(1) of the Companies Act, 2013 the learned NCLT was required to examine the appeal strictly in accordance with the provision under Section 252(1) of the Companies Act, 23013. In absence of exact date of striking off it would be difficult to approve the impugned order. Moreover, learned NCLT has imposed cost of Rs. 5 lakhs but no plausible reason has been given for imposing such cost. In such view of the matter there are no option but to set aside the order and remit back the matter to the NCLT for passing order afresh after affording opportunity to both the parties i.e. Appellant and ROC.
Conclusion - NCLT's order did not adequately address the requirements of Section 252 of the Companies Act, 2013. Matter remitted to the NCLT for passing order afresh after affording opportunity to both the parties i.e. Appellant and ROC.
Appeal allowed by way of remand.
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2023 (8) TMI 1489
Money Laundering - proceeds of crime - reasons to believe - Jurisdiction of PMLA over properties under IBC liquidation - liquidation measures have been approved in accordance with the provisions of IBC Act, 2016 - Whether the respondent authority under the PMLA Act, 2002 would retain jurisdiction or authority to proceed against the properties of a corporate debtor once liquidation measures have been approved in accordance with the provisions of IBC Act, 2016?
HELD THAT:- Without assigning any reasons, without any independent finding on “reason to believe” the order of provisional attachment under Section 5 of the PMLA has been confirmed. In the opinion of this Court, the order of provisional attachment dated 21.9.2022 came to be quashed by order passed in the Special Civil Application No. 19387 of 2022 dated 17.2.2023.
In view thereof, the respondent authority has erred in not arriving at an independent finding considering the fact that the case of the writ-applicant stands at identical footing to that of the writ-applicant in the Special Civil Application No. 19387 of 2022. Though the order under Section 5 is quashed and set aside, the respondent authority has proceeded to confirm the order of provisional attachment passed under Section 5(1) which can be said to be an order passed without any application of mind.
While passing the impugned order pursuant to the show cause notice wherein a detailed reply came to be filed by the petitioner and written submissions came to be filed after personal hearing for release of the subject land for attachment. The impugned order is passed by the adjudicating authority without considering the submissions advanced by the petitioner herein and has proceeded to conclude that the properties attached are proceeds of crime and, therefore, involved in money laundering.
No reasons are recorded by the adjudicating authority while issuing show cause notice in terms of Section 8(1). Having failed to record “reasons to believe” in terms of Section 8(1), in the opinion of this Court, the adjudicating authority has passed the impugned confirmation order dated 14.3.2023 which is liable to be quashed and set aside by exercising extraordinary jurisdiction under Article 226 of the Constitution of India - While passing the impugned order under Section 8 of the PMLA as referred above, the same is without assigning any independent reasoning and in view thereof the orders impugned dated 21.9.2022 and 14.3.2023 are required to be quashed and set aside and the same is quashed and set aside.
By exercising extraordinary jurisdiction under Article 226 of the Constitution of India the order impugned dated 21.9.2022 passed by the respondent No. 1 to the extent the same is qua the subject land and the writ-applicant and the consequential action to the impugned order including the complaint, show cause notice and final order dated 14.3.2023 passed by the adjudicating authority qua the subject land and the writ-applicant are quashed and set aside.
Application allowed.
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2023 (8) TMI 1460
Prayer for a direction to the respondents to furnish the reason for denying permission to the petitioner to travel outside India and provide copies of order/circular (including Look Out Circular)/instructions issued against the Petitioner by the Respondents - HELD THAT:- In view of the observations made by this Court in PAWANJOT KAUR SAWHNEY VERSUS BUREAU OF IMMIGRATION & ANR. [2022 (12) TMI 1513 - DELHI HIGH COURT] and a perusal of the sealed cover report submitted by Respondent No. 3/SFIO, it is noted that the allegations against the Petitioner are under investigation and at a crucial stage. As per the guidelines laid down by the Ministry of Home Affairs to enable a court to quash an LOC, there should be no risk in the economic interest of the country and the person should not be a flight risk which would in turn jeopardise the bilateral relations of India with any other country.
It is well settled that economic offences constitute a class apart and need to be visited with a different approach. The economic offence having deep-rooted conspiracies and involving huge loss of public funds needs to be viewed seriously and considered as a grave offence affecting the economy of the country as a whole and thereby posing serious threat to the financial health of the country.
It is trite law that judicial review is not directed against the decision but is confined to the decision making process. Judicial review cannot extend to the examination of the correctness or reasonableness of a decision as a matter of fact. The purpose of judicial review is to ensure that the individual receives fair treatment and not to ensure that the authority after according fair treatment reaches, on a matter which it is authorised by law to decide, a conclusion which is correct in the eyes of the Court. Judicial review is not an appeal from a decision but a review of the manner in which the decision is made. It will be erroneous to think that the Court sits in judgment not only on the correctness of the decision making process but also on the correctness of the decision itself.
The Petitioner does not have roots in the country. The allegation against the Petitioner is that she is actively involved in siphoning off a substantial amount of about Rs. 208 crores and the investigation against the Petitioner, as is revealed from the sealed cover, is at a crucial stage. The apprehension of the SFIO that if the Petitioner is now permitted to go out of the country it would not be possible to get her in the country, cannot be said based on nil evidence or that this apprehension is unjustified.
This court is, therefore, not inclined to quash the LOC dated 13.06.2022 and allow the petitioner to travel abroad - Petition dismissed.
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2023 (8) TMI 1429
Restoration of name of applicant company which was struck off by the respondent - apparent mistake appeared in the dismissal order or not - HELD THAT:- The High court granted liberty to the applicant to file amendment application. The scope of amendment is to rectify the mistake if it is apparent on record. The applicant has not pointed out any apparent mistake appeared in the dismissal order of this Tribunal dated 21.08.2020 instead he prayed to receive additional documents on record and grant the relief prayed in dismissal C.P.No.70/CTB/2020. The prayer of the applicant is beyond the scope of amendment.
On the applicant side not brought to notice of this Tribunal any apparent mistake appeared in the dismissal order dated 21.08.2020. The High court granted permission to the applicant to file amendment petition. The applicant not filed an application for an amendment instead he filed the application to receive the additional documents, this prayer is beyond the scope of the permission granted by High court. The applicant cannot on its own expand the permission granted by High Court and labelled that this application is filed in pursuance of High Court order dated 14.10.2022. In the High Court order there is no whisper about production of additional documents and the revival of the company. In strict sense this application is not in consonance with the order of High court.
This application is DISMISSED.
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2023 (8) TMI 1326
Seeking stay on auction sale - right over the Disputed Land - Administrator contended that the alleged sales are void against the Company and the Official Liquidator because they were subsequent to the commencement of winding up and not bona fide - HELD THAT:- The Company asserts title through the MOU, the GPAs, the sale receipts, the deeds of undertaking, and on the basis of being in possession of parent documents. The MOU was executed by the Company and a local intermediary, namely, Mr.T.V.Pattan. The terms and conditions disclose that Mr.T.V.Pattan was responsible for procuring 200 acres of land and 20% of the total amount was agreed to be paid as advance. The agreed price was Rs.11,250 per acre. It is further provided in the MOU that Mr.T.V.Pattan agreed to hand over all the original documents relating to the respective lands at the time of registration of the GPAs.
The contention of learned Administrator that about 58 acres was conveyed to the customers of the Company through the GPA holder, Sankaran, is liable to be accepted. When the survey numbers specified therein are compared with the survey numbers mentioned in the sale deeds executed by the GPA holder in favour of the predecessors-in-interest of the applicants, it is also evident that the GPA holder had fraudulently sold/re- sold 86.86 acres of land, including the 58 acres sold earlier through such GPA holder to the Company's customers under registered sale deeds.
What is the effect of the injunction order on the sale deeds executed by the GPA holder subsequent thereto? - HELD THAT:- By taking into account the MOU, the GPAs, receipts and letters of undertaking, there is sufficient basis to conclude that the Disputed Land is an asset of the Company. Considering the fact that the MOU, GPAs and receipts were executed in 1995, whereas the sale deeds in favour of the applicants were in 2013, which is much after the commencement of winding up, the said dispositions are void in terms of Section 536(2) of CA 1956. Such sales were detrimental to the interest of the Company and, therefore, cannot be validated. Consequently, the sale deeds are declared void and the pattas issued on that basis are also void.
Application dismissed.
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2023 (8) TMI 1293
Oppression and Mismanagement - transfer of shares or not - forgery of documents and filing fraudulently false and fabricated returns with the RoC - HELD THAT:- The NCLT has rightly held that the petitioner (Appellant herein) has to first establish his right as a member of the Respondent Company before going into the issues concerning oppression and mismanagement of the Company.
There are no merit in the appeal - appeal dismissed.
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2023 (8) TMI 999
Validity of amended Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 vide notification dated 03.01.2020 - guidelines for enforcement of corporate governance and formation of a High Power Committee to look into lapses leading to closure of more than 6 lakh companies - HELD THAT:- At this stage, the petitioner - Suman Kumar, who appears in person and has been heard, raises a grievance regarding non-issue/non-compliance of E-FORM INC-22A (ACTIVE) on mismatch etc. - no comment made in this regard.
The petitioner – Suman Kumar, if advised, may make a representation or file appropriate proceedings, which proceedings, if filed, will be decided in accordance with law.
Petition dismissed.
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2023 (8) TMI 945
Right of customs authorities (first right) to sell the imported goods under the Customs Act, 1962 and adjust the sale proceeds towards payment of customs duty - Preferential right of secured creditors over hypothecated movable property - winding up order passed - resolution of conflict between the Companies Act and the Customs Act - HELD THAT:- The goods were not released on non-payment of customs duty etc. and, thereupon, show cause notices dated 17th February 2000 and 10th April 2000 were issued and two adjudication orders dated 15th September 2000 and 10th October 2000 were passed.
In a similar factual matrix, a three judges’ bench of this Court in Commissioner of Customs, Calcutta and Another v. Biecco Lawrie Ltd. [2008 (2) TMI 646 - SUPREME COURT] had examined the provisions of Section 15 of the Customs Act, as they then existed, and have opined that clause (b) to Section 15(1) of the Customs Act will cease to apply when the requirements under Section 68 of the Customs Act stand fulfilled and the imported goods are cleared for home consumption. In the context of the present case, we must hold that the debt had become ‘due’ in terms of the two adjudication orders dated 15th September 2000 and 10th October 2000 and ‘payable’ immediately. Thus, the customs duty became ‘due and payable’ prior to twelve months next to the ‘relevant date’; the ‘relevant date' being the date of winding up of the Company on 1st December 2003. The amount ‘due and payable’ in terms of the two adjudication orders dated 15th September 2000 and 10th October 2000 would, therefore, not fall in the category of preferential payments under clause (a) to Section 530(1) of the Companies Act.
The provisions of the land revenue enactment applicable in the present case have not been relied upon by the respondents, in which event, a legal issue relating to conflict of laws would have arisen and required an answer. The provisions in the Customs Act do not, in any manner, negate or override the statutory preference in terms of Section 529A of the Companies Act, which treats the secured creditors and the workmen’s dues As defined and payable in terms of Section 529(3)(b) of the Companies Act as overriding preferential creditors; and the government dues limited to debts ‘due and payable’ in the twelve months next before the relevant date, which are to be treated as preferential payments under Section 530 of the Companies Act, but are ranked below overriding preferential payments and have to be paid after the payment has been made in terms of Section 529 and 529A of the Companies Act. Therefore, the prior secured creditors are entitled to enforce their charge, notwithstanding the government dues payable under the Customs Act.
The provision of Section 142A of the Customs Act, insofar as it protects the rights of overriding preferential creditors governed and covered by Section 529A of the Companies Act, is clarificatory and declaratory in nature, and does not lay down a new dictum or confer any new right as far as the present case is concerned. However, the enactment of section 142A of the Customs Act does confer or create a first charge on the dues ‘payable’ under the Customs Act, notwithstanding provisions under any Central Act, but not in cases covered under Section 529A of the Companies Act, RDDBFI Act, SARFAESI Act and the IBC. Section 142A of the Customs Act, post its enactment, would dilute the impact of Section 530 of the Companies Act, which had restricted preferential treatment to government taxes ‘due and payable’ limited to twelve months prior to the ‘relevant date’, without preferential right for taxes that had become ‘due and payable’ in the earlier period.
On interpretation of Section 178 of the Income Tax Act, it was held that the provision is made applicable for any tax which is ‘then or is likely to become payable’, and specifically relates to cases where the company is in liquidation. Consequently, the amount specified and covered by Section 178 of the Income Tax Act is protected in view of the nonobstante clause in sub-section (6) to Section 178 and this amount has to be set aside. In terms of Section 178 of the Income Tax Act, the amount set aside will not form a part of the pool of dues to be distributed among ordinary or unsecured creditors or, for that matter, as indicated over the overriding or preferential creditors under Sections 529A and 530 of the Companies Act.
The sale proceeds deposited in this Court and converted into fixed deposit receipts, along with the interest accrued thereon, will be paid to the Official Liquidator to be distributed in accordance with the provisions of Sections 529A and 530 of the Companies Act - Appeal allowed.
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2023 (8) TMI 555
Auction of assets of company under liquidation - Refusal to extend the period for depositing the amount offered by the present appellant towards sale consideration - HELD THAT:- It is an admitted fact that the present applicant was supposed to deposit an amount of Rs. 73,23,30,000/- within a period of thirty days starts from the intimation of confirmation of the tender which was on 02.02.2023. The amount was to be paid on or before 03.03.2023. It is pertinent to note that the learned Single Judge, by an order dated 02.03.2023, that is, one day prior to the completion of the aforesaid period, granted thirty days time to deposit the entire amount. But, only Rs. 37 Crores was paid by the applicant. It is true that, under Clause 13.3 of the Terms and Conditions of the Approved E-Auction, High Court has the right to rescind, amend, delete, invalidate any of the settled terms and conditions. The High Court exercised its power once and extended the time for depositing the entire sale amount, but the applicant failed to comply the same.
The observations made by the learned Single Judge agreed upon - there are no reason to interfere with the judgment of the learned Single Judge - appeal dismissed.
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2023 (8) TMI 554
Seeking transfer of present petition to the National Company Law Tribunal [NCLT] - It is submitted that since no effective steps have been taken in the present matter pursuant to the appointment of the Provisional Liquidator, as such the present matter may be transferred to the NCLT - Section 434 (1)(c) of the Companies Act, 2013.
HELD THAT:- The Supreme Court in ACTION ISPAT AND POWER PVT. LTD. VERSUS SHYAM METALICS AND ENERGY LTD. [2020 (12) TMI 535 - SUPREME COURT] held that So long as no actual sales of the immovable or movable properties have taken place, nothing irreversible is done which would warrant a Company Court staying its hands on a transfer application made to it by a creditor or any party to the proceedings. It is only where the winding-up proceedings have reached a stage where it would be irreversible, making it impossible to set the clock back that the Company Court must proceed with the winding up, instead of transferring the proceedings to NCLT to now be decided in accordance with the provisions of the Code. Whether this stage is reached would depend upon the facts and circumstances of each case.
In view of the judgment passed by the Supreme Court in Action Ispat, the present application is allowed subject to the petitioner clearing the expenses incurred by the OL. The OL is directed to raise a demand upon the petitioner within one week, which the petitioner will clear within two weeks thereafter.
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2023 (8) TMI 553
Contempt petition - Alleged wilful breach of orders of this Appellate Tribunal - Complainants alleged that Contemnors have been trying to start a competing jewellery business using deceptively similar names in order to take benefit of the trade mark and goodwill of CKC & Sons - whether there have been specific and clear orders for doing or not doing any stipulated action by the Contemnors or not - whether there could be one and only one interpretation without any ambiguity, whatsoever, to any party to the said order? - Section 2(b) of the Contempt of Court Act, 1971.
HELD THAT:- Section 2(b) of the Contempt of Court Act, 1971, Civil Contempt means disobedience to any judgment, decree, directions, orders or other process of Court or wilful breach of an undertaking given to Court. From this it becomes clear that in order to prove contempt, two elements are required to be established i.e., (i) Disobedience of any judgment, decree, directions, orders or other process of Court; (ii) Disobedience or breach must be wilful, deliberate and intentional.
Similarly, mere disobedience or breach of the Tribunal’s order by the Contemnor may not be sufficient to convert into contempt unless it is proven beyond doubt that such disobedience or breach was wilful. While doing so, we are duty bound to take into consideration whether if any alleged breach was of trivial or in nature of technical breach or it was gross and substantial breach with clear intention to take advantage over the other party/ complainants for seeking undue benefits for the Contemnors.
After conjoint readings of the contents of the order, relief sought and direction of the Tribunal not to precipitate of the matter, we are not in position to agree to the submissions of the Complainants regarding any violation of the orders of this Appellate Tribunal; leave aside wilful disobedience amounting to contempt. No specific directions can be read from this order except general restrain to both the parties by this Appellate Tribunal, that too at the best, in the context of the main appeal No. 65 of 2019.
Permission to hold Board Meeting in accordance with Section 173 of the Companies Act, 2013 r/w Section 8 of Companies (Meeting of Board and its Power) Rule, 2014 - HELD THAT:- This Appellate Tribunal gave direction to Respondent No. 9 therein- Mr. C. Ganesh Narayan therein/ Contemnor No. 1 herein not to take any coercive action against the matter concerned. This makes quite clear that the order dated 25.11.2021 by this Tribunal was only for Mr. C. Ganesh Narayan and not to any other (Complainants/ Contemnors) and this restrain order is required to be read with prayer made in I.A. No. 1075 of 2021 (I.A. filed by the Complainants herein), which was specifically in relation to holding Board Meeting in terms of Section 173 of the Companies Act, 2013. In this order, neither there has been any discussion regarding non operation of existing business or opening new store as brought out in present Contempt Case or any specific directions by this Appellate Tribunal on any other matter other than relating to Board Meeting only to Mr. C. Ganesh Narayan - we are not able to appreciate the case being made out by the Complainants regarding alleged violations or breach by Contemnors w.r.t order dated 25.11.2021 passed by this Appellate Tribunal.
There are no alleged contempt - the contempt case devoid of any merit(s) is dismissed.
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2023 (8) TMI 490
Enhancement of authorized share capital by resolution - Validity of Annual General Meeting held on 05.10.2017 - validity of Form DIR-12 in respect of appointment of 3rd and 4th respondents - compliance with Section 61(1) of the Companies Act, 2013 or not.
HELD THAT:- A perusal of the material on record shows that the Petitioner had sent an e-mail dated 26.09.2017 objecting to the AGM held on 28.09.2017 and on 03.10.2017 the Petitioner/Appellant received a Notice that the AGM would be held on 05.10.2017. Another notice was also received on 07.10.2017 calling for a Board Meeting on 14.10.2017 only to add more number of Members. It is contended that the 2nd respondent has filed INC-22 with the Registrar of the Companies, authorizing the shifting of the office from its registered office which is based on the meeting said to be conducted on 05.10.2017, against which act the Petitioner/Appellant had lodged a Complaint with the Police. On 13.10.2017, the Petitioner received an e-mail informing that due to the administrative reasons, the meeting was postponed to 18.10.2017. It is seen from the record that the Company Petition was filed on 25.10.2017 - It is seen from the record that the Company Petition was filed on 25.10.2017. It is the case of the Petitioner/Appellant that the 2nd Respondent had digitally signed and filed the DIR-12 on 04.11.2017 showing that the 3rd and 4th Respondents were appointed as Directors in the AGM held on 05.10.2017.
Enhancement of the Authorized Share Capital on 31.03.2016 - HELD THAT:- It is seen from the record that the extract of the Resolution Anx.R6 in which the Petitioner and the 2nd Respondent had signed, establishes the enhancement of the Authorized Share Capital. The Financial Statements of the Assessment Year of 2015-16, 2016-17 showing the enhanced share capital further substantiates that the enhanced share capital was accepted by the Petitioner as the Anx-4 document shows that these Financial Statements have been duly signed by the Petitioner, the 2nd Respondent and the Auditor of the Company. Therefore, this Tribunal agrees with the finding of the NCLT that the enhancement of the Share Capital of the 1st Respondent Company, vide a Company Resolution dated 31.03.2016, is valid.
A perusal of the material on record shows that there is some strained relationship between the two Directors viz. the Petitioner and the 2nd Respondent. A notice dated 07.09.2017 was issued to the Petitioner adhering with the statutory compliances of convening the AGM before 30.09.2017 and the Petitioner/Appellant is informed that the said AGM is scheduled to be held on 28.09.2017 - A Board Meeting was once again called on 14.10.2017 for approving the Financial Statements and the Directors and Auditor’s report. Once again the Appellant did not attend the Board Meeting held on 14.10.2017.
The record shows that the Petitioner owns 10% shares and the Minority Shareholder and had not attended the Board Meetings held on 28.09.2017, 05.10.2017 and also on 14.10.2017, despite service of notice, and therefore, now belatedly cannot raise the contention that the induction of the 3rd and 4th Respondents as Directors, is invalid, filing of the financial statements is non-est and that the very meetings have to be declared as illegal.
There are no legality or infirmity in the well-reasoned order of the NCLT, Kochi Bench and therefore this Appeal is dismissed.
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2023 (8) TMI 489
Oppression and Mismanagement - rejection of rectification application - non-speaking order - non-disclosure of fact regarding dismissal of the earlier appeal in the present appeal - Section 241-242 of the Companies Act, 2013 - HELD THAT:- Against the rejection of the appeal the appellant instead of preferring an appeal preferred to file a rectification application before the NCLT. It appears that the appellant was persuaded with some of the observations recorded by this Tribunal in its order [2022 (11) TMI 759 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI] as if we permitted him to file rectification petition. However, this Tribunal was not inclined to interfere with the order since it was a consent order. In the said order i.e. order dated 11.11.2022 this Tribunal noticed that if an authorisation is given to a counsel and on authorisation such submission is made by the counsel, the integrity of the counsel may not be questioned that too without apprising the concerned Court. Such submission was not permissible to be raised before Appellate Court.
It is evident that Ms Malika Joshi, learned counsel who had given consent before the Tribunal had not signed this communication - the submission of the learned counsel for the Respondent agreed upon that in the aforesaid communication it has not even been indicated as if the signatory of the said praecipe has received any instructions or information from Ms Malika Joshi, learned counsel for the appellant. If the appellant was of the view that without any authorisation such consent was given by his counsel then in that event he would have taken immediate steps for filing a rectification application, instead of preferring an appeal before this Tribunal.
Admittedly the rectification application was filed for rectification of order dated 30.09.2022 against which the appellant had preferred appeal and the same was rejected by this Tribunal in [2022 (11) TMI 759 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI].
Non-disclosure of the fact regarding dismissal of the earlier appeal in the present appeal is itself enough to draw inference that appellant before this Tribunal has not come with clean hands and on this score also the appeal is required to be rejected - appeal dismissed.
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2023 (8) TMI 414
Oppression and Mismanagement - seeking to grant waiver to the Petitioners in order to enable them to file application under Section 241 of the Companies Act, 2013 - HELD THAT:- A reading of the provision of Section 399 of Companies Act, 1956, much less Section 399(4) would show that for the purpose of maintaining the petition under Section 399(1)(a)(b) of the Act, 1956, the Central Government was given the power to form an opinion in this regard as to whether it is just and equitable to do so.
It is categorically provided in Section 244 proviso that the Tribunal can waive all or any of the requirements specified in clause (a) or clause (b) of Section 244 to enable the members to apply under Section 241. Meaning thereby, if the conditions in Clause 244(a) and 244 (b) are not waived and the Applicant is not qualified so far as condition enumerated in Section 244(1)(a)(b) are concerned then the application itself would not be maintainable and the Tribunal cannot proceed with it for the purpose of taking it to any conclusion. It appears that original applicants sensed that it would be in their interest to seek waiver under Section 244 of the Act, therefore, application bearing 533 of 2020 was filed during the pendency of the main application. In the said application, the applicants of application bearing 272 of 2016, who have raised the issue regarding the maintainability of the application even under Section 399 of the Act, 1956.
The deemed waiver, which has been granted, is nowhere provided in Section 244 of the Act rather the Act says that the Tribunal has to take a decision in regard to the merit of the application as to whether the waiter has to be given in respect of clause (a) and (b) of Section 244(1) and that order should not be arbitrary or capricious but should be speaking and reasoned. Since, the reasons are conspicuous by its absence in the order which has been passed in Para 8 of the impugned order, which goes to the root of the case because until and unless waiver is granted the petition shall not be considered as maintainable and no further order can be passed in it.
There is serious error on the part of the Tribunal in recording its finding by which waiver has been granted and the petition has been held to be maintainable which deserves to be set aside - the impugned order is set aside.
The matter is remanded back to the Tribunal - Appeal allowed.
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2023 (8) TMI 358
Professional Misconduct - Acceptance of audit engagement without valid authorization and without complying with ethical requirements; and issuing an audit report in violation of the Act - Non-Compliance with SA 210 "Agreeing the Terms of Audit Engagements" - Non-Compliance with SA 230 "Audit Documentation" - Non-Compliance with SA 700, "Forming an Opinion and Reporting on Financial Statements" - Non-Compliance with other SAs - Non-Compliance with other SAs - Penalties and sanctions.
Acceptance of audit engagement without valid authorization and without complying with ethical requirements; and issuing an audit report in violation of the Act - HELD THAT:- The absence of due diligence and display of gross negligence by the EP run afoul of the provisions of the Chartered Accountants Act, 1949 and resulted in professional misconduct as conceived under Section 22, Clause 9 of Schedule I of the Chartered Accountants Act, 1949. The acceptance of an invalid appointment letter for the Statutory Audit of the Branch, the conduct of the audit based on an invalid appointment, convoluted logic and baseless reading of the law to justify the actions show the absence of professional skepticism and gross negligence on the EP's part. Therefore, we find that the charges in paras 13 and 14 above stand proven.
Non-Compliance with SA 210 "Agreeing the Terms of Audit Engagements" - HELD THAT:- The EP accepted the appointment letter issued by DHFL and issued the audit report without complying with the requirements of SA 210. Between 2015-16 and 2016-17, there was a significant change in the circumstances relating to the branch audit. In 2015-16 the AGM decided to have a separate branch auditor and company's auditor, while in subsequent years there was only one auditor (CAS) to audit the Company and all its branches. This calls for the application of para 13 of SA 210 as well. EP's negligence of the provisions of SA 210 resulted not only in accepting an illegal appointment and non-compliance with SA 210 but also in the absence of professional skepticism and professional judgment in understanding the objective and scope of the audit, thereby violating SA 200 also. Therefore, the charges stand proven.
Non-Compliance with SA 230 "Audit Documentation" - HELD THAT:- On examining the additional documents added by the EP in the interest of fairness, and have taken the evidence into consideration wherever it is supporting or corroborating the original audit documentation submitted to NFRA. However, the conclusion is inescapable that additional documentation submitted to NFRA was deficient in terms of the nature, timing and extent of the audit procedures performed, who prepared and reviewed the audit working papers (WPs) and the timing of the audit procedures. For example, the majority of the additional documents submitted (purportedly from the EP's previous year's audit file), only have the sign and stamp of the Audit Firm. It carries no indication of any audit procedure being performed in respect of the financial year in question i.e. 2017-18 - the EP did not follow the requirements of SA 230 and that the audit documentation does not give evidence of the nature, timing and extent of audit procedures performed, results of those audit procedures and conclusions reached during the. Hence the charges regarding non-compliance with SA 230 stand proven.
Non-Compliance with SA 700, "Forming an Opinion and Reporting on Financial Statements" - HELD THAT:- SA 700 is applicable in this audit and as per the SA 700, the EP is required to evaluate the effect of the misstatements and decide to appropriately modify the opinion. Determination of materiality is therefore important in an audit. Despite noting the evidence for control deficiency such as the observations noted by EP in his working paper titled "Audit observation" for the Koehl branch, the EP did not document how this deficiency was immaterial and how it did not affect the financial information - There is also no determination of materiality thresholds in the audit file. In the absence of documented conclusions, insufficient audit documentation, determination of materiality and assessment of the risk of misstatements and the test of controls we observe that the audit opinion issued by the EP does not comply with SA 700. Hence, the charges stand proven.
Non-Compliance with other SAs - HELD THAT:- Non-compliance with para 6, 7, 8, 9 & 10 of SA 300 as the EP failed in establishing an overall audit strategy and development of audit plan etc. in accordance with SA 300 - the audit plan is not required since the scope of work is "well defined'' have no basis in the SAs and show the EP's absolute disregard to the quality of audit. Moreover, the audit plan now submitted by the EP was not forming part of the Audit File for 2017-18. Such contentions of the EP are against the fundamentals of SA 230 that require the maintenance of an Audit File that can enable an experienced auditor having no connection with the audit to understand the nature, timing and extent of the audit procedures performed to comply with the SAs. To evidence compliance with the requirements of the SAs, it is the fundamental stipulation of SA 230 that the auditor shall assemble the audit documentation in one audit file (and not multiple audit files of different years).
Non-compliance with para 5, 6 & 11 of SA 315 and para 1, 5 & 6 of SA 330 - HELD THAT:- As the audit file lacks any documentation regarding the performance of risk assessment procedures for material misstatements at the financial statement level and assertion level and response to such risks etc. - In the absence of any documentation in the audit file, the contention is only an afterthought and hence not admitted.
Non-compliance with para 10, 11 & 14 of SA 320 - HELD THAT:- Mandatory documentation requirements of SA 320 include the factors considered in the determination of materiality and materiality for the financial statements as a whole, the materiality level or levels for particular classes of transactions, account balances or disclosures, performance materiality and any revision of the materiality amounts as the audit progress. The audit documentation in the present case did not contain any of these details and hence the replies of the EP are not acceptable.
Non-compliance with para 5, 6, 8, 14 & 15 of SA 450 in the absence of the evaluation of identified misstatements and uncorrected misstatements - HELD THAT:- The EP submits that there were no instances of identified misstatements and material misstatements and hence SA 450 is not applicable. The reply of the EP is not acceptable in the absence of any documentation or conclusions in the audit file in this regard.
Non-compliance with para 6 & 9 of SA 500 in not designing and performing audit procedures to obtain sufficient appropriate audit evidence and not evaluating the reliability of information produced by the company - HELD THAT:- The replies are not accepted since there is no evidence in the Audit File of designing and performing audit procedures, such as an audit plan, the substantive procedures performed and the conclusions drawn.
Non-compliance with para 6 of SA 520 relating to the design and performance of analytical procedures - HELD THAT:- The EP submits that SA 520 is not applicable since it is not a financial statement audit. The reply is not accepted since, as explained earlier in this order, the SAs are applicable for the branch statutory audit also.
Non-compliance with para 4, 6, 7, 8 & 9 of SA 530 relating to the determination of sample design, sample size and required audit procedures - HELD THAT:- The conditions in the appointment letter do not evidence basis for EP's work and conclusions. The SAs casts a responsibility22 on the auditor to design and perform audit procedures to obtain sufficient appropriate audit evidence on which to base the audit opinion. The terms dictated by the company cannot substitute this responsibility. There is no evidence that any of the sampling and the related procedures as detailed in SA 530 have been complied with by the EP, while the audit opinion is based on sample testing. In the absence of any evidence to show compliance with the determination of sample design, sample size and audit procedures performed on it, the contentions of the EP are not accepted.
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 - The EP in the present case was required to ensure compliance with SAs to achieve the necessary audit quality and lend credibility to the reports issued to facilitate the Company's Auditor to form their opinion on the Financial Statements. As detailed in this order starting from the acceptance of the Audit to the conduct and conclusion of the audit, there were substantial deficiencies in the Audit and abdication of responsibility on the part of EP, CA Sam Varghese, which establishes the professional misconduct. Despite being a qualified professional, it is found that the EP, CA Sam Varghese has not adhered to the Standards of Audit.
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 the exercise of powers under Section 132(4)(c) of the Companies Act, 2013, proceed to order the following sanctions:
i. Imposition of a monetary penalty of Rs 100,000 (One Lakh) upon CA Sam Varghese;
ii. CA Sam Varghese 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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2023 (8) TMI 322
Professional Misconduct - Acceptance of audit appointment without complying with mandatory legal and ethical requirements and issuing audit report without a valid appointment as per the Act - Failure to comply with Standards on Auditing (SAs) - Non-Compliance with SA 210 “Agreeing the Terms of Audit Engagements” - Non-Compliance with SA 230 “Audit Documentation” - Non-Compliance with SA 700, “Forming an Opinion and Reporting on Financial Statements” - Non-Compliance with other SAs - Penalty and sanctions.
Acceptance of audit appointment without complying with mandatory legal and ethical requirements and issuing audit report without a valid appointment as per the Act - HELD THAT:- In the absence of a valid appointment order, EP’s acceptance vide letter dated 09.09.2017 of the appointment as statutory auditor of the branches and issuance of the “Independent Branch Auditor’s Report” for the eight Branches of DHFL, including the report required under CARO 2006 describing the engagement as Branch Statutory Audit shows the absence of professional skepticism and lack of due diligence on his part - The EP’s position, (shifting the onus on the Company), cannot be accepted as the EP was required to exercise due diligence under the SA 200 and adhere to the specific provisions of the CAs Act under Section 22 read with Clause 9 of the First Schedule. The non-compliance is thus professional misconduct in terms of section 132(4)(c) of the Companies Act 2013. The said lack of due diligence and gross negligence in accepting an invalid appointment is also professional misconduct as per the Chartered Accountants Act, 1949, the meaning of which is conceived in Section 132(4)(c) of the Companies Act 2013.
Non-Compliance with SA 210 “Agreeing the Terms of Audit Engagements” - HELD THAT:- EP’s negligence of the provisions of SA 210 has resulted in accepting an illegal and invalid appointment and issuing a report that is not appropriate to the situation. Thus, apart from the non-compliance with SA 210, this shows absence of professional scepticism and professional judgment in understanding the objective and scope of the audit, thereby violating SA 200 also. Therefore, charges stand proven.
Non-Compliance with SA 230 “Audit Documentation” - HELD THAT:- The lack of sufficient documentation in an audit is not a mere technical and procedural formality but is a serious issue which strikes at the very root of the audit and may defeat the very purpose of the audit itself. Lack of sufficient documentation has been viewed seriously by national and international regulators as well - In the absence of proof documented in the audit file, the inevitable conclusion is that the requirements of the SAs are not met. The facts are evidence that the EP did not follow the requirements of SA 230 and the audit documentation does not give evidence of the nature, timing and extent of audit procedures performed, results of those audit procedures and conclusions reached during the audit. Hence the charges regarding non-compliance with SA 230 stand established.
Non-Compliance with SA 700, “Forming an Opinion and Reporting on Financial Statements” - HELD THAT:- In the absence of any documented conclusions, determination of materiality and assessment of the risk of misstatements and the test of controls and based on the contradictory evidence available, we conclude that the unmodified opinion issued by EP is without any valid basis and therefore the EP did not comply with the provisions of SA 700. The Charges stand established - such lapses relating to the verification of documents during the audit are viewed seriously by audit regulators. A Chartered Accountant, in the audit of a Bank branch, did not verify the securities for debts and was held guilty of professional misconduct of absence of due diligence and gross negligence.
Non-Compliance with other SAs - HELD THAT:- Para 6,7, 8, 9 & 10 of SA 300 as the EP failed in establishing an overall audit strategy and development of audit plan etc. in accordance with SA 300 - para 5, 6 & 11 of SA 315 and para 1, 5 & 6 of SA 330 as the audit file lacks any documentation regarding the performance of risk assessment procedures for material misstatements at the financial statement level and assertion level and response to such risks etc. - para 10, 11 & 14 of SA 320 for determining materiality, performance materiality and documentation thereof - para 5, 6, 8, 14 & 15 of SA 450 absent the evaluation of identified misstatements and uncorrected misstatements - para 6 & 9 of SA 500 in not designing and performing audit procedures to obtain sufficient appropriate audit evidence and not evaluate the reliability of information produced by the company - para 5, 6 and 8 of SA 510 relating to the performance of necessary audit procedures and obtaining sufficient and appropriate audit evidence to ascertain the accuracy of Opening Balances and the accounting policies reflected in the Opening Balances - para 6 of SA 520 relating to design and performance of analytical procedures - para 4, 6,7, 8 & 9 of SA 530 relating to the determination of sample design, sample size and required audit procedures - para 8,9 & 10 of SA 580 regarding obtaining written representations from the management about their responsibilities.
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.
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 we, in the exercise of powers under Section 132(4)(c) of the Companies Act, 2013, proceed to order the following sanctions:
i. Imposition of a monetary penalty of Rs 100,000 (One Lakh) upon CA Akash Goel;
ii. CA Akash Goel 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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2023 (8) TMI 263
Oppression and mismanagement - plea of the Appellant is that in the absence of holding any Shares, in the Applicant’s company, the 2nd Respondent, cannot be a Party, to a Petition, under Section 241 to 244 of the Companies Act, 2013, as she is neither a Member of the Appellant Company nor she is so authorized to do so by the Deceased - HELD THAT:- It must be exhibited that the conduct of Majority Shareholders, was Oppressive to Minority, as Members, and this requires that the events are to be considered as part and parcel of sequential narration.
The Hon’ble Supreme Court of India, in the decision SHANTI PRASAD JAIN VERSUS KALINGA TUBES LTD. [1965 (1) TMI 17 - SUPREME COURT], had held that the Law, has not defined Oppression and it is left to the Court, to decide on facts of each case, whether there is such Oppression, requiring action.
A Succession Certificate, can be granted, not only in respect of the Debt, but also in regard to the Shares, in a Company. Where a Succession Certificate, was granted in respect of Shares, in a Company, the Company, cannot insist upon production of Probate or Letters of Administration.
The 4th Respondent / 2nd Respondent / 2nd Petitioner, seeking Equitable Reliefs, under Section 241 of the Companies Act, 2013, on account of Oppression of their Rights, as Shareholders, and a Systematic Exclusion, from knowing / participating in the Management and the Affairs of the Appellant / 3rd Respondent / 1st Respondent Company. Further, the Petition, arose, in respect of the Family run Appellant / 3rd Respondent Company, in which, the 3rd and 4th Respondents / 1st and 2nd Respondents Family Wing, were specifically excluded from the Management, and Rights of the Shareholders, were denied.
Appeal dismissed.
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