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Companies Law - Case Laws
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2023 (7) TMI 1245
Professional Misconduct - Lapses pertaining to Related Party Transactions - Conversion of Loan into Capital Advance to Merino Shelters Pvt. Ltd. (MSPL) - Failure to report full particulars of loan to a Related Party - Failure to report non-disclosure of Related Party Loans on gross basis - Failure to report non-disclosure of material transactions - Issues related to Credit Risk Exposures (Trade Receivables) - errors in Presentation and Disclosures - Ageing Analysis of Trade Receivables - Inadequacy of disclosures regarding credit risk exposure of trade receivables required under Para 35M and 35N of Ind AS 107 - Failure to report non-consolidation of subsidiary - Failure to obtain Sufficient Appropriate Audit Evidence (SAAE) - Recognition and measurement of Expected Credit Loss Allowance - Audit of Internal Financial Control Over Financial Reporting(Clause (i) of sub- section 3 of Section 143 of the Companies Act, 2013 - Failure to plan the audit of Financial Statements - Failure to perform risk assesment procedures and response to such risks - Failure to design and implement auditors’ response to assessed risks - Failure to determine materiality - Failure to perform Analytical Procedures - Failure to prepare documentation regarding Auditor’s responsibilities relating to fraud - Failure to Communicate with Those Charged with Governance (TCWG).
Findings on Articles of Charges of Professional Misconduct by the Auditors - HELD THAT:- It is concluded that the Auditors have committed professional misconduct as defined in Section 132 (4) of the Companies Act, read with Section 22 the Chartered Accountants Act 1949 (the CA Act), as amended from time to time, as detailed below:
i. The Auditors committed professional misconduct of failure to disclose a material fact known to them which is not disclosed in a financial statement, but disclosure of which is necessary in making such financial statement where they are concerned with that financial statement in a professional capacity".
ii. The Auditors committed professional misconduct of failure to report a material misstatement known to them to appear in a financial statement with which they are concerned in a professional capacity.
iii. The Auditors committed professional misconduct by not exercising due diligence and being grossly negligent in the conduct of their professional duties.
iv. The Auditors committed professional misconduct by failing 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.
v. The Auditors committed professional misconduct by failing to invite attention to any material departure from the generally accepted procedure of audit applicable to the circumstances.
Findings on Additional Articles of Charges of Professional Misconduct by the Audit Firm - HELD THAT:- The Audit Firm has committed Professional Misconduct as defined in Section 132(4) of the Companies Act, read with Section 22 the Chartered Accountants Act 1949, as amended from time to time, as failure to exercise due diligence and being grossly negligent and by failing to invite attention to any material departure from the generally accepted procedure of audit applicable to the circumstances, in the conduct of professional duties in respect of matters as explained in Section E above and thus violated SQC I.
Penalty and Sanctions - HELD THAT:- Section 132(4) of the Companies Act, 2013 provides for penalties in a case where professional misconduct is proved. The seriousness with which proved cases of professional misconduct are viewed, is evident from the fact that a minimum punishment is laid down by the law - Independent Auditors of Public Listed Companies serve a critical public function of enabling the users of Audited Financial Statements to take informed decisions.
The Auditors in the present case were required to ensure compliance with SAs to achieve the necessary audit quality and lend credibility to Financial Statements to facilitate its users. As detailed in this Order, substantial deficiencies in the audit, abdication of responsibility and inappropriate conclusions on the part of CA Devang Dalal establish his professional misconduct. Despite being a qualified professional, CA Devang Dalal has not adhered to the Standards and has thus not discharged the duty cast upon him. On the contrary, he has tried to cover up by giving unsubstantiated and unconvincing replies to the SCN - The Firm, M/s. M H Dalal & Associates has also failed to exercise appropriate control and monitoring of the work of the EP and the Engagement Team during the audit engagement and has abdicated its responsibility to ensure audit quality as per Professional Standards. Under the circumstances, we proceed to order the following sanctions keeping in mind the deterrence, proportionality, and the signalling value of sanctions.
Considering the fact that professional misconducts have been proved and considering the nature of violations and principles of proportionality, we, in exercise of powers under Section 132(4)(c) of the Companies Act, 2013, order:
i. Imposition of a monetary penalty of Rs.10,00,000/- (Rupees Ten Lakhs) upon CA Devang Dalal who is also debarred for Five years from being appointed as an auditor or internal auditor or from undertaking any audit in respect of Financial Statements or internal audit of the functions and activities of any company or body corporate.
ii. Imposition of a monetary penalty of Rs.50,00,000/- (Rupees Fifty Lakhs) upon M/s. M H Dalal & Associates.
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2023 (7) TMI 1244
Professional Misconduct - Failure in understanding the nature of business of MACEL resulting in lapses in audit relating to fraudulent diversion of funds - Lapses in audit relating to accounting of related party borrowings and bank borrowings resulting in misstatements by Rs 2,363.34 crore due to fraud - Lapses in audit relating to misstatement of Rs 909.99 crores in Cash Flow Statement - Lapses in evaluation of corporate guarantee and creation of charge on the assets of the company (Rs 130 crores) - Lapses in making audit conclusions and forming audit opinion - other non-compliances.
HELD THAT:- The Audit Firm was charged with various omissions and commissions observed in the audit, as discussed in the preceding paragraphs, for its role as the statutory auditor appointed under section 139 of the Act.
The Audit Firm was also charged with failure to comply with para 2 of SA 220 and para 3 of SQC 1, which stipulate that Quality Control Systems, Policies and Procedures are the responsibility of the Audit Firm. The Audit Firm was also charged with failure to establish and maintain a system of quality control to provide it with reasonable assurance that:
a) The firm and its personnel comply with professional standards and regulatory and legal requirements; and
b) The reports issued by the firm or engagement partners are appropriate in the circumstances.
On examining pointwise reply it is found that all charges are proved except the charge relating to constitution of the Audit Committee. Therefore, CA Lavitha Shetty, Proprietor of the Audit Firm is also responsible for non-compliance with provisions relating to Quality Control Systems, Policies and Procedures of SA 220 and SQC 1.
Articles of Charges of Professional Misconduct by the Statutory Auditor - HELD THAT:- The Auditor has made a series of serious departures from the Standards and the Law, in conduct of the audit of MACEL for FY 2018-19 - it is proved that the Auditor had issued unmodified audit opinion on the Financial Statements without reporting diversion of funds, evergreening of loans and committed other serious lapses during performance of audit. Based on the discussion and analysis, it is concluded that the Auditor has committed Professional Misconduct as defined in Section 132 (4) of the Companies Act, read with section 22 the Chartered Accountants Act 1949 (the CA act), as amended from time to time.
Penalty and sanctions - HELD THAT:- Section 132( 4) of the Companies Act, 2013 provides for penalties in a case where professional misconduct is proved. The seriousness with which proved cases of professional misconduct are viewed, is evident from the fact that a minimum punishment is laid down by the law - The Auditor was required to ensure compliance with Standards on Auditing, Laws and Regulations to achieve the necessary audit quality and lend credibility to Financial Statements to facilitate its users. As detailed in this order, substantial deficiencies in Audit, abdication of responsibility and inappropriate conclusions on the part of the Auditors establish her professional misconduct and lack of due diligence. Despite being a qualified professional, the Auditor has not adhered to the Standards and have thus not discharged the duty cast upon her.
Considering the proved professional misconduct, the nature of violations and principles of proportionality, in exercise of powers under Section 132(4)(c) of the Companies Act, 2013, it is hereby ordered that “Imposition of a monetary penalty of Rs Five Lakhs only upon CA Lavitha Shetty. In addition, CA Lavitha Shetty is debarred for a period of five years from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate”.
Application disposed off.
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2023 (7) TMI 1188
Corporate Liquidation and Asset Disposal - Seeking impleadment on account of being a necessary party in the current petition - sole and absolute owner of the properties - claim of the Applicant is that the land could fetch at least a sum of Rs. 75,000/- per month, but the Applicant has been unable to put the same to use in light of the possession by the OL.
HELD THAT:- In the present case, the Provisional Liquidator was appointed in 2017. However, the winding up is not at an advanced stage. No auction has been conducted, no claims have been invited. Clearly the winding up process could consume considerable time. Accordingly, the present company petition is transferred to the NCLT. The entire record of the present petition shall also be remitted in the electronic form to the Registrar, NCLT, and the same shall be listed before the NCLT. All the parties appearing before the Court are also permitted to appear before the NCLT on 3rd August, 2023. The OL shall continue to exercise the control over all the properties of the Company under liquidation, subject to any orders that the NCLT may pass in future.
Insofar as the securing of assets is concerned, the expenses incurred till 1st August, 2023 shall be paid by the OL. The same shall be reimbursed by SBI, and PNB by 14th August, 2023. SBI and PNB are free to claim the same as part of the debt against the Company. The NCLT shall pass appropriate orders to secure the assets. Until the NCLT passes appropriate orders regarding securing the assets, SBI and PNB shall bear the expenses of the security agencies.
List before the NCLT 3rd August, 2023.
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2023 (7) TMI 1187
Seeking grant of bail - petitioner has been implicated for his role as an “officer who is in default” within the meaning of section 2(60) of the Companies Act - petitioner was a ‘director’ of the company at the relevant time - fulfilment of twin-conditions imposed under section 212(6) of the Companies Act - HELD THAT:- Section 212(8) of the Companies Act says that an investigating officer of the SFIO has the power to arrest an accused if he has reason to believe on the basis of material available with him that the person is guilty of commission of an offence under section 212(6). Though, no doubt, this power of arrest is meant to enforce ‘police custody’ in aid of investigation, what is important to note is that arrest is permissible if the investigating officer has reason to believe that the accused is guilty of the offence based on available material.
In the present case, the record shows that the investigating officer never arrested the petitioner throughout the investigation, further investigation and other pre-cognizance stages, all of which took more than 06 years. Even at the stage when the final investigation report was filed before the learned Special Judge, the investigating officer did not seek that the petitioner be either arrested or remanded to judicial custody. This was presumably guided by the words of the Supreme Court in JOGINDER KUMAR VERSUS STATE OF UP. [1994 (4) TMI 385 - SUPREME COURT] and SIDDHARTH VERSUS THE STATE OF UTTAR PRADESH & ANR. [2021 (8) TMI 977 - SUPREME COURT].
In view of the verdict of the Supreme Court in SUNDEEP KUMAR BAFNA VERSUS STATE OF MAHARASHTRA & ANR [2015 (8) TMI 724 - SUPREME COURT], what is settled is that a person is ‘in custody’, no sooner he surrenders before the appropriate court. But that custody does not tantamount to being “under incarceration” as referred to in SATENDER KUMAR ANTIL VERSUS CENTRAL BUREAU OF INVESTIGATION & ANR. [2022 (8) TMI 152 - SUPREME COURT]. Now, the word ‘incarceration’ has not been defined either in the Code of Criminal Procedure 1973, nor in the Indian Penal Code 1860, nor in the Prisoners Act 1900, nor even in the Prisons Act 1894.
Therefore, taking cue from what the Supreme Court has held in Satender Kumar Antil, evidently when the petitioner appeared before the learned Special Judge in compliance of the summons issued to him, he was ‘in custody’ of the court but not ‘under incarceration’. Accordingly, the twin-conditions contained in section 212(6) of the Companies Act did not get actuated.
A reasonable interpretation of the twin-conditions leads to the conclusion that since the petitioner had not been arrested throughout the course of investigation; he had appeared before the learned Special Judge against summons - not arrest warrants - issued to him; and most importantly, when the investigating officer had not even sought police custody or judicial custody of the petitioner, the twin conditions would not apply. At that point in time, the twin-conditions stipulated in section 212(6) of the Companies Act did not automatically get actuated. What really transpired was that merely upon appearing before the learned Special Judge, as if by reflex action, the court remanded the petitioner to judicial custody; whereupon the petitioner filed a bail application; which also came to be dismissed there-and-then invoking section 212(6).
The learned Special Judge misdirected himself in applying section 212(6) of the Companies Act, on the flawed premise that that that was the stage for grant of bail, whereas, it was the stage of considering whether there was any need to remand the petitioner to judicial custody at all. As discussed above, it was for the Investigating Officer to seek that the petitioner be remanded to judicial custody, for justifiable reasons based on material gathered during investigation, which he did not do - the Investigating Officer had not filed any application seeking that the petitioner be placed in judicial custody, even upto the stage when the petitioner appeared before the learned Special Judge on being summonsed. Since the Investigating Officer did not arrest the petitioner during the more than 06-year long proceedings and investigation, evidently, the Investigating Officer did not consider it necessary to do so based on the material in his possession collected in the course of investigation.
This court is inclined to admit the petitioner to regular bail, subject to the conditions imposed - application allowed.
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2023 (7) TMI 1028
Professional Misconduct - violation of the Standards of Auditing - failure to plan the audit and understand the entity and its environment - failure to determine the materiality and performance materiality - failure to identify and communicate with TCWG - failure to evaluate the arm’s length pricing for the related party transactions that amounted to 54% of the total sales - failure to obtain sufficient appropriate audit evidence regarding the existence and condition of inventory that constituted over 36% of the balance sheet - failure to obtain confirmation of balances from debtors & creditors that accounted for over 60% and 29% respectively of the balance sheet - failure to report the non provisioning for Trade Receivables that accounted for nearly 23% of the Trade Receivables - failure to determine the appointment of Engagement Quality Control Reviewer (EQCR).
Failure to obtain sufficient appropriate audit evidence regarding the existence and condition of inventory - HELD THAT:- The Audit File has no evidence of verification of the inventory on test check basis, as claimed. The Audit File has only two sheets of paper out of which one gives the stock statement of inventory hypothecated to Bank of Baroda, and the other is a copy of the Certificate of Registration tor Modification of Charge issued by the RoC, Mumbai - EP has displayed lack of due diligence and gross negligence in his audit of inventories, and the charge relating to the EP’s failure to obtain sufficient appropriate audit evidence in relation to the existence and condition of inventory, in compliance with SA 501, stands proven.
Failure to evaluate the arm’s length basis for transactions with related parties - HELD THAT:- As there is no testing of the arm’s length pricing in the Audit File and the reply of the EP did not specifically answer the charge in the SCN, it is concluded that the EP did not comply with requirements of SA 550.Thus, the charge in the SCN stands proven.
Failure to obtain external confirmation for the Trade Receivables & Trade Payables - HELD THAT:- In the absence of documentation regarding balance confirmations from the debtors & creditors and lack of any evidence of alternate procedures performed, it is obvious that the auditor has failed to comply with SA 505, and the charge regarding EP’s failure to obtain sufficient appropriate audit evidence regarding the trade receivables & trade payables, stands proven.
Failure to report non-provisioning for doubtful debts - HELD THAT:- The EP was charged with the failure to report non-provisioning for doubtful debts even though the company had disclosed 9.17 crores of debts as doubtful and did not make any provision in the accounts for the doubtful debts as per para 4.2 of the AS 4. The EP was also required to comply with para 6 of the SA 540, which states that the objective of the auditor is to obtain sufficient appropriate audit evidence whether in the context of the applicable financial reporting framework the accounting estimates are reasonable and related disclosures in the financial statements are adequate - The EP in his reply to SCN did not specifically respond to the charge on the failure to report on the non-provisioning for 2 9.17 crores of doubtful debts despite the requirement in AS 4. During the personal hearing also, he did not offer any substantive comments on the non-provisioning in respect of doubtful debts - the charge regarding the failure to report on the non- provisioning in respect of doubtful debts stands proven.
Failure to Plan the audit and failure to understand the entity and its environment - HELD THAT:- No basic understanding of the entity has been recorded in the Audit File. Also, as part of entity’s risk assessment process the auditor is required as per para 15 of SA 315 to understand whether the entity has a process for identifying business risks relevant to financial reporting objectives, estimating significance of the risks, assessing likelihood of occurrence and deciding how to address those risk. There are no such papers in the audit file.
In the absence of appropriate evidence in the Audit File, we are constrained to conclude that the auditor has failed to plan the audit and has also failed to understand the entity and its environment as mandated by the SAs.
Failure to identify and communicate with Those Charged With Governance (TCWG) - HELD THAT:- In the absence of any evidence indicating identification of, and communication with, the TCWG, it is evident that the provisions of SA 265 have not been complied with by the EP and it is concluded that the charge related to the EP’s failure to identify and communicate with T'CWG stands proven.
Failure to determine materiality and performance materiality - HELD THAT:- In the absence of any evidence in the audit file and lack of any response from the EP, it is held that the charge related to his failure to determine materiality and performance materiality is established.
Failure to document the sampling methodology adopted for substantive testing - HELD THAT:- The EP was charged with failure to obtain sufficient appropriate evidence to support his Opinion and report as required by SA 500. The Audit File has no documentation regarding extent of verification of the transactions, and whether the entire population was verified, or any sampling methodology was applied for the verification of the transactions such as sales & purchases - In the absence of any evidence in the audit file, and lack of any satisfactory reply from the EP, it is held that the charge regarding the EP’s failure to document the sampling methodology adopted for the substantive testing stands proven.
Failure to determine that Engagement Quality Control Reviewer (EQCR) had been appointed - HELD THAT:- The reply of the EP is not acceptable since there is no documentation in the audit file regarding the engagement of EQCR and the details of reviews carried out by the EQCR. Hence, the charge regarding the failure to determine that EQCR had been appointed, stands proven.
Thus, it is established that the EP, CA Narayan Prasad Swami, did not comply with the stipulations in the Chartered Accountants Act, 1949 (CAs Act) regarding the statutory audit engagement and showed gross negligence and lack of due diligence in performing the same. In addition, the EP, CA Narayan Prasad Swami has not ensured audit quality and was grossly negligent in his professional duties by not adhering to the requirements laid down by the relevant SAs. This has led to the issuance of an audit report that is not backed by valid audit evidence and is lacking quality in the audit work.
Penalty & Sanctions - HELD THAT:- Section 132(4) of the Companies Act, 2013 provides for penalties where professional misconduct is proved. The seriousness with which proved cases of professional misconduct are viewed, is evident from the fact that a minimum punishment is laid down by the law.
Considering that professional misconducts have been proved and considering the nature of violations and principles of proportionality, in exercise of powers under Section 132(4)(c) of the Companies Act, 2013, it is ordered that:
a) Imposition of a monetary penalty of = Two Lakhs upon CA Narayan Prasad Swami.
b) In addition, CA Narayan Prasad Swami is debarred for two years from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.
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2023 (7) TMI 889
Professional Misconduct - Acceptance of audit engagement disregarding Independence requirements - Tampering of Audit File and related lapses-SA 230, Audit Documentation - Lapses in audit relating to fraudulent transactions of Rs 3,769.61 crores with MACEL - Lapses in audit relating to fraudulent understatement of advance to MACEL by Rs 222.50 crores and failure to detect evergreening of loans - Lapses in audit relating to diversion of Rs 130.55 crores to M/s Classic Coffee Curing Works - Lapses in audit relating to capital advance given to Dark Forest Furniture Company Private Limited. (DFFCPL) - Failure to report non compliances with section 134(1) of the Act - Failure to comply with SA 700, Forming an Opinion and Reporting on Financial Statements - Failure to comply with SA 250, Consideration of Laws and Regulations in an Audit of Financial Statements - Failure to comply with SA 260, Communication with Those Charged With Governance (TCWG) & SA 265, Communicating deficiencies in Internal Control to Those Charged With Governance and Management - Failure to comply with SA 300, Planning an audit of Financial Statements - Lapses in constitution of Engagement Team (ET) and assigning responsibility among ET members (Additional Lapse on the part of the Audit Firm only).
HELD THAT:- Section 132( 4) of the Companies Act, 2013 provides for penalties in a case where professional misconduct is proved. The seriousness with which proved cases of professional misconduct are viewed is evident from the fact that a minimum punishment is laid down by the law - Independent Auditors of Public Limited Companies serve a critical public function of enabling the users of Audited Financial Statements to take informed economic decisions. Quality audits bolster stakeholder' s confidence in the credibility of financial reporting.
In the instant case, the Auditors, chose to preserve their professional relationship with the promoters of the auditee company, instead of discharging their statutory duty to protect public interest by exercising professional skepticism and questioning the promoters' dubious activities and transactions leading to diversion of shareholders and stakeholders' money on a large scale. Had they performed the required audit procedures with due professional skepticism, many of the dubious transactions would have been perhaps detected. But by failing to do so, they foreclosed this possibility causing immense harm to shareholders and stakeholders - when NFRA called for the Audit File for examination, the Auditors adopted delaying tactics and then tampered with the Audit File. This is extremely serious because it obstructs the NFRA's ability to protect public interest. This case underlines the need for all Auditors regardless of seniority to be aware of their individual responsibility to act honestly and with integrity in all areas of their work.
These Auditors were required to ensure compliance with Standards on Auditing, Laws and Regulations to achieve the necessary audit quality and lend credibility to Financial Statements to facilitate its users. As detailed in this Order, substantial deficiencies in Audit, abdication of responsibility and inappropriate conclusions on the part of the Auditors establish their professional misconduct and lack of due diligence. Despite being qualified professionals, the Auditors have not adhered to the Standards and have thus not discharged the duty cast upon them.
Considering the proved professional misconduct and keeping in mind the nature of violations, principles of proportionality and deterrence against future professional misconduct, in exercise of powers under Section 132(4)(c) of the Companies Act, 2013, following sanctions imposed:
a) Imposition of a monetary penalty of Rs One Crore only upon Mis ASRMP & Co. In addition, Mis ASRMP & Co. is debarred for a period of two years from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.
b) Imposition of a monetary penalty of Rs Ten Lakhs only upon CA A. S. Sundaresha. In addition, CA A. S. Sundaresha is debarred for a period of five years from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.
c) Imposition of a monetary penalty of Rs Five Lakhs only upon CA Madhusudan U A. In addition, CA Madhusudan U A is debarred for a period of five years from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.
d) Imposition of a monetary penalty of Rs Five Lakhs only upon CA Pranaav G. Ambekar. In addition, CA Pranaav G. Ambekar is debarred for a period of five years from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.
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2023 (7) TMI 835
Debar on petitioner by the National Financial Reporting Authority(NFRA) - It was held by Kerala High Court that Exts.P6 and P7 in these writ petitions can be kept in abeyance till 03.07.2023 so that the Tribunal can pass appropriate orders, in accordance with law.
HELD THAT:- There are no reason to interfere with the impugned judgment and hence, the special leave petitions are dismissed.
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2023 (7) TMI 834
Disbursal of payments towards the admitted claims of workmen - Consortium’s second charge on certain assets belonging to the company in liquidation - pari passu rank of the second charge - second charge ranks at par with their first charge or not - levy of costs - workmen's claim for interest on wages.
Whether the entirety of dues owed to the secured creditors must be computed as a single unit against the dues owed to the workmen for calculating the pro rata shares?
HELD THAT:- The priority between two sets of secured creditors has been elucidated in the judgment in ICICI BANK LTD. VERSUS SIDCO LEATHERS LTD. [2006 (4) TMI 264 - SUPREME COURT] wherein the Supreme Court addressed the relationship between various types of secured creditors and determined their respective rights and priorities - Supreme Court has held that the absence of explicit provisions in Section 529 of the Act regarding priority rights over mortgaged assets does not exclude the application of Section 48 of the TP Act in cases of company liquidation. The Court has reasoned that if inter se priority rights of secured creditors were disregarded, it would result in their exclusion from dividend distribution and unjustly treat them as unsecured creditors. This would also unjustly deprive the secured creditor of their rights over the security, which surely is not the legislature's intent.
In view of the discussion and holding in ICICI Bank Ltd., it becomes evident that the first and second charge holders cannot be treated equally. Upholding the objection of the second charge holder would upset the priority of the first charge holder, which would go against the provisions of Section 48 of the TP Act.
Imposition of costs - HELD THAT:- During the proceedings, a mutual agreement was reached among the secured creditors, including Dena Bank, to implement the payments outlined in OLR No. 165/2018. This understanding is evidenced by the Minutes of Meeting dated 24th August, 2018, which were signed by Mr. Rahul Pratap, Chief Manager of Dena Bank. However, the Applicant-Bank has chosen to backtrack on this commitment. The delay in releasing the dues to the workmen can thus be attributed solely to the actions of the Applicant-Bank/Consortium - The Court even directed a meeting between all stakeholders to facilitate an amicable resolution regarding the payment of dues. Subsequent meetings were held between the OL and the parties involved, but these discussions did not bring about a definitive resolution to the issues at hand. Consequently, the Applicant-Bank has purposefully caused delays by attempting to undermine the overriding priority granted by law to the first charge holders, namely the workmen and their admitted claims - the present application is dismissed with a cost of Rs. 10 lakhs on the Consortium, to be deposited in terms of the directions issued later in the judgment.
Workmen's claim for interest on wages - HELD THAT:- The contractual provisions outlined in the facility documents of the secured creditors serve as the basis for their entitlement of interest. On the other hand, the workmen do not present any comparable contractual stipulation or statutory basis for the payment of interest on their overdue salaries or other remuneration. Their claim for interest is grounded in equity, which cannot serve as a sufficient foundation for the Court to approve such a claim. Unless debts explicitly carry interest as per the terms of a contract, interest cannot be awarded, except in specific situations outlined under the relevant rules. Therefore, without a valid contractual provision or statutory basis supporting the payment of interest, and considering the nature of the workmen's claim, it is not justifiable to equate their situation with that of the secured creditors for the purpose of interest payment. Interest payment for workmen would only arise if there is a surplus, which triggers the application of Rule 179 and not otherwise. It is also noteworthy that the entitlement to interest from the date of the winding-up order, as per Rule 179, for subsequent interest is not in dispute. The OL has confirmed that once the admitted claims have been settled, any surplus funds will be utilized to declare dividends in accordance with Rule 179. These dividends will be distributed to all relevant parties, including the workmen - the claim for payment of interest to the workmen at a rate of 12 percent lacks merit and is rejected.
Application dismissed.
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2023 (7) TMI 833
Condonation of delay of 290 days in filing appeal - HELD THAT:- A mere running on the eye over, the ingredients of Section 61(1) and Section 61(2) of the Insolvency and Bankruptcy Code, 2016, unerringly, points out that, in any event, an Appeal, cannot be preferred by an Affected/ Aggrieved Party, beyond 30+15=45 days (the outer limit period). There is no power enjoined upon the Appellate Tribunal, to Condone the Delay, of 15 days, of course, after the expiry of 30 days, from the date of passing of the Impugned Order, by an Adjudicating Authority/National Company Law Tribunal, Kochi Bench.
Admittedly, in the instant case, the Impugned Order came to be passed by the Adjudicating Authority/ Tribunal, on 29/01/2021 and the Appeal, was filed by the Petitioner/ Appellant, on 15/12/2021, with a Delay, of 290 days, which is an unacceptable one. In reality, the said delay of 290 days, is not to be condoned, by virtue of the decision of the Supreme Court in the matter of V NAGARAJAN VERSUS SKS ISPAT AND POWER LTD. & ORS. [2021 (10) TMI 941 - SUPREME COURT].
Appeal dismissed.
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2023 (7) TMI 832
Seeking expeditious disposal of complaint - Accounting and auditing irregularities in the functioning of the MHRIL - one-time (or in instalments) Membership Fees (MF) and recurring Annual Subscription Fee (ASF) - MHRIL raises substantial revenues through the ASF but does not report it as a separate Operating Segment, as required by Ind AS 108 - promised obligation of providing the assured one week's vacation to the members, on the ground of non-availability of rooms, even though the rooms for the same duration could be booked through other channels as non-members, not met up.
Implementation of Ind AS 108: Operating Segments - HELD THAT:- The Ind AS 108 places an onerous responsibility on the Company to not only determine the operating segments, and their reportability or otherwise after applying the prescribed aggregation measures, but also to make necessary disclosures, including the profit and loss and revenues and expenses for the reportable segments. It follows that the determination of Operating Segments cannot be an arbitrary process depending on the whims and fancies of the Company but has to follow a process because once an Operating Segment has been determined it is obligatory to report it, subject to it meeting the reportability threshold. It is in this light that we proceed to examine the position obtaining in the MHRIL.
MHRL has stated that it follows a mixed- use business model wherein both Members and FITs have access to its facilities. MHRIL has referred to its membership rules stating that the members specifically agree to such mixed-business model. We have perused the said rules. Rule 13.4 states that certain Club Mahindra Notified Resorts (CMNR) may have some rooms (FIT rooms) earmarked exclusively for FITs and Member agrees to the same. It further says that the FIT rooms will generally not have the same amenities and facilities as the rooms provided to the members such as kitchenette, sofa cum bed etc.; that FIT rooms may be made available by MHRIL to Members opting for it depending on availability; that the Member agrees not to make any claim whatsoever against MHRIL on the ground that such rooms do not have similar amenities and facilities as the rooms provided to members. It is quite clear from this that the room types and the associated amenities and facilities provided to the Members and the FITs are different and are distinguishable from each other, as are their payment obligations.
Recognition of revenue from contracts - HELD THAT:- Presentation of a true and fair view requires faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the Framework. The application of Ind ASs, with additional disclosure, when necessary, is presumed to result in financial statements that present a true and fair view. Regulation 4 (2) of SEBI LODR requires that a listed entity shall implement the prescribed accounting standards in letter and spirit in the presentation of financial statements taking into consideration the interest of all stakeholders and shall also ensure that the annual audit is conducted by an independent, competent and qualified auditor. The preceding discussion shows that there are many lingering questions in respect of the accounting policies and practices followed by MHRIL, especially as they relate to Ind AS 108 and Ind AS 115, resulting in representation by its Members to various forums (including NFRA) and filing of court cases. MHRIL will be well advised to address these questions in a convincing manner and adhere to the accounting standards in true spirit.
Conclusion - The current accounting policies and practices of MHRIL need review in application of the Ind AS 108- Segment Reporting. The internal controls, disclosures and policies with respect to Ind AS 115- Recognition of Revenue from Contracts also require review. To recapitulate, MHRIL's Consolidated Financial Statements do not provide disaggregated segment reporting for the one distinct category at the customer type level i.e Members - Following directions given to the MHRIL and its auditor:
1. MHRIL shall, going forward, thoroughly and proactively review its accounting policies and practices in respect of segment reporting, as they relate to application of Ind AS 108; and also Ind AS 115, keeping in mind our above findings relating to deficiencies in accounting disclosures. Following such a review, MHRIL shall take necessary measures to address the deficiencies pointed out in the foregoing paragraphs and effect changes in the disclosures in its financial statements in the letter and spirit of the disclosure as required under the Companies Act and the SEBI LODR. MHRIL shall complete this process by 30th June 2023.
2. MHRIL's review and the changes brought in its accounting practices and reporting should be properly documented, especially with respect to the CODM's exercise of monitoring and control, both at the aggregated and dis-aggregated, granular level, and such documentation shall be verified by MHRIL's statutory auditor who shall complete this process by 31st July 2023.
3. MHRIL and its statutory auditor shall report separately to NFRA the results of their review and the changes effected in the MHRIL's accounting policies and practices. Based on its own review of the reports of MHRIL and its statutory auditor, NFRA will take further course of action as provided under the existing provisions of the CA-2013 and the NFRA Rules.
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2023 (7) TMI 818
Debar on petitioner by the National Financial Reporting Authority(NFRA) - grievance of the petitioners is that, since the stay petition is pending before the Tribunal, the respondents ought not have been issued Exts.P6 and P7 - HELD THAT:- It is clear that the case is stand posted on 03.07.2023. If that is the case, Exts.P6 and P7 in these writ petitions can be kept in abeyance till 03.07.2023 so that the Tribunal can pass appropriate orders, in accordance with law. It is made clear that the matter not considered on merit and since the appeal and the petitions are posted on 03.07.2023, following directions are passed:
i) Exts.P6 and P7 in these writ petitions are kept in abeyance till 03.07.2023.
ii) The petitioners are free to approach the National Company Law Appellate Tribunal (NCLAT) in the meanwhile for appropriate orders.
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2023 (7) TMI 445
Seeking dismissal of the suit for mandatory injunction and damages - Order XII Rule 6 and Order XV Rule 2 read with Section 151 of the Code of Civil Procedure, 1908 - HELD THAT:- It is an admitted fact that defendant no. 1, a registered Society which was founded by late Sh. Chowdhry Brahm Prakash and others became the shareholder of the Plaintiff Company on 20.05.1962 and they acquired 500 shares having distinctive numbers from 61 to 560, covered by a Single Share Certificate. There are specific averments made by the plaintiff in its plaint that these 500 shares were transferred by the defendant no. 1 Society from time to time between 1968 and 1986 and different share certificates were accordingly issued.
It is on record that pursuant to directions of this Court vide Order dated 20.09.2007, the plaintiff was able to produce the share Transfer Deeds only in respect of 260 shares. It has been explained by the plaintiff that in terms of Schedule II of the Companies Act and the Notification dated 09.04.2003 the plaintiff Company was liable to maintain these documents i.e., share Transfer Deeds for a period of 3 years. The documents which were sought are more than 50 years old and the Plaintiff Company was not under an obligation to preserve the same. However, on making a search, it was able to recover transfer deeds in respect of 260 shares which have been placed on record.
The defendants however, are basing their assertions in this application on the ground that non-production of 240 shares amounts to an admission that they are in the name of the defendants. In so far as 260 shares are concerned, it is claimed that after these Transfer Deeds were placed on record, defendant nos. 4 to 6 had sent the same for determining their authentication to Indian Security Press, Nasik which has reported that these transfer deeds are forged and a FIR No. 158/2007 has also been registered. However, mere filing of FIR is not sufficient to conclude that the share Transfer Certificates are fabricated. It can be established only by evidence and there can be no summary conclusion drawn about them being fabricated documents.
The facts of the present case do not reflect that the suit is liable to be dismissed simply on account of non-production of share Transfer Deeds by the plaintiff, as has been claimed by the defendants. The proof of transfer of shares is not only the Transfer Deeds. The plaintiff has also relied upon the Annual Returns and the Register of Members submitted regularly with the Registrar of the Companies to prove that there has been the transfer of shares by defendant no. 1. Having made these assertions, it cannot be said that it has been conclusively shown from the plaint and the documents of the plaintiff that these shares have not been transferred by defendant no. 1 - The circumstances in which its name has been deleted can be understood only after the evidence is led by both the parties.
In the case of UNION OF INDIA VERSUS IBRAHIM UDDIN & ANR [2012 (7) TMI 887 - SUPREME COURT], it was observed that admissions made by a party though not conclusive is a decisive factor in a case unless the other parties successfully withdraws the same or proves it to be erroneous. The admission even if not conclusive, may operate as an estoppel. The law requires that an opportunity be given to the person who has made an admission under cross examination to tender his explanation and clarify the point of admission.
In the present case, merely non-production or alleged forged Transfer Deeds is not only the evidence on which the plaintiff has placed reliance. There is other evidence as already mentioned above and also admissions of the defendants about not being the shareholders of the Plaintiff Company which need to be explained and tested on anvil of cross examination.
There are averments made by the plaintiff which have been countered by the defendants. It cannot be said that there are any clear and unequivocal admissions on the part of the plaintiff which entails the dismissal of the suit. This application is without any merit and is hereby dismissed.
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2023 (7) TMI 444
Oppression and mismanagement - Appointment of the Ombudsman cum Ethics Officer of the DDCA - Scope of Articles of Association (AoA) the company (DDCA) - Validity of notice for convening the Extra-Ordinary General Meeting (the EGM) of the Members of the DDCA - Article 226 of the Constitution of India - HELD THAT:- It is well settled that the jurisdiction of a High Court under Article 226 of the Constitution of India is couched in wide terms and the exercise thereof is not subject to any restrictions except the territorial restrictions which are expressly provided in the Articles but the exercise of the jurisdiction is discretionary and it is not exercised merely because it is lawful to do so. The very amplitude of the jurisdiction demands that it will ordinarily be exercised subject to certain self-imposed limitations and the resort to that jurisdiction is not intended as an alternative remedy for relief which may be obtained in a suit or other mode prescribed by statute.
It is well settled that availability of alternative remedy does not operate as an absolute bar to the maintainability of the writ petition and that the rule which requires a party to pursue the alternative remedy provided by the statute is a rule of policy for convenience and discretion rather than a rule of law. Undoubtedly, entertainability and maintainability of the writ petition are two distinct concepts. If the objection to maintainability is sustained then the Courts are rendered incapable of receiving the lis for adjudication. However, on the other hand, the question of entertainability is entirely within the discretion of the High Courts and writ remedy is a discretionary remedy. A writ petition, despite being maintainable may not be entertained by High Courts for many reasons or relief could be refused to the Petitioner despite setting up a sound legal point.
Chapter 16 of the Companies Act deals with prevention of oppression and mismanagement. Section 241 of the Companies Act provides that any member of a company who complaints that the affairs of the company have been or are being conducted in a manner prejudicial to public interest or in a manner prejudicial or oppressive to him or to any other member or members or in a manner prejudicial to the interests of the company may approach the NCLT - Section 242 of the Companies Act provides that if NCLT is of the opinion that the company’s affairs have been or are being conducted in a manner prejudicial or oppressive to any member or members or prejudicial to public interest or in a manner prejudicial to the interests of the company then the NCLT can pass orders for regulating the conduct of the affairs of the company. Section 242 (4) of the Companies Act gives power to the NCLT to make any interim order which it thinks fit for regulating the conduct of the company’s affairs upon such terms and conditions as the NCLT deems to be just and equitable - Section 245 of the Companies Act gives the power to the NCLT to restrain a company from committing an act which is ultra vires the articles or memorandum of the company.
If the appointment of Ombudsman is contrary to the laws laid down in the AoA, it is always open for the NCLT to stay the effect of the resolution dated 10.04.2023 and reverse any order passed by the Ombudsman or any action taken by him/her if it is not in the interest of the DDCA. The Petitioner has not made out a case that it is imperative for this Court to entertain the present Writ Petition even though an equally efficacious alternative remedy/forum is available to the Petitioner and that the Ombudsman can pass such orders which are irreversible in nature and cannot be rectified if they are found to be faulty - The present case also does not fall within the exceptions that have been laid down by the Apex Court in M/S. SOUTH INDIAN BANK LTD. & ORS. VERSUS NAVEEN MATHEW PHILIP & ANR. ETC. ETC. [2023 (5) TMI 798 - SUPREME COURT] which would compel this Court to entertain the present Writ Petition even in the presence of an equally efficacious alternative remedy to the Petitioner.
This Court is, therefore, not inclined to entertain the present Writ Petition at this stage and grants liberty to the Petitioner to approach the NCLT for the redressal of its grievances - Petition disposed off.
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2023 (7) TMI 443
Allegation of committing fraud and caused loss to the respondent company by incorporating and joining a company which had a similar name and operating pattern as that of the respondent company and diverted the business of management of the vessels of Daitoh - Offences under Sections 447 and 452 of the Companies Act, 2013 - HELD THAT:- This Court finds that the allegation with regard to the offence under Section 452 of the Act is that the petitioner had retained the laptop. This offence is quasi criminal in nature. It is well settled that the said offence has been incorporated only to provide a speedy remedy for the company to retrieve its property. Admittedly, the petitioner sent the laptop on 24.08.2021 by courier - this Court is of the view that the petitioner cannot be prosecuted for the offence under section 452 of the Act.
As regards the offence under Section 447 of the Act, this Court finds that the procedure prescribed for investigating the said offence is provided in Chapter XIV of the Act. A detailed mechanism is provided under the Act. It deals with the power of the Registrar of Companies to conduct an enquiry and submit a report to the Central Government. The Central Government may, on such report or on a report of any inspector appointed by the Central Government may, direct an investigation by SFIO. The Central Government may also direct such an investigation, suo motu, if it is in the public interest. Section 212 of the Act provides for an investigation by SFIO.
As regards the offence under Section 415 of the Indian Penal Code, there is no deception at the inception. It may at best amount to a breach of promise. Hence, cheating is not made out since the petitioner was admittedly working in the company for two years. Further, the offences under Sections 378, 403, 405, 408, 120 and 425 of the Indian Penal Code are not made out. This Court finds that the allegations that the confidential information and certain technical know-how were taken away by the petitioner are vague.
The allegation of misuse of information and making personal gain with the said information would, at best, make the petitioner liable civilly to the respondent. It may amount to a breach of trust as understood commonly and would not amount to a criminal breach of trust. In order to attract the said offence, the nature of the property entrusted and as to how it was misappropriated must be clearly spelt out. Vague allegations that confidential information and technical know-how were misused are insufficient. Even assuming that this offence is made out the complainant ought to have resorted to the remedy under the Act. This Court also finds that the complaint stems out from the grievance of the complainant that the petitioner had started a rival company and had diverted the business of the complainant. Such issues cannot be the subject matter of criminal prosecution in the absence of the necessary ingredients to constitute the offence alleged. The petitioner has other remedies available in law. Since the allegations do not attract the offences, this Court is inclined to quash the complaint.
This Court finds that the complaint, besides being unsustainable in law, does not disclose the alleged offences, and hence the continuation of the impugned proceedings would be an abuse of process of law. The non-interference of this Court would lead to a miscarriage of justice - Petition allowed.
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2023 (7) TMI 442
Validity of sale deed - sale of property by the company - Sale was approved by the Board of Director resolution - Locus of the third party - Seeking to relieve the petitioners wholly from the alleged acts of default and liability complained by the respondent - HELD THAT:- This Court finds that the petitioners have not committed any illegality as alleged by the ROC. Further, launching the prosecution under Section 628 of the Old Companies Act is also not permissible since the complaint has been filed under Section 628 of the Companies Act, 1956 (Old Act) and the new Companies Act commenced only from 2014 onwards. Any prosecution has to be launched in accordance with the provisions of Section 448 of the new Companies Act. Therefore, no prosecution can be launched under Section 628 of the old companies Act in view of the provision repealing Section 628 of the old Companies Act and hence, this Court feels that the present complaint is not maintainable.
This Court does not find any jurisdiction on the part of the respondent to prosecute the petitioners and this Court is of the prima facie view that the petitioners have not committed any offence as narrated by ROC and upon perusal it is clear that the petitioners cannot be prosecuted under Section 628 of the Old Companies Act. Therefore, all the petitioners are relieved from the prosecution - Petition disposed off.
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2023 (7) TMI 441
Continuation of suit / legal proceedings against the company where the name of the company has been struck off from the records of ROC - Respondent sought decree for rendition of accounts, directing the defendant to render a true and proper accounts for the usage of the software Program of the plaintiff in the various branches of the defendant - HELD THAT:- The provisions of Sections 248 and 250 of the Companies Act, 2013, make it very clear that even if the name of the Company is struck off from the Register of Companies maintained by the Registrar of Companies, its registration shall be deemed to have been cancelled from such date. However, there is no embargo for the suit to be filed or to be continued for the purpose of realising the amounts due to the Company and for the payment or discharge of the liabilities or obligations of the Company. In other words, the Company, whose name has been struck off from the Register of Companies maintained by the Register of Companies, cannot carry on any business - there is no case made out for striking off the plaint, merely because the name of the Company has been struck off from the Register of Companies maintained by the Registrar of Companies.
That apart, Order VI Rule 16 of C.P.C., deals with specific instances when a plaint can be struck off. Similarly, there are instances under Order IX of C.P.C., when a suit can be dismissed. In any event, it stands confirmed that the petitioner has also filed an application under Order VII Rule 11 of C.P.C. If advised, the petitioner may choose to pray for a relief in the said I.A. on merits if the facts so warrant. A reading of the impugned order also indicates that I.A.No.577 of 2021 filed under Order VII Rule 11 of C.P.C. is pending. I.A.No.577 of 2021 filed under Order VII Rule 11 of C.P.C. shall be disposed on merits and in accordance with law keeping in mind the observations made herein.
There are no merit in the present Civil Revision Petition. The Civil Revision Petition is therefore liable to be dismissed - petition dismissed.
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2023 (7) TMI 420
Wrongful withholding of laptops (after resignation) which is punishable under Section 452 of the Companies Act, 2013 - HELD THAT:- This Court finds that it is well settled that the offence under Section 452 of the Act, which is pari materia with Section 630 of the Companies Act, 1956 is quasi criminal. It is also well settled that the provision is intended to provide a speedy mechanism for recovery of any property belonging to the company withheld wrongfully by any person. The Act provides that the Court trying an offence may order an employee to deliver the wrongfully withheld property, and the failure to comply with the said order is punishable with imprisonment and fine. In the instant case, the petitioners admittedly delivered the property said to have been withheld by them. The respondent cannot refute the communications and the receipt of the laptops. From the facts and circumstances, it cannot be said that the petitioners had wrongfully withheld the property.
The petitioners have returned the property and since, in the facts and circumstances, it cannot be said that they had initially wrongfully withheld the property, the continuation of the impugned prosecution would be an abuse of process of law. Therefore, this Court is of the view that the impugned prosecution is liable to be quashed.
Petition allowed.
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2023 (7) TMI 216
Maintainability of suit - Rejection of plaint on the ground that the dispute raised in the plaint cannot be decided by a Civil Court - appellant contended that the disputes in the plaint, falls within the exclusive jurisdiction of the National Company Law Tribunal (NCLT) - Section 9 of the Code of Civil Procedure and Section 430 of the Companies Act.
HELD THAT:- It is clear from the averments made in the plaint that it is not a proceeding for refusal of registration or rectification of register under Section 58 or 59 of the 2013 Act. Section 58 contemplates a situation where a private company limited by share refuses whether in pursuance of any power of the Company under its article or otherwise to register the transfer of or the transmission by operational law of the right to any security or interest within a period of 30 days from the date on which the instrument of transfer or the intimation of such transmission was delivered to the company if there is a refusal the transferee may appeal to the tribunal under Section 58(5) of the Companies Act, 2013 where, however, the name of a person is erroneously entered in the register in place of a rightful owner and such error appears to be apparent a proceeding under Section 59 would be permissible.
In ADESH KAUR VERSUS EICHER MOTORS LIMITED AND ORS. [2018 (8) TMI 836 - SUPREME COURT] the jurisdiction of the tribunal in a proceeding under Section 59 was not interfered with as the Hon’ble Supreme Court observed that it was “an open and shut case of fraud in which the appellant has been victim, and respondent no. 2 the perpetrator”.
As a corollary if it appears that the disputed questions of the facts are complicated and cannot be conveniently decided in a summary procedure the jurisdiction of the Civil Court is not ousted. Although it cannot be disputed that the NCLT may have jurisdiction to decide the title of any person who is a party to the application urging that his name has been wrongly omitted from the register or should have been entered in the register in a proceeding under Section 59 of the present Act or Section 155 read with Section 111 of the Companies Act, 1956, however, the issue in the suit is not one of rectification.
NCLT thus, would have jurisdiction to decide a rectification proceeding where facts are self evident and does not call for any serious enquiry or adjudication of fraud. It would depend on the facts of a case. However, the present proceeding is not for rectification although eventually it may lead to the same in the event the suit is decreed - the appellant has not filed any written statement and the time had expired in the meantime the appellant shall be permitted to file written statement within three weeks from date, in default, the suit may proceed ex parte against the appellant.
Appeal dismissed.
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2023 (7) TMI 158
Alleged illegal termination in respect of the Collaboration Agreement executed between the petitioner and the respondents - joint custody of the title deeds - HELD THAT:- The land/project in question has been excluded from the definition of “Demerged Undertaking” and the same has been directed to be retained by the petitioner herein (Demerged Company).
As far as the “Capital Towers Economic Benefit Agreement” dated June, 2017 is concerned, a duly signed copy thereof has not been placed on record. Morover, a perusal of the same reveals that it contemplates that MGF Developments Limited would became a “contributor” in respect of the project pertaining to construction and development of the land in question, and in lieu thereof, it would be entitled to a share of the economic benefit arising out of the “Developer Project Share”. The said agreement also contains an arbitration clause. If at all the said agreement creates any rights in favour of MGF and/or warrants that MGF should have joint custody of the title documents in respect of the land in question, it is open for MGF to initiate appropriate proceedings seeking the same - Likewise, if at all, the “Letter Agreement” confers any right upon MGF, it is open to MGF to assert those rights in appropriate proceedings and seek appropriate order/s. In the present proceedings, there is no warrant to accede to the prayer/s sought in IA No. 7896/2023.
In the circumstances, as jointly prayed by the petitioner and the respondents, the custody of the title deeds/documents are directed to be placed in the joint custody of the petitioner and the respondents.
Application disposed of with the direction that the title deeds of the land in question, which are presently lying with the Registrar General of this court, be released to the petitioner and the respondents, who shall retain joint custody thereof.
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2023 (6) TMI 1468
Maintainability of appeal under Section 560(6) of the Companies Act, 1956 - Power of Registrat to stike off Respondent No.3 Company's name from the Register of Companies - HELD THAT:- Notably, if the name of the Company has been struck off following the procedure prescribed in sub-section (1) to (5) of Section 560 of the Companies Act, 1956, when the Company had itself voluntarily applied for striking off its name by filing an application under the Easy Exit Scheme, 2010, no appeal shall lie under Section 560(6) of the Companies Act, 1956.
The Appellant is not a member of the R-3 company. Further we have not been shown any evidence by the Appellant that he made any sincere and diligent effort to get a succession certificate in his favour with regard to the shares held by his deceased parents and therefore, he is not entitled to the privileges and other facilities that are available to the member of a company under Companies Act. In this connection it is noted that an appeal under the Companies Act, 2013 would be available to a ‘person’ who is either a ‘Member’ of the Company or a ‘Creditor’ or a ‘Director’ and quite clearly the Appellant is none of these. On this basis the Appellant is not entitled to maintain an appeal before the NCLT.
Conclusion - The rights and privileges under company law are reserved for registered members or creditors. Voluntary applications for striking off under schemes like the Easy Exit Scheme, 2010 are binding and not subject to challenge under Section 560(6) by non-members.
There is no error in the Impugned Order, and therefore it does not require any interference - Appeal dismissed.
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