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Companies Law - Case Laws
Showing 81 to 100 of 15043 Records
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2024 (12) TMI 167
Professional misconduct of the statutory auditors of Coffee Day Enterprises Limited under Section 132(4) of the Companies Act 2013 - diversion of funds and evergreening of loans/advances - HELD THAT:- After a detailed examination of facts and circumstances, it is observed that the failure in this audit engagement was due to violations of SAs, and the Act. Hence the role of the Audit Firm, whose responsibilities are mandated by the Act, is equally important as that of EP and EQCR Partners, whose responsibilities are delineated in the SAs and SQC -1. Given the fact that the Audit Firm is the legal body appointed as the auditor and EP mandatorily takes responsibility for the individual audits subject to firm-level supervision, both have joint and several responsibilities for the Audit. Section 132 (4) of the Act emanates from this basic premise. However, there is not adequate evidence of effective supervision and oversight by Mis Venkatesh & Co. Providing the ET with a quality policy and tools are not good enough to establish effective supervision as envisaged in SQC-1. Had the Audit Firm discharged its supervisory responsibilities timely and effectively such major lapses in the audit could have been avoided. Therefore, Mis Venkatesh & Co. is responsible for the misconducts committed by the EP and EQCR.
Due to these fraudulent transactions the consolidated financial statements of CDEL were grossly misstated. The Auditors in audit reports issued by the Audit Firm had disclaimed the opinion. Their contention about disclaiming the audit opinion is not logical as an auditor is required to comply with Laws and auditing standards even if he disclaims his opinion. Further, the Auditors were required to comply with section 143(12) of the Act and CARO even in case of Disclaimer of Opinion - The lack of professional skepticism in challenging the management about clearly visible fraud is not expected from an auditor of a listed company. Such omissions and commissions by an experienced audit firm cannot be taken lightly, as these are detrimental to the public interest.
The "Firm and Engagement Performance Metrics" published by PCAOB on October 12, 2022, provides a detailed study of engagement level and firm-level quality matrices. Engagement level metrics provide information about a particular engagement of the firm, and Firm-level metrics address an audit firm's overall strategy in complementing the engagement-level matrices. The study covers all major jurisdictions in the world, including India and top tier Audit Firms.
The Auditors and EQCR have made a series of serious departures from the Standards and the Law, in conduct of the audit of CDEL for FY 2019-20. Based on the above discussion, it is proved that the Auditors and EQCR had failed to report fraudulent diversion of funds to related parties and failed to exercise due diligence in performance of audit. Based on the foregoing discussion and analysis, it is concluded that the Auditors and EQCR have committed Professional Misconduct as defined under Section 132 (4) of the Companies Act 2013 in terms of section 22 of the Chartered Accountants Act 1949 (CA Act).
Penalty and sanctions - HELD THAT:- Section 132(4)(c) of the Companies Act 2013 provides that National Financial Reporting Authority shall, where professional or other misconduct is proved, have the power to make order for
(A) imposing penalty of-- (I) not less than one lakh rupees, but which may extend to five times of the fees received, in case of individuals; and (II) not less than five lakh rupees, but which may extend to ten times of the fees received, in case of firms;
(B) debarring the member or the firm from-(I) being appointed as an auditor or internal auditor or undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate; or (II) performing any valuation as provided under section 247, for a minimum period of six months or such higher period not exceeding ten years as may be determined by the National Financial Reporting Authority.
Considering the seriousness of proved professional misconduct and keeping in mind the nature of violations, principles of proportionality and deterrence against future professional misconduct, in exercise of powers under Section 132(4)(c) of the Companies Act, 2013, it is hereby ordered imposition of a monetary penalty of Rs Two crores upon M/s Venkatesh & Co.; Rs Ten lakhs upon CA Dasaraty V.; and Rs Five lakhs upon CA Desikan G. In addition, CA Dasaraty V. and CA Desikan G are debarred for a period of Ten years and Five years respectively from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.
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2024 (12) TMI 166
Professional misconduct - financial irregularities in the company and the failure of the auditor to qualify or emphasize in his independent audit report, any matter related to misstatement/ irregularities in the transactions - Section 132(4) of the Companies Act 2013 read with Rule 11(6) of National Financial Reporting Authority Rules 2018 - Penalty and sanctions.
HELD THAT:- The EP committed professional misconduct in terms of by Section 132 (4) of the Companies Act, read with Section 22 and clause 5 of Part I of the Second Schedule of the Chartered Accountants Act 1949 (as amended from time to time), which states that an auditor is guilty of professional misconduct when he "fails to disclose a material fact known to him which is not disclosed in a financial statement, but disclosure of which is necessary in making such financial statement where he is concerned with that financial statement in a professional capacity" - This charge is proved as the EP failed to obtain sufficient and appropriate audit evidence to draw conclusions about the existence and valuation of the inventory, failed to perform his duty of evaluation and reporting the non-compliance of Ind AS-110 and Ind AS-28 related to consolidation of financial statements of SCL, failed to fulfil his duty related to the audit of investments.
The EP committed professional misconduct as defined by Section 132 (4) of the Companies Act, read with Section 22 and clause 6 of Part I of the Second Schedule of the Chartered Accountants Act 1949 (as amended from time to time), which states that an auditor is guilty of professional misconduct when he "fails to report a material misstatement known to him to appear in a financial statement with which he is concerned in a professional capacity" - This charge is proved as the EP failed to obtain sufficient and appropriate audit evidence to draw conclusions about the existence and valuation of the inventory, failed to perform his duty of evaluation and reporting the non-compliance of Ind AS-110 and Ind AS-28 related to consolidation of financial statements of SCL, failed to fulfil his duty related to the audit of investments.
The EP committed professional misconduct as defined by Section 132 (4) of the Companies Act, read with Section 22 and clause 7 of Part I of the Second Schedule of the Chartered Accountants Act 1949 (as amended from time to time), which states that an auditor is guilty of professional misconduct when he "does not exercise due diligence and is grossly negligent in the conduct of his professional duties" - This charge is proved as the EP failed to conduct the audit in accordance with the SAS and applicable rules as well as due to his failure to report the material misstatements and non-compliances of the Company in its financial statements.
The EP committed professional misconduct in terms of by Section 132 (4) of the Companies Act, read with Section 22 and clause 8 of Part I of the Second Schedule of the Chartered Accountants Act 1949 (as amended from time to time), which states that an auditor is guilty of professional misconduct when he "fails to obtain sufficient information which is necessary for expression of an opinion or its exceptions are sufficiently material to negate the expression of an opinion" - This charge is proved as the EP failed to conduct the audit in accordance with the SAs and applicable rules as well as due to his failure to report the material misstatements and non-compliances of the Company in the financial statements.
The EP committed professional misconduct as defined by Section 132 (4) of the Companies Act, read with Section 22 and clause 9 of Part I of the Second Schedule of the Chartered Accountants Act 1949 (as amended from time to time), which states that an auditor is guilty of professional misconduct when he "fails to invite attention to any material departure from the generally accepted procedure of audit applicable to the circumstances" - This charge is proved since the EP failed to conduct the audit in accordance with the SAs but reported in his audit report that the audit was conducted as per SAs.
Penalty and sanctions - HELD THAT:- Independent Auditors of Publicly Listed Companies are expected to demonstrate sufficiency and appropriateness of audit work in every aspect of the critical building blocks of an audit of Financial Statements of a PIE. Failure of the auditor to meet the requirements envisaged under the Law and Professional Standards on Auditing are conspicuous in this audit engagement performed by the EP - the manner in which the audit was conducted, failed to meet the requirements of the SAs, the Act and the Code of Ethics in a number of significant aspects which demonstrated gross negligence on the part of the EP. This can be gauged from the failure of the EP to critically assess the existence and valuation of inventories, failure to comment in the audit report about the non-consolidation of financial statements, failure to verify the impairment testing of the investments of SCL and failing to apply the mandatory SAs in the audit - it is concluded that the EP's failure to comply with the provisions of SAs, exhibit professional skepticism, and fulfill the necessary audit procedures led to significant deficiencies in the audit. This non-compliance, combined with the consequent reporting failures, constitutes a breach of professional responsibilities and statutory requirements. The EP's actions (or inactions) constitute a serious violation of audit standards, leading to significant repercussions for the integrity and reliability of the financial statements.
The professional misconduct of CA Santosh Deshmukh has been detailed in the foregoing paragraphs of this Order. Considering the proved professional misconducts and keeping in mind the nature of violations, principles of proportionality and deterrence against future professional misconduct, we, in exercise of powers under Section 132(4)(c) of the Companies Act, 2013, hereby order imposition of monetary penalty of 5,00,000/- (Rupees Five Lakhs) and also debars CA Santosh Deshmukh for 1 (One) year from being appointed as an auditor or internal auditor or from undertaking any audit in respect of Financial Statements or internal audit of the functions and activities of any company or body corporate.
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2024 (12) TMI 165
Professional misconduct - failure to disclose complete information about revenue earned from related parties - determination of related party status under Section 2(76) of the Companies Act, 2013 - HELD THAT:- It is proved that CA Lavitha Shetty committed professional misconduct of failure to exercise due diligence in the conduct of her professional duties by not providing complete information about revenue earned by her from related parties of MACEL. This professional misconduct is defined in para 7 of part I of second schedule of the Chartered Accountants Act 1949.
CA Lavitha Shetty vide our Orders dated 13.04.2023 and 25.04.2023 is sanctioned. However, the misrepresentation of facts during those proceedings cannot be overlooked. CA Lavitha Shetty has misrepresented the facts relating to revenue earned by her from MACEL and its related parties and this information was crutial in evaluation of her independence in this matter. It is also found that misleading the regulator leads to interference with the statutory functions of the regulator. Having already penalised her, it is found that in these proceedings a token penalty would be appropriate given the facts and circumstances of the current professional misconduct. Accordingly, in exercise of powers under section 132(4)(c) of the Act, imposition of monetary penalty of Rs One lakh only upon CA Lavitha Shetty imposed.
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2024 (11) TMI 1290
Rejection of Application filed by Petitioner for rectification/change in the name of the Respondent No. 4 Company - Section 16 (1) (b) of the Companies Act, 2013 - HELD THAT:- Section 16 of the Companies Act gives the power to the Central Government through the Office of the concerned Regional Director [hereinafter referred to as “RD”] to rectify the name of a company. Sub-Section (1) of Section 16 of the Companies Act contemplates two circumstances under which the name of a company can be rectified. If such name resembles the name of an existing company or is identical to the name of an existing company, the RD may suo moto under the provisions of Section 16 (1)(a) of the Companies Act issue directions to a company to change its name, which directions require compliance within three months.
A Coordinate Bench of this Court in a case CGMP Pharmaplan (P) Ltd. v. Regional Director, Ministry of Corporate Affairs [2010 (7) TMI 272 - HIGH COURT OF DELHI] has while explaining this provision, relied on a Judgment of the Division Bench in Montari Overseas Ltd. v. Montari Industries Ltd. [1995 (12) TMI 268 - HIGH COURT OF DELHI] to explain that the powers of a Civil Court while examining and determining in a passing off action, if one name is confusingly deceptive or similar to another name, is independent of the jurisdiction of the Regional Director in respect of registering of a company’s name. It was however held that the Regional Director cannot approach the case, as it would in a trademark dispute.
In the facts of the present case, both the parties have claimed ownership and rights over the mark ‘Panchhi’ and have disputed each other's submissions. Admittedly, both Petitioner and Respondent No. 4 form part of the same extended family. Both are also engaged in legal proceedings in various fora including against each other in relation to the impugned trademark and other intellectual property related rights. The Impugned Order refers to these disputes, however, it goes on to give a finding of ownership on the mark ‘Panchhi’, which cannot be sustained.
In the present case, the parties are two entities which are from the same lineage, which are embroiled in disputes over the intellectual property of a brand. The Regional Director while deciding an Application under Section 16 of the Companies Act cannot undertake an examination of the marks as the Intellectual Property Division of a Court would. It cannot also decide the ownership of a mark while deciding such an Application under Section 16 of Companies Act, where these are disputed contentions. The same is not the subject matter of jurisdiction of the Regional Director under the Companies Act.
The Impugned Order is set aside - Petition disposed off.
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2024 (11) TMI 1083
Oppression and mismanagement under Sections 241 and 242 of Companies Act, 2013 - seeking a waiver for initiation of the proceedings under Section 244(1)(b) of the Companies Act, 2013 - HELD THAT:- The intention of legislature by introducing the proviso to Section 244 of the Companies Act, to grant a waiver is by way of an exception to the general law. It is not a waiver by conduct or by way of a right. Waiver herein would mean that a person is granted an exemption, in special circumstances from satisfying the pre-established conditions for instituting a judicial proceeding. In that eventuality, the concept of waiver under the proviso to Section 244, has to be strictly and rigidly followed, as it is a waiver by implication of law, which is carving out an exception, to the general provision to litigate, for the reason being that, if the said waiver is not granted, it would amount to that, the apparent legal disabilities to initiate the proceedings, were declined to be granted, due to non-satisfaction of the mandatory pre-conditions contained under Section 244 for initiating proceedings under Section 241 and 242.
In this eventuality in the instant case, where the appellant has sought a waiver, by placing his case under Section 244 of the Companies Act, there has had to be an incidental consideration of, as to what would be the elements which would be required to be satisfied to permit the appellant to initiate proceedings under Section 241 of the Companies Act, against the respondents.
In the instant case, since the waiver is a concept, added by the proviso to Sub-Clause (b) of Sub-Section (1) of Section 244, the philosophy of waiver shall not be read in exception to the principle provision, but it should be read as to be in addition to qualifying the conditions of the principal provisions of law. At times, the concept of waiver is under either of the circumstances, that, waiver by conduct or waiver by prescription of law. It normally resembles as to be a form of election of a right, but that may not be the case at hand, it is rather not an election, but rather a grant of a right claimed by attracting the proviso, and once it overrides or attempts to or intends to override the principal provision, a very rigid attitude has to be adopted for granting a waiver and that too particularly, when in the instant case where a right to proceed under section 241 was being sought by only one member of the club, that is the appellant herein, which is nowhere near to the prescribed strength of 1/5th of the total number of members as contemplated under Sub-Clause (b) of Sub-Section (1) of Section 244.
The Hon’ble Apex Court, as back as in 1965 in a matter reported in S. P. Jain versus Kalinga Tubes Limited [1965 (1) TMI 17 - SUPREME COURT], had an occasion to deal with the precepts of “oppression” and in the said matter the Hon’ble Apex Court was dealing with Section 153C in relation to The Indian Companies Act, 1913 and Section 397 in relation to the Companies Act of 1956. The Hon’ble Apex Court had elaborately dealt with as to what would the term ‘oppression’ would actually mean.
The Tribunal has taken a view that, a waiver under the proviso could not be granted, because none of the other members have ever raised any grievances and since the proceedings under section 244 was sought by only one member in a company limited by guarantee the waiver under the proviso was denied. The proviso of Section 244 Sub-Section (1)(b) provides that “provided that the Tribunal ‘may’ on an application made to it in its behalf, waive all or any of the requirements specified in Clause (a) or Clause (b), so as to enable the member to apply under Section 241”. The use of word ‘May’ is directory in nature.
The waiver sought for, under the proviso is not an absolute waiver, which could be granted by the Tribunal as a matter of course because that would always depend upon the facts and circumstances of each case and grant of such waiver will be only when there is a strong case made out and not merely based on self-generated allegations. Further in the instant case the appellant has already instituted two Civil Suits, on the same subject matter, as it has been pleaded in his application under Section 244(1) and therefore the waiver has rightly been rejected.
There are no merit in the appeal - appeal dismissed.
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2024 (11) TMI 1010
Liquidation of Corporate Debtor - seeking for issue of an appropriate direction to the liquidator to put on hold the auction of the immovable asset of the Corporate Debtor, to consider his proposal to sell the Corporate Debtor as a going concern - It is the contention of the Appellant that his Resolution Plan was rejected without due diligence - principles of res-judicata - HELD THAT:- This Application came up for consideration before the Learned Adjudicating Authority and the Learned Adjudicating Authority after considering the text of the relief sought in IA No.140/2022, had dismissed by observing that it was on the same grounds / prayers the Appellant had already approached before the NCLAT by filing IA No.436/2021 in CA (AT) (CH) (Ins) No.314/2020 which has been rejected, that the relief as sought for in IA No.140/2022 has already been denied by the NCLAT while deciding IA No.436/2021, that, the Appellant has suppressed the material fact regarding the orders passed on IA No.436/2021 in CA (AT) (CH) (Ins) No.314/2020, and therefore, the relief as it was sought for in IA No.140/2022 would not be tenable owing to the bar created by the decision taken on IA No.436/2021 preferred in CA (AT) (CH) (Ins) No.314/2020. Apart from the aforesaid reason, the Learned Adjudicating Authority has concluded that the relief sought for by the applicant by invoking the provisions contained under section 60(5) of the Insolvency and Bankruptcy Code, 2016 to be read with Rule 11 of the NCLT Rules cannot be granted to the Appellant for the following reasons.
(1) The Resolution Plan which was submitted by the Appellant was already rejected.
(2) The Application filed for modification of the Resolution Plan also stood rejected vide Order dated 30.12.2019.
(3) More importantly, the two orders affirming the rejection of the Resolution Plan was not challenged by the Appellant by invoking the provisions contained under Section 61 of the Insolvency and Bankruptcy Code, 2016 and the same would attain finality, against the Appellant.
(4) Once the rejection of the Resolution Plan submitted by the Appellant had attained finality no cause of action would survive qua the Appellant for filing this instant Appeal as against the order passed in IA No.140/2022.
Besides this, the relief itself as prayed for would be barred by the principle of Res judicata because the same already stood denied by the NCLAT vide its order dated 20.09.2021 passed in IA No.436/2021. In view of the above and primarily on the ground that in the absence of the challenge given to the order of rejection of the Resolution Plan submitted by him, the Appellant relinquishes his right to put a question to an order of appointment of liquidator, as well as, to seek for the relief he has sought in IA No.140/2022, which is the subject matter of Comp App (AT) (CH) (Ins) No.329/2022.
For the aforesaid reasons, this Appeal too would stand dismissed.
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2024 (11) TMI 1009
Oppression and Mismanagement - invocation of provisions contained under Section 96, 173, 241, 244 of the Companies Act of 2013 - Applicability of Section 8 of the Arbitration and Conciliation Act, 1996 - Appellant/ Respondent, had not produced the “Original Copy of the Agreement, nor the Appellant has supplied the certified copy of the said agreement - whether the Authenticated copy of the agreement as filed by the appellant in support of IA No.65/2019, could at all be read in parlance to the certified copy of the Arbitration Agreement or the Original of the Arbitration Agreement? - HELD THAT:- Obviously, under law the certification of a document has to be in accordance with the provisions of Registration Act to be read with Section 76 of Evidence Act, and particularly in the context of the provisions contained under Section 17 of the Registration Act, where certain documents will be inclusive of the present agreement as it dealt with the Subscription of the Shareholders, which itself is a property under law, which had to be mandatory required to be registered and if that be so, in that eventuality when the application under Section 8 of the Act of 1996, was preferred by the Appellant, it ought to have been accompanied with the certified copy of the agreement at the stage, when the initial objection of 10th October 2018 was filed by the Appellant/Respondent, in opposition to the Company Petition. In that view of the matter and for the said reasons, the “authenticated copy” cannot be treated as to be a “certified copy”, which could have been read in evidence under Section 47 of the Registration Act for the purposes to satisfy the restrictions imposed by Sub-Section (2) of Section 8 of the Arbitration and Conciliation Act, 1996.
No such application under Section 8 of the Act of 1996, was filed before National Company Law Tribunal, Amravati Bench, to derive an objection with regards to the maintainability of the proceedings of the Company Petition, under Sections 96, 173, 241 to 244 of the Companies Act. The aforesaid principle literally and in its legal terms, as to what derivation could be made with regards to the certified copy in fact, has been prescribed under the National Company Law Tribunal Rules, where a certified copy would be a copy which has been obtained after compliance of the provisions contained under Section 76 of the Evidence Act”. Since the same has not been complied with, the application under Section 8 was held to be not maintainable because it will not be falling to be, a certified copy under Sub Rule (9) of Rule 2 of the National Company Law Tribunal Rules, which deals as to what would be the certified copy.
There is another logic and which has been rightly attracted by the Learned Adjudicating Authority, at the stage of considering the application under Section 8, by drawing an inference from the Judgment reported in Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., & Ors. [2012 (10) TMI 459 - SUPREME COURT], where it has been observed that since the Arbitration Proceedings, being a consented chosen forum between the consenting parties for the redressal of the dispute, it will not be taken as to be “Judicial Proceedings” so as to create an embargo for filing of a Company Petition, as it would be relatively a “Private Forum”, which cannot deceive the objective of the Procedural Law under the Companies Act, to be read with Insolvency and Bankruptcy Code.
The Application thus preferred being IA No.65/2019, by the Appellant in the Company Petition, didn’t satisfy the parameters prescribed under Section 8 of the Act of 1996, and the legislative bar was created in even entertaining the Application in the absence of satisfying the parameters to sustain the proceedings because the certified copy or the original copy of the Agreement was not filed. Therefore no such proceedings could have been even entertained by the National Company Law Tribunal, Amravati Bench by way of IA No.65/2019 and in these circumstances, when the Law creates a bar in even entertaining of any such Application under Section 8 of Act of 1996, the same would not be maintainable.
The Company Appeal lacks merit and the same is dismissed.
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2024 (11) TMI 1008
Amendment of scheme of amalgamation - section 230-232 read with section 234 of the Companies Act, 2013 - Jurisdiction of NCLT to modify the scheme - HELD THAT:- The amendment can therefore be done at any stage. In IN THE MATTER OF :. HAMBURG SUD INDIA PRIVATE LIMITED, MAERSK LINE INDIA PRIVATE LIMITED [2023 (3) TMI 1541 - NATIONAL COMPANY LAW TRIBUNAL MUMBAI BENCH-IV], the Ld NCLT Mumbai while seized of a First Motion Petition passed directions for changing the valuation and the swap ratio.
Admittedly the present modification to scheme will not require any further / revised adherence in so far as the regulations for inbound merger are concerned. Further, as per FEMA Notification No. FEMA.389/2018-RB dated March 20, 2018 ‘Foreign Exchange Management (Cross Border Merger) Regulations, 2018’, point 9(1) states any transaction on account of a cross- border merger undertaken in accordance with these Regulations shall be deemed to have prior approval of the Reserve Bank of India as required under Rule 25A of the Companies (Compromises, Arrangement and Amalgamations) Rules, 2016. Hence, the proposed modification would also need no additional approval from Reserve Bank of India.
If the impugned order is allowed to sustain then the scheme will have to be remodified to reflect such justification which will result into another round of lengthy compliances all of which would have to be undertaken for the third time.
The Impugned Order is liable to be set aside and the Appeal with the prayers stands allowed.
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2024 (11) TMI 881
Appointment of Adjudicating Officer in exercise of the powers conferred by section 454 of the Companies Act, 2013 - adjudication of penalties - HELD THAT:- In terms of the provisions of sub-rule (9) of Rule 3 of Companies (Adjudication of Penalties) Rules, 2014 as amended by Companies (Adjudication of Penalties) Amendment Rules, 2019, copy of this order is being sent to Khattu Housing Solutions Private Limited and its director in default mentioned herein and also to Office of the Regional Director (Eastern Region) and Ministry of Corporate Affairs at New Delhi.
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2024 (11) TMI 880
Appointment of Registrar of Companies, Chennai as Adjudicating Officer in exercise of the powers conferred by section 454(1) of the Companies Act, 2013 - Non-compliance of the Companies Act, 2013 - HELD THAT:- It is concluded that the company and directors have violated Rule 14(6) of (Companies Prospectus and Allotment of Securities), Rules, 2014.
It is required to impose a penalty as prescribed under Section 450 of the Companies Act, 2013.
Therefore, in view of the above said violation, in exercise of the powers vested to the undersigned under Section 454(1) & (3) of the Companies Act, 2013 a penalty of Rs. 10,000/- is imposed on the Company and Rs. 10,000/- is imposed on the Officers in default as mentioned above. Totally Rs.20,000/- as penalty amount for violation of Rule 14(6) of the Companies (Prospectus and Allotment of Securities), Rules, 2014 - The said amount of penalty shall be paid through online by using the website www.mca.gov.in(Misc. head) within 90 days of receipt of this order, and intimate this office with proof of penalty paid.
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2024 (11) TMI 803
Oppression and Mismanagement - Dispute between two shareholders/directors affecting company operations - failure to make statutory compliances, legal authorization etc. - HELD THAT:- Apparently, the company is not able to complete the statutory and legal compliances due to differences between the Directors.
The Learned Counsels for the Appellant and Respondent in their submissions are ad idem regarding differences between the Directors leading to non-compliances of statutory and legal requirements of the company. In the interest of the company, the Ld. NCLT is requested to nominate an independent Director to the Company for meeting of Board of Directors wherein only the Agenda for statutory and legal compliances be taken up. The Independent Director be given usual statutory remuneration and in case of deadlock, will have a casting vote. The Ld. NCLT is requested to appoint the independent Director within three days, considering the urgency of meeting the statutory compliances by the Company.
Appeal disposed off.
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2024 (11) TMI 555
Transfer of shares - issuance of duplicate share certificate - whether a Writ would lie against Respondent No. 3-NSE? - HELD THAT:- Respondent No. 3-NSE in their affidavit-in-reply in paragraph No. 5 have stated that they have been incorporated to facilitate, promote, assist, regulate and manage the public interest and dealings in securities of all kinds, and to provide specialized, advanced, and modern facilities for trading, clearing and settlement of securities with a high standard of integrity and honour and to ensure trading in transparent, fair and open manner - The impugned communication dated 4 October 2007 states that “stop transfer” direction is given on account of default by trading member in not making payments to the exchange. There can be no doubt that stock exchange is an economic barometer of any economy and renders vital public duties as admitted by Respondent No. 3 in their reply.
The Supreme Court in the case of K. C. Sharma Vs. Delhi Stock Exchange and Ors. [2005 (4) TMI 292 - SUPREME COURT] has held that the stock exchange is covered by the definition of ‘State’ under Article 12 of the Constitution of India and amenable to writ jurisdiction of the High Court - It is surprising that inspite of issue being put to rest, such a plea is being taken contrary to binding decisions. In any event, if the stock exchange acts unfairly or arbitrarily in the discharge of its public functions, an aggrieved party can invoke a public remedy, and a writ could be issued to the stock exchange.
Section 23L(1) provides for an appeal to the Tribunal if a person is aggrieved by an order or decision of the recognised stock exchange. The communication impugned, in the present proceeding, dated 4 October 2007 is neither an order nor a decision but a direction to Respondent No. 5-Transfer agent to stop transfer of the shares belonging to the Petitioner - the impugned communication does not fall within the term “order or decision”, provisions of Section 22E of the SCRA would not be applicable and in any case a Writ Court cannot be treated as Civil Court for Section 22-E and, therefore, even on this count also the contention raised by Respondent No. 3-NSE is rejected.
Respondent No. 3-NSE has failed to show any authority vested in them for issuing such communication, by which the share transfer forms on the basis of which Respondent No. 3 is basing its claim clearly demonstrate that the shares under consideration did not constitute assets of the defaulting member - the Petitioner’s claim is only for the issue of duplicate share certificates of shares that the Respondent No. 4-Company admits on the affidavit, shares are still recorded in the Petitioner’s name. Even dividends on these shares are issued to the Petitioner, though not actually credited to the Petitioner’s account due to the objections raised by NSE.
The impugned communication dated 4 October 2007 and consequential proceedings issued/taken by Respondent No. 3-NSE to/against Respondent No. 5- Transfer Agent of the shares of Respondent No. 4-Company is quashed and set aside - petition allowed.
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2024 (11) TMI 299
Doctrine of Merger - Jurisdiction of the respondent to adjudicate stamp duty under sections 31 and 33 of the Indian Stamp Act, 1899 - challenge to impugned order on the grounds that the respondent misinterpreted and misapplied Delhi Towers Ltd. while passing the impugned order - HELD THAT:- The meaningful reading of section 47A reflects that it pertains to instruments which can be registered under the Registration Act, 1908. Section 47A (3) confers suo-motu power on the respondent to call for and examine any instrument to satisfy himself as to the correctness of its value or consideration and the duty payable thereon. However, such suo-motu power can only be exercised within two years from the date of registration of the instrument.
In the present case, the petitioner filed Form 21 with the Registrar of Companies for registration of the merger order on 07.12.2011 and the respondent issued the show-cause notice on 20.03.2014 which is beyond the period of limitation of two years as provided under section 47A (3). There is legal force in the argument advanced by the learned Senior Counsel for the petitioner that the exercise of power conferred upon the respondent by section 47A (3) is appearing to be barred by limitation.
A Coordinate Bench of this Court in Delhi Towers Ltd. observed that the Supreme Court in HINDUSTAN LEVER VERSUS STATE OF MAHARASHTRA [2003 (11) TMI 335 - SUPREME COURT] held that orders passed by courts have been subjected to levy of stamp duty in several situations. It was also observed that the thing which is liable to stamp duty is the instrument and it is not a transaction of purchase and sale which is struck at. The Court also observed that merely because the legislature has not amended the existing statutory provision as applicable to Delhi to specifically include transfer of property under an order approving a scheme of amalgamation in the definition of conveyance, it is of no consequence at all. The same does not amount to exclusion from applicability of the Indian Stamp Act and chargeability to stamp duty thereon. It was also observed that the statutory definition of ‘conveyance’ under section 2 (10) of the Act is an inclusive definition of wide import which cannot be confined to specific instruments mentioned in the statute.
The argument advanced by the Standing Counsel for the respondent that the Notification no. 13 dated 25.12.1937 has been repealed and is not applicable, does not have any legal force and is accordingly rejected. The petitioner and ACIPL were wholly owned subsidiaries of a common parent company – Holderind and therefore, the scheme of amalgamation and the merger order are squarely covered under the Notification no. 13 dated 25.12.1937 which exempts the said instruments from payment of stamp duty.
The show-cause notice dated 20.03.2014 and the impugned order dated 07.08.2014 issued by the respondent are quashed and set aside along with all consequential proceedings - Petition allowed.
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2024 (11) TMI 298
Sanction of scheme of Arrangement - transfer of employees - takeover of employees of the ATM and Cash Management Division of Respondent No.2 as the appellant’s employees - HELD THAT:- The records reveals the Scheme was fully implemented in April 2011 to the knowledge of Respondent No.1 union and thereafter there have been multiple wage settlements entered into for benefit of Respondent No.1 after the implementation of the Scheme and there were no objections to the implementation thereafter. As stated the entire problem started in 2015 when the Members of Respondent No.1 resorted to flash strikes without any justifiable reasons and without any notice at four undertakings of the Appellant in Mumbai and resorted to several unfair labour practices which resulted in several clients of the Appellant terminating their contracts with the Appellant. This led to the appellant losing all its business.
The facts reveal under the garb of interpreting the Scheme the Respondent No.1 is seeking a modification of the Scheme which in fact is impermissible. By way of the impugned order, the Ld. NCLT had rather modified the express terms of the Scheme and had erroneously directed the Board of Directors to take the employees of ATM and Cash Management Division of Respondent No.2 as on appointed date provided such employees also continue to remain in employment on the effective date - it is relevant to note only the ATM and Cash management businesses of the Transferor Company were transferred to the Appellant, while the remaining businesses remained with the Transferor Company. Therefore, it is impractical and inconceivable to interpret the Scheme to mean that all employees of the Transferor Company stood transferred to the Appellant on the Effective Date.
The Miscellaneous application was barred by limitation as was filed after about five years of the implementation of the Scheme in 2011.
The impugned order is set aside - Appeal allowed.
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2024 (11) TMI 266
Requirement of digital signatures for processing Form CHG-1 for charge registration - Section 78 of the Companies Act, 2013 - HELD THAT:- This Court is of the view that Section 78 of the Act is resorted to only after a company has failed to register a charge as mandated under Section 77 of the Act – thereby indicating a lapse or refusal on the part of the company to fulfil its statutory obligations. In such cases, expecting a person in whose favour the charge is created to obtain digital signatures from the company itself contradicts the very scenario Section 78 is designed to address. This stance is further supported by the instructions for form CHG-1, which do not explicitly accommodate situations where the company’s cooperation can be presumed absent. Therefore, insisting on digital signatures in the form from a company who is refusing to register the charge in such circumstances would unduly hinder the rights of charge holders to secure their interests when a company defaults on their statutory duty under Section 77 of the Act.
This Court is in agreement with the view of the learned Single Judge that the requirement for digital signatures from the company, while filing form CHG-1 under Section 78 of the Act, should not be insisted upon.
This Court finds no ground to interfere with the impugned order. Accordingly, the present appeal along with the applications is dismissed.
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2024 (10) TMI 1469
Quashing the Impugned Action of the Respondent Bank by which it has arbitrarily, unfairly and unreasonably invoked the Fraud Circular against the Petitioner and declared his account as fraud - no event of wilful default or fraud qua the account of MBSL - HELD THAT:- The counter-affidavit by the respondent-bank contains no indication that any SCN was issued to the petitioner proposing his classification or categorization as ‘fraud’, nor was he informed about the uploading of his name on the Central Fraud Registry of the RBI. There is no iota of an averment that any relevant documents, including the copy of the forensic audit report, were ever supplied to him. Evidently, no hearing was afforded to the petitioner, nor was he ever communicated of the decision of the respondent-bank dated 20.06.2019.
In the causa célébere STATE BANK OF INDIA & ORS VERSUS RAJESH AGARWAL & ORS [2023 (3) TMI 1205 - SUPREME COURT], the Supreme Court was dealing with a matter where the petitioner had been classified or categorized as ‘fraud’ under the same ‘Master Directions on Fraud’ by the RBI and after examining a plethora of case laws on the subject, it was held that the principles of natural justice have to be read, while interpreting and enforcing ‘the Master Directions on Fraud’ by the RBI.
There is no gainsaying that the civil consequences jeopardize the future of the business of the borrower, and the principles of natural justice necessitate providing an opportunity for a hearing before declaring the borrower ineligible to access institutional finance under Clause 8.12.1 of the Master Directions on Frauds.
The present writ petition is allowed and the impugned order dated 20.06.2019 passed by the respondent-bank and the consequential action declaring, classifying or categorizing the petitioner as ‘fraud’ is hereby set aside/quashed.
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2024 (10) TMI 1468
Oppression and Mismanagement - Maintainability of the present writ petition preferred by the petitioner company invoking Article 226 of the Constitution of India, 1950 - seeking issuance of directions to respondent No. 1/RBI to initiate action against respondent No. 2 company i.e. Exclusive Capital Limited in terms of the provisions contained in Chapter IIIB of the Reserve Bank of India Act, 1934 - HELD THAT:- It is well ordained in law that a writ of mandamus lies where there is shown a failure to exercise the powers vested in statutory authorities and delay in exercise of its powers might bring about irreparable injuries to statutory rights.
Despite repeated reminders, the present management of respondent No. 2 company has not shared several details in the nature of organizational structure of the respondent No. 2 company, list of secretarial records, statutory compliances, detailed particulars of all the managerial personnel (current and former) scope of their respective roles/responsibilities along with the details of their remuneration/perks and benefits, in particular the copies of the audited and unaudited financials of the company with schedule and trial balances besides the list of list of receivables and payables besides list of secured and unsecured creditors, and such non-compliances assumes significance that all is not well in running the affairs of respondent no. 2 company by the present management.
It would be expedient to point out that the respondent No. 2 company in its reply-cum-affidavit through Mr. Achal Kumar Jindal dated 25.09.2024, filed in response to the Status report filed by the respondent No. 1/RBI dated 13.08.2024, has simply made bald denial with regard to the issues and concerns which have been raised by the respondent No. 1/RBI. It is stated that in order to restore the leverage ratio, the OCDs were converted into the CCPS vide the resolution dated 27.09.2022. As regards the OCDs of Rs. 315 crores, having been received without permission, it is sought to be canvassed that it neither qualifies to be a ‘public fund’ nor Regulation 61 of 2016 of the RBI Master Directions are applicable.
The decision in the case of Krishnakrupa Owners Association v. Reserve Bank of India was rendered in the context of decision taken by the RBI under Section 39A of the Banking Regulation Act, 1949, whereby certain conditions had been imposed on the petitioner including the restrictions, which restrained the respondent No. 3 from paying more than Rs. 10,000/- to its depositors. The High Court refused to exercise its jurisdiction and interfere in the banking affairs of the respondent No. 3 since it was held that the RBI, which was an expert body, was already seized of the matter.
Thus, finding no legally sustainable challenge to the maintainability of present writ petition, and given that it is evident that respondent No. 1/RBI has thus far failed to exercise its supervisory powers, it becomes imperative that certain directions be issued to respondent No. 1/RBI to intervene in the matter and to ensure the enforcement of binding regulations provided under the RBI Act. There are cogent and ample material on the record that warrant full and thorough inquiry into the affairs of the respondent No. 2 company.
It is hereby directed that the Board of Directors of respondent no. 2 company shall remain suspended with immediate effect till further orders - Re-notify for compliance on 02.12.2024.
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2024 (10) TMI 1409
Intervention by Greenopolis Welfare Confederation in the proceedings - Role and actions of the Interim Resolution Professional (IRP) - HELD THAT:- Having heard the learned counsel for the parties and in order to safeguard the assets of the corporate debtor, for now, the IRP is allowed to take measures which are indicative above vide serial no. 1, 2, 3, 5, 6 and 12. In the consideration of this Court, such measures are necessary so as to safeguard the assets of the company and also the interest of the stakeholders.
Compliance cum updated status report be filed by the IRP on or before the next date of hearing - This application is disposed of.
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2024 (10) TMI 1136
Condonation of delay of 68 days of filing appeal - sufficient cause for delay or not - whether there is any reason to record satisfaction that the Appellant was prevented by sufficient cause from filing the appeal within that period? - HELD THAT:- No sufficient cause has been shown by the Appellant as to how he was prevented from filing the appeal within period as required under Section 421(3) proviso. It is not persuaded to entertain submission of the Appellant on the merits of challenge to the order impugned. There is one more reason due to which Appellant’s prayer in the application for condonation of delay cannot be allowed.
It is noted that the judgment of the Hon’ble Supreme Court in Ramlal, Motilal, Chotelal [1961 (5) TMI 54 - SUPREME COURT] where it has been held that even after sufficient cause has been shown by the parties, parties are not entitled to condonation of delay in question as a matter of right. Even if sufficient cause has been shown Court has to enquire as to whether it should exercise its discretion to condone the delay.
The Appellant has not even shown any sufficient cause that he was prevented to file an appeal rather Appellant is clearly negligent in filing the appeal since he was well aware of the order even prior to 22.02.2024 and has filed two applications - Appellant has already pleaded that extension of time be granted without prejudice to the rights of the Appellant to file appeal. Thus, Appellant has already pleaded that he has right to file an appeal without prejudice to the extension of time.
It is not satisfied that Appellant was prevented by sufficient cause from filing the Appeal within the extended period of 45 days. The Delay Condonation Application deserves to be dismissed and is hereby dismissed.
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2024 (10) TMI 1135
Nomination of 15 number of persons as Directors in General Committee of Delhi Gymkhana Club Limited. - Section 241-242 of the Companies Act, 2013 - conditions precedent for invoking provisions of Section 241(2) of the Companies Act, 2013 - formation of opinion by the Central Government under Section 241(2) - conduct of affairs of the Company in proper way or not - sufficient materials on the record for formation of requisite opinion - affairs of the Company (Delhi Gymkhana Club) were being conducted in a manner prejudicial to the public interest or not - interim order or final order - finding for exercising jurisdiction under Section 242 of the Companies Act, 2013 - supersession of the management of the Company by 15 members committee to be nominated by the Central Government without providing for any time period.
What are the requisite conditions precedent for invoking provisions of Section 241(2) of the Companies Act, 2013? - HELD THAT:- To enable the Central Government to apply for an order under Section 241, the conditions precedent i.e. (i) the Central Government is of the opinion; and (ii) that the affairs of the Company are being conducted in a manner prejudicial to the public interest, need to be satisfied. On fulfilment of the above two conditions, an application can be filed by the Central Government under Section 241 of the 2013 Act for an order.
Whether the requisite conditions precedent within the meaning of Section 241(2) of the Companies Act, 2013 in the application filed by the Union of India under Sections 241 and 242 are met i.e. (i) formation of opinion by the Central Government under Section 241(2); and (ii) that the affairs of the Company are being conducted in a manner prejudicial to the public interest? - Whether there was sufficient materials on the record for formation of requisite opinion under Section 241(2) by the Central Government? - Whether affairs of the Company (Delhi Gymkhana Club) were being conducted in a manner prejudicial to the public interest so as to enable the Central Government to file an application under Section 241(2) of the 2013 Act? - HELD THAT:- The statutory pre-condition for registration of a company under Section 26 of the Companies Act, 1913 is that it has been or is about to be formed for promoting “Commerce, Art, Science, Charity or any other useful object”. When the statute itself indicates that registration under Section 26 of the Companies Act, 1913 can be of the companies which were formed not for profit but for promoting commerce, art, science or any other useful object, the statutory requirement of promoting commerce, art, science, charity or any other useful object is clearly designed for public purpose. The special status and recognition of such companies by the Statute is since the said companies are formed not for profit but for promoting commerce, art, science, charity or any other useful object.
Admittedly, the Delhi Gymkhana Club was incorporated under Section 26(1) if the Companies Act, 1913. Although the word “sport” is not specifically included in sub-section (1) of section 26 but the use of expression “other useful object” is wide enough to include “sport” also. As noted above, the Memorandum of Association of the Delhi Gymkhana Club specifically in Clause 3(a) lists the object to promote “Polo, Hunting, Racing, Tennis, other games, athletic sports and pastime”. The submission of learned counsel for the appellants thus cannot be accepted that object of the Company was not to promote sports. Non use of the word “sport” in Section 26(1) of the 1913 Act is in consequential.
The question in the present case is not as to whether the Delhi Gymkhana Club is an industry or not. The expression that “affairs of the Company are being conducted in a manner prejudicial to the public interest” as required under Section 241(2) is a entirely different expression and right given to the Central Government to apply for an order is also for an entirely different purpose. As noted above, under Section 241(1) of the 2013 Act right has been given to the Members to apply for an order under Section 241 after fulfilling necessary requirements under Section 244 of the 2013 Act and by the same Statute power has been given to the Central Government to apply for an order under Section 241.
The question to be answered is as to whether there were sufficient materials before the Central Government to form an opinion that affairs of the Company are being conducted in a manner prejudicial to the public interest. The materials which were before the Central Government, as noticed above, contained inspection report and the supplementary inspection report pointing out various violations of the 2013 Act as well as violation of the Articles of Association. The inspection report reported that only 3% of the entire expenditure by the Company is devoted towards sports. The findings returned by the NCLT on the materials before it that the Company has not been able to follow-up its main object and the affairs of the Company are being mismanaged which is prejudicial to the public interest - the submission of the appellants cannot be accepted that there was no public interest involved in carrying of the affairs of the Company and the Company is only for the benefit of its members and no public interest is prejudicially affected by the internal management and affairs of the Company. When a company is incorporated with an object, which is object of public interest, any impairment of such object in carrying out the affairs of the Company which do not truly promote the objects for which it has been incorporated, it is failed to see any substance in the submission of the appellants that in managing the affairs of the Company/Delhi Gymkhana Club, no public interest is involved.
Thus, summarily, Requisite conditions precedent within the meaning of Section 241(2) of the 2013 Act in the application filed by the Union of India under Section 241-242 are met - There were sufficient materials on record for formation of requisite opinion under Section 241(2) of the 2013 Act by the Central Government - The affairs of the Company/Delhi Gymkhana Club are being conducted in a manner prejudicial to the public interest which enabled the Central Government to file an application under Section 241(2) of the 2013 Act.
Whether the impugned order dated 1st April, 2022 is in nature of interim order under Section 242(4) and not a final order? - Whether the impugned order does not record any finding for exercising jurisdiction under Section 242 of the Companies Act, 2013? - Whether the NCLT vide its impugned judgment has delegated its jurisdiction to the 15 members committee which was to be nominated by the Central Government in pursuance of the impugned order? - HELD THAT:- The task, which was entrusted to Fifteen Members Committee has been outlined in the order from the above two directions are clearly decipherable, i.e. (i) take all actions for restructuring Respondent No.1 Company in terms of Memorandum and Article of Association; and (ii) take corrective measures which are in violation of the Memorandum and Article of Association and the Companies Act, 2013. We, thus, are unable to accept the submission of the Appellant that the NCLT has delegated its jurisdiction to the Fifteen Members Committee. The Fifteen Members Committee, which was to replace all the General Council was entrusted with the task as noted above. Hence, the Fifteen Members Committee has to take its action as per the directions and it cannot be said that the NCLT has delegated its jurisdiction to the Fifteen Members Committee. It goes without saying that Fifteen Members Committee has to act in accordance with the NCLT’s order, after taking into consideration the observations of the NCLT and directions issued thereunder. Direction No.3 has to be read with the findings as returned by the NCLT in the impugned order - the submission of the Appellant that NCLT abdicated its jurisdiction and delegated its jurisdiction to Fifteen Members Committee cannot be accepted.
Whether the supersession of the management of the Company by 15 members committee to be nominated by the Central Government without providing for any time period or course of action with a view to bringing to an end the matters complained of requires interference by the Appellate Tribunal? - HELD THAT:- The principal objective of order under Sections 241 and 242 is to pass order with a view to bringing to an end the matters complained of. Thus, the proceeding under Sections 241 and 242 is to take remedial action. The affairs of the Company, which are being conducted to the prejudicial to the public interest, should be remedied to protect the public interest, has to be the objective of the Court in proceeding under Sections 241 and 242. The order was passed by the NCLT on 01.04.2022 and more than two and a half years have been elapsed from passing of the order and Fifteen Members Committee (at present only eight Members are functioning) has acted in pursuance of the impugned order and has taken certain steps. It is not necessary for us to enter into details and the steps taken by Fifteen Members Committee, since the challenge in the present case is basically to the order impugned dated 01.04.2022.
The Committee nominated by the Central Government has to complete the process of taking actions to bring to an end the matters complained of expeditiously. It is inclined to fix a time frame for completing the process of remedial actions by Committee to subserve the object for which NCLT passed an order under Section 241 and 242. We direct the Committee to complete its process of taking remedial actions to bring to an end the matters complained of by 31.03.2025. The Committee to also conduct the elections as per the Article of Association, Clause 20 of the Article of Association deals with ‘Management of the Club to be vested in a General Committee’, which provides the mode and manner of the election of General Committee from the prominent Members of the Club.
The Committee, which is functioning in pursuance of the impugned order may take steps and conclude the remedial action and hold election as as per Clause 20 of the Article of Association to elect the President and other Members of the Committee.
With regard to witness protection, liberty having been granted to approach the Witness Protection Cell, New Delhi District for dealing with the aspect of protection. Both, Col. Ashish Khanna and Niji Sapra can take recourse to the liberty given by Metropolitan Magistrate in the above order dated 29.05.2024. Hence, no directions are required in the present Appeal with regard to witness protection with respect to Complaint Case No.959/2021 in the Court of Metropolitan Magistrate.
To what relief, if any, the appellants are entitled in the present appeals? - Course of Action with a view to bringing to an end the matters complained of - HELD THAT:- The Application filed by Union of India under Sections 241 and 242 of the Companies Act, 2013, the Union of India was fully maintainable and NCLT has rightly exercised its jurisdiction under Sections 241 and 242 on the basis of materials on record - there are substance in the submission of the Appellant that management of the Club cannot be superseded for indefinite period and the object of Sections 241 and 242 proceeding is only to bring to an end the matters complained of. Certain steps have been claimed to be taken by the Fifteen Members Committee appointed in consequent to the impugned order dated 01.04.2022 - the ends of justice will be served in directing the existing Committee nominated by Central Government to conclude remedial steps and conduct the election of Delhi Gymkhana Club in accordance with Clause 20 of Article of Association.
The order dated 01.04.2022 passed by NCLT is upheld - The Committee nominated by the Central Government in pursuance to the order dated 01.04.2022 passed by NCLAT is directed to complete the all remedial measures, so as to end the matters complained of on or before 31.03.2025 - The Committee nominated by the Central Government in pursuance of the impugned order dated 01.04.2022, is directed to conduct the election of President and Members of the General Council in accordance with Clause 20 of the Article of Association within three months after 31.03.2025 and install the duly elected General Council accordingly - The General Council of the Club with whom management is entrusted, shall act in accordance with Memorandum of Association and Article of Association and conduct its affairs accordingly.
Appeal disposed off.
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