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2019 (9) TMI 333

..... t, 2013 - prosecution of the Petitioners and initiation of proceedings under section 140(5) of the Act - HELD THAT:- the word “action” in the second proviso to sub-section (5) of section 140 of the Act, would be required to be read down as “prosecution”. The prosecution can be initiated only after final report, equated with a report under the provisions of section 173 of the Code of Criminal Procedure, 1973, is made - This issue, in our prima facie opinion, also requires to be dealt with elaborately. The matter thus warrants a response from Respondent No. 1 and Respondent No. 2. We defer the hearing on the writ petitions - Stand over to 3rd October 2019. - WRIT PETITION NO. 4144 OF 2019 WITH WRIT PETITION NO. 4145 OF .....

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..... rohibition or any other writ, order or direction under Article 226 of Constitution of India, quashing the impugned order dated August 9, 2019 and restraining the Hon ble NCLT from proceeding further with the Company Petition qua Petitioner No. 1 or its partners, professionals or employees. ii a. Issue a writ of mandamus or a writ in the nature of mandamus or any other appropriate writ, order or direction under Article 226 of the Constitution of India, 1950, ordering and directing the Respondent No. 1 to forthwith withdraw & cancel the Impugned Direction dated May 29, 2019 at Exhibit B, whereby, the Respondent No.2 has been directed to initiate proceedings as more particularly set out therein. Ii b. In the alternative to ii a. above, thi .....

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..... n 24th May 2019, BSR furnished a written reply to notice dated 13th May 2019. On 28th May 2019, Respondent No.2 placed its second interim report with the Ministry of Corporate Affairs (Respondent No.1). On next day, i.e., on 29th May 2019, the Ministry of Corporate Affairs issued a sanction order directing the initiation of (i) an action under section 140(5) of the Act (ii) prosecution under sections 143 and 147 of the Act and (iii) prosecution under sections 417, 420 read with 120 of the Indian Penal Code, 1860. On 30th May 2019, Respondent No. 2 filed criminal complaint bearing No. 20 of 2019 in the Court of the learned Additional Sessions Judge-cum-Special Judge (Companies Act) at Greater Mumbai. On 10th June 2019, Respondent No.1 filed .....

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..... ection 140 of the Act provides that NCLT, on satisfaction that the auditor has directly or indirectly acted in fraudulent manner or abetted or colluded in any fraud by or in relation to the company or its directors or officer, can direct the Company to change its auditor. He submitted that under the first proviso to subsection (5), if an application is made by the Central Government under the main part of sub-section (5) of the Section 140, and the NCLT is satisfied that any change of the auditor is required, it shall within fifteen days of receipt of such application, make an order that he shall not function as an auditor and the Central Government may appoint another auditor in his place. Mr. Rohatgi further submitted that under second pr .....

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..... 9. The second limb of argument of learned senior counsel Mr. Rohatgi is that pending the proceedings under subsection (5) of section 140 of the Act, the Petitioner-BSR has tendered resignation on 19th June 2019, which has been accepted by IFIN and in the circumstances, the proceedings under section 140(5) of the Act are not maintainable. We prima facie find merit in the contention inasmuch as the first part of sub-section (5) of section 140 of the Act deals with a direction to the company by the Tribunal to change its auditor. The first and second proviso to sub-section (5) of section 140 of the Act, prima facie, would come into operation only in the event of such direction of change of auditor is issued by the Tribunal to the Company. 10. .....

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..... prosecution under section 447 of the Act is concerned, Mr. Rohatgi, learned senior counsel appearing on behalf of the Petitioner invited our attention to section 212 of the Act, which deals with the investigation into the affairs of the company by Special Fraud Investigation Office. Sub-sections (11) to (15) of section 212 of the Act read thus : 212. Investigation into affairs of Company by Serious Fraud Investigation Office (11) The Central Government if so directs, the Serious Fraud Investigation Office shall submit an interim report to the Central Government. (12) On completion of the investigation, the Serious Fraud Investigation Office shall submit the investigation report to the Central Government. (13) Notwithstanding anything contai .....

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..... Venegaonkar, the learned counsel for Respondent No. 2, the report submitted by Respondent No.2 is final report. Mr. Rohatgi also submitted that the report was submitted on 28th May 2019 and on the very next day, i.e., on 29th May 2019, the sanction order was issued by Respondent No. 1 and on the next day prosecution is lodged under section 447 of the Act. He submitted that report of Respondent No.2 runs into 32,000 pages and Respondent No.1 could not have applied its mind to this voluminous material within such a short span of time and issued sanction order. This issue, in our prima facie opinion, also requires to be dealt with elaborately. The matter thus warrants a response from Respondent No. 1 and Respondent No. 2. We find that arguabl .....

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