TMI Blog2020 (3) TMI 921X X X X Extracts X X X X X X X X Extracts X X X X ..... 31, we are not concerned here with the dispute, allegations and counter allegations between different parties, but rather only with the accounts as prepared by the Applicant Company for the years 2012-13 to 2014-15, and which have been found to be not giving a true and fair picture of the actual events and transactions, and whether the same require to be revised and re-drafted. Whatever the disputes, the same have been taken up before other concerned authorities/courts, and the resolution of such disputes is not the issue in the present proceedings. The same are referred to only for examining the intent of legislature and the applicability of section 131. With regard to the wordings of section 131, which have been interpreted differently by the opposing sides, we have to assert that a provision of law cannot be applied in all circumstances or through ordinary principles of interpretation when the circumstances necessitating their interpretation are extraordinary, as is the case here. Any such interpretation must be in sync with the overall intent of the Act and unique facts of the case. Also, law has to be interpreted for righting a wrong and not for perpetuating a wrong. Grave ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted States of America. The business of the Applicant Company in terms of the Memorandum of Association was mainly concentrated in India, stationed at Bangalore. (c) That the CEO and Majority Shareholder of the Applicant entered into an arrangement with the erstwhile Founder Promoter Shri M.G. Mohan Kumar by executing a Power of Attorney in his favour for running the day-to-day affairs of the Applicant Company. (d) During the middle of the year 2014-15, the Majority Shareholder was informed by one of the Ex-Senior employee of the Applicant that the affairs of the Applicant are not run as per the provisions of the Companies Act and rules and regulations, and guidelines as issued by the Ministry of Corporate Affairs. It was also informed that there are already a lot of financial irregularities done with a view to create huge financial liabilities in the form of heavy borrowings and frequent withdrawals from funds without any reasons, and falsifications of Accounts has taken place. (e) That the Majority Shareholder could not get the support from the erstwhile Founder Promoters, but after taking over the management, the Majority Shareholder and Applicant decided to appoint an I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Statements for a revised report in respect of the three preceding financial years after obtaining approval of the Hon'ble Tribunal and after following the due process of law. (k) In the Board's Report in the relevant financial years for which such revision is needed, the Applicant has already filed the necessary Form GNL1 at MCA Portal. 3. On 07.02.2018, this Tribunal ordered notices to be issued to the Registrar of Companies, Regional Director, concerned Income Tax Department Officer, the Auditor of the Company and to publish the next date of hearing in The Financial Express English Daily Bangalore edition and Vijaya Karnataka Kannada Daily Newspaper and to file proof of service of the same. 4. Pursuant to the above, the authorised representative of the Petitioner Company has filed an Affidavit dated 19.03.2018 for having issued notice to RD, ROC, concerned Officer of Income Tax Department, and Auditor and have also filed proof of service of notice for the same and also has furnished the copy of the paper publication for having taken out advertisement in 'The Financial Express', an English daily Newspaper and 'Vijaya Karnataka' a Kannada dail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng observations: (i) It is submitted that the Petitioner Company viz., American Road Technology Solutions Private Limited was incorporated with the Registrar of Companies, Karnataka on 07/05/2012 as a private limited company. The status of the company is 'Active' and it has filed Annual Returns and Financial Statements till 2016-17. Present directors are Bhanu Prabha Krishna Hebbar, and Kiran Srinivas Murthy. No complaint or prosecution is pending against the Company. (ii) It is submitted that the Company has filed the present application under Sec. 131 of the Companies Act, 2013 for revision of Financial Statement and Board Reports for the Financial Years 2012-13, 2013-14 and 2014-15. It is submitted that the application is not made for revision of any of the three immediately preceding financial years but for the earlier years. Hence the same does not fall under the provisions of Section 131 of the Act and that too for revision of financial statements to reflect suspicious transactions and falsification of accounts that had taken place in the Company. (iii) In addition to what has been stated in the Application, and reproduced by him, the Regional Director has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tainable. Further, it appears that the revision of financial statements based on alleged fraud will not fall within the ambit of Section 134 of the Companies Act, 2013. 7. Respondent No. 4, has filed statement of objections dated 23.04.2019, inter alia, making the following averments: (1) The Respondent No. 4 is the erstwhile Director of the Applicant Company and has been impleaded as Respondent No. 4 in the instant proceeding vide an order of this Hon'ble Tribunal dated 11.05.2018. (2) A bare perusal of section 131(b) of the Act shows that after copies of financial statement or report have been sent out to members or delivered to the Registrar or laid before the company in its general meeting, the revisions must be confined to (a) the correction in respect of which the previous financial statement or report do not comply with provisions of section 129 or section 134, and (b) the making of any necessary consequential alternation. However, the Applicant herein has sought blanket reliefs without pointing out the specific necessary corrections required in respect of the Financial Years 2012-13, 2013-14 and 2014-15 as mandated under the section 131(2) of the Act. The averm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that a procedure not in existence prior to its enactment will not be revised or restored. Therefore, it is reiterated that since section 131 of the Act did not exist prior to 2013, and further was not notified till June 1, 2016 as a result of which it shall not be applicable for the Financial Years before 2013-14, in any event. Even otherwise, the Applicant has failed to seek any condonation of delay in filing the Application. Therefore, this proceeding cannot be saved and or delay cannot be condoned presently. It is also submitted that this Application is an afterthought to protract the insolvency proceedings initiated against the Applicant by the Respondent No.4 viz. C.P. (IB) No.99/BB/2018, C.P. (IB) No. 116/BB/2018, and C.P. (IB) No.117/BB/2018 which are presently pending before this Hon'ble Tribunal. It is clear from such acts of the Applicant that the Application is in serious abuse of law and filed with malicious intent and that the Applicant has not approached this Tribunal with clean hands. (5) It is submitted that the Applicant's Majority Shareholder has falsely submitted that she was informed by an ex-senior employee of the Applicant Company regarding the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rated in India. The majority shareholder and CEO of the Company entered into an arrangement with erstwhile Founder Promoter Shri MG Mohan Kumar by executing Power of Attorney in his favour to run the day-to-day affairs of the Company. The majority shareholder was assigned the duties of providing technological support and infrastructure for fulfilment of objectives of the Company. (2) During the middle of 2015, the majority shareholder and CEO of the Company came to know of financial irregularities taken place during the years 2012-13, 2013-14 and 2014-15 and appointed an Independent Chartered Accountant, M/s V. Raghavan Co. for an independent audit on June 08, 2015 and the report of the independent audit of the affairs of the Company was submitted to the majority shareholder on 19th October 2015. The Statutory Auditors of the Company for the Financial Year 2014-15 also noted several financial irregularities by the key managerial persons and others in 2012-13, 2013-14 and 2014-15. The management of the Company took note of the same and filed criminal complaints against the erstwhile management before Malleshwaram Police Station bearing No. 207/2016 and High Grounds Police Stati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sudhindra, all of which are pending. (7) The said erstwhile Director, Shri Mohan Kumar has availed loans from Banks and third parties under the pretext of Working Capital for the Company but misappropriated and swindled the money misusing his fiduciary powers. The present Board has filed criminal complaints against him before Police authorities who have registered, charge-sheeted, and filed cases before the IV Additional Chief Metropolitan Magistrate, Bengaluru vide C.C. No.30462/2018, 30471/2018 and 30474/2018 which are currently pending. In this connection, the High Court of Karnataka has rejected the anticipatory bail application of Shri Mohan Kumar and other while observing there is prima facie case to show that there is misappropriation of amount by the applicants. The documents, receipts, vouchers, bills were not properly maintained. Even for the loan there is no security taken. (8) Shri Mohan Kumar during his tenure as Director of the Company has submitted false documents such as inflated provisional balance sheet to banks for obtaining overdraft facility by showing ₹ 16.38 crores as turnover of the Companies as at 31.12.2014. The Audited Balance Sheet as of 31 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the financial statement pertaining to balance sheet as at 31.03.2014. The statutory auditors for the following financial years 2014-15 i.e. M/s. Bhat Associates have qualified their report the details of which is dealt in para 19 separately. After the appointment of independent auditor by the present management the fraudulent misappropriation of funds has been confirmed hence the objections of the statutory auditors of the said period does not warrant any merits in objecting to the present petitions. The present statutory auditors of the Company vide the letter dated 19.03.2018 informed this Bench that the investigation pursued by the management resulted in quantifiable errors in the books of account from 2013 onwards and that it will be pertinent to recast the same in order to ensure compliance of sections 129 and 134 of the Companies Act, 2013. (15) It is submitted that only upon recasting the financial statements the company will come to know of the real status of its assets and liabilities, including real creditors and the quantum of amounts due and payable to such real creditors including the applicants in the IBC cases. This will also help the Tribunal to re-verify the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and suggested recasting of the same, and have mentioned that various acts of omission and commission have been detected by the Company, their being impleaded is not required. Secondly, the contention that section 131 cannot be invoked as the requirements of sections 129 and 134 have not been met, is also not acceptable. As will be seen later, the errors and misreporting in the accounts are far too many, and very specific, because of which there is no possibility that the already completed financial statements can give a true and fair picture of the state of affairs of the company, as required by section 129. Also section 131 refers to compliance with section 129 OR section 134, not 129 and 134, as mentioned by Respondent No. 4. Hence, if the accounts do not give a true and fair picture as mentioned in section 129, even if the procedure for adopting the accounts is followed, as required by section 134, section 131 can still be invoked. Thirdly, the Respondents number 4's argument that section 131 cannot be invoked for a period prior to 2013 when this provision was inserted in the Statute is also not tenable. The section itself talks of a period of three years prior to the det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f its business with regard to execution of contracts and raising invoices. (d) The company does not have any internal audit system in place for the year under review. (e) The outstanding borrowing from third party as on 31st March 2017 was ₹ 147 lakhs. The said borrowing was from the entity in which no director or member of the company are interested. (f) An amount of ₹ 57.25 lakhs were repaid in cash to share applicants against the outstanding share application money in violation of section 42 of Companies Act, 2013. (g) The shares were allotted to Mr. A V Balasubramanya for ₹ 5.00 lakhs during the year 2013-14. There were neither actual funds received from him nor the allotment was sweat equity. Hence the allotment may be void ab initio. (h) The key managerial personnel and some of the mid and lower level management was involved in misappropriation of funds resulting in cash loss to the company during the years 2012-13, 2013-14 and 2014-15. The mismanagement and misappropriation was identified by the management. (i) Payments are made in cash and not through bank payment. In large number of transactions accounted, the Bills/ Vouchers/Invoices/ R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uals, HUF and Companies. Some names of the lenders as per bank statements are not matching. (v) As per Notes to Account of the Audited financial statements of FY 2013-14, revenues are recognised on time proportion basis but there are no workings maintained or provided to verify the same. 14. The above narrated sample of accounting deficiencies are culled out from the Reports and observations of qualified and expert Accounting /Auditing Firms, and cannot be factually questioned in the present proceedings. On an overview of the same we are in agreement that a case is clearly made out for revising the financial statements and Board's reports. Even if we disregard the opinion with regard to any misappropriation, fraud etc., these facts are clearly such as would distort the Final Accounts and not give a true and fair picture of the goings on in the Company, as required by section 129. We are, therefore, in agreement with the Petitioner, based on the Reports of the Auditors, that the financial statements and Board's reports for the Applicant Company need to be revised and recast. 15. We may however, also make it clear that, while dealing with proceedings under section 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 2014-15. Thus FY 2014-15, which is one of the years in which the incorrect financial reporting has been detected and in respect of which approval for revision has been sought, is squarely covered by section 131. 19. Further, when a Balance Sheet is drawn for a particular year, it brings forward balances as on 31st March of the preceding year, and carries forward the balances as on 31st March of that FY into the 1st of April of the succeeding FY. Hence, when FY 2014-15 is covered for our purpose in the instant case, as mentioned above, it implies that any incorrect reporting of loans, income, expenditure, allotment of shares or increase/reduction in assets such as Cash in Bank or Hand etc. etc., in earlier years, will necessarily impact the Balance Sheet for the YE 31.03.2015, i.e.. for FY 2014-15, and for this reason the years 2012-13 and 2013-14 will necessarily have to be considered for revision of the accounts that are not giving a true and fair picture of the accounts for these years, for the reasons mentioned supra. In other words, if an enquiry is to be made into incorrectly reported accounts as appearing in FY 2014-15, but have been brought forward from the preceding F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or re-casting of accounts. In certain cases, particularly, in cases relating to fraud, there may be need to re-open/recast accounts to reflect true and fair accounts. In case of Satyam, such recasting was ordered by the Court. The provisions in the Bill mandate such re-opening on the order of Court or Tribunal. In other cases the re-opening is being permitted, through order of Tribunal, with adequate safeguards. (emphasis supplied) 22. Further, we see that Chapter IX which deals with Accounts of Companies, in which section 131 falls, seeks to prevent preparation of accounts fraudulently, mismanagement of the affairs of the company or to ensure that a true and fair picture is reflected in the accounts. Similarly, several provisions in the Act are inserted mainly to prevent fraudulent activity in Companies, mismanagement or oppression etc. requiring Inspection, enquiry and Investigation as in Chapter XIV and Chapter XVI. The time limits provided in these provisions are either not there or are long enough to ensure that suitable remedial action can be taken by the Company or by a Statutory Authority to set right the irregularity, mismanagement, fraudulent activity, misreportin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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