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TMI Blog2015 (9) TMI 1742X X X X Extracts X X X X X X X X Extracts X X X X ..... . As common legal issues are involved thus, the same are being decided together by a single order. 3. The petitioners are having their respective position as above said in the Company named Religare Finvest Limited (hereinafter referred to as the 'Company'). The Company being a non banking financial company focusing on financing small and medium enterprise (SME). It provides SME mortgage loans, SME working capital loans, and retail capital markets financing. The company is a subsidiary of Religare Enterprises Limited. 4. The brief relevant facts of the case are that on 1st June, 2010 the statutory auditors Price Waterhouse (PWC) issued its Audited report of the balance sheet of the Company, the related Profit and Loss Account and Cash Flow Statement as on 31st March, 2010. On 30th May, 2011 PWC issued auditors' report of the balance sheet of the Company, related Profit and Loss Account and Cash Flow Statement as on 31st March, 2011. On 22nd May, 2012, PWC issued auditors' report of the balance sheet of the Company, related Profit and Loss Account and Cash Flow Statement as on 31st March, 2012. The respondent No.2 by its letter dated 16th January, 2013 directed the inspec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 31st March, 2010, 31st March, 2011, 31st March, 2012; and - (ii) non-disclosure of each class of intangible assets, distinguishing between internally generated intangible assets and other intangible assets. 7. Without granting any hearing or any further discussions, the complaint was filed. In the complaint, the clarification/plea raised by the company was not specifically averred except the copy of the reply was filed as annexed. In the complaint it was stated that the petitioners had failed to comply with the statutory requirements of Sections 211(3A), (3B) and (3C) of the Act read with AS-16 and AS-26 and hence liable for prosecution under Section 211(7) of the Act. It is the case of the respondents, the Ministry of Corporate Affairs, respondent No. 2 vide letter dated 16th January, 2013 directed that the Inspection of the books of account and other records of the company under Section 209A of the Act be conducted. The inspection of the books of accounts of the said company was carried out by Assistant Director (Inspection) in April, 2013. The Inspecting Officer submitted the Inspection report on 24th June, 2013 to Regional Director and the same was forwarded by Regional Dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be elucidated hereunder : This reply is in three parts; Part A deals with the background in light of which the reply is being filed; Part B deals with the issues raised in these Show Cause Notices and other responses thereto; Part C deals with our submissions and preliminary objections. The responses in Part B are subject to the submissions made in Part C. A. Background 1. The books of accounts and records of the Company were inspected under Section 209A of the Companies Act, 1956("Act") by an officer of the Office of the Regional Director (NR), Ministry of Corporate Affairs ("Inspecting Officer"). The Inspecting Officer observed that the Company has violated certain requirements of Sections 211(3A), 211 (3B) and 211 (3C) read with AS-16 and AS-26 issued by the Institute of Chartered Accountants of India (ICAI) for the Financial Years 2009-10, 2010-11 and 2011-12; 2. The Company had furnished a detailed response vide its letter dated June 18, 2013 refuting the alleged violation of the provisions of Sections 211 (3A), 211 (3B) and 211(3C) read with AS-16 and AS-26 issued by the ICAI. In addition, in its response to the SCN dated June 19, 2014, the company had again provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ization should be determined in accordance with this Statement. Other borrowing costs should be recognized as an expense in the period in which they are incurred. 5. Para 7 of AS 16 states that - Borrowing costs are capitalized as part of the cost of a qualifying asset when it is probable that they will result in future economic benefits to the enterprise and the costs can be measured reliably. Other borrowing costs are recognized as an expense in the period in which they are incurred. 6. Para 23 of AS 16 states that the financial statements should disclose : (a) the accounting policy adopted for borrowing costs; and (b) the amount of borrowing costs capitalized during the period. 7. Accordingly, the Company has made the following disclosures in Schedule S [Point 2 (o)] Notes to the Financial Statements : "SIGNIFICANT ACCOUNTING POLICIES Borrowing Cost Ancillary costs incurred for arrangement of borrowings such as upfront fees/brokerages are amortized over the tenure of the borrowing as per the terms of sanction/agreement." 8. Facts applied to Religare Finvest Limited (RFL) : In RFL, the money which is borrowed (either by way of bank loans, debentures, commercia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, indicating separately these from internal development and through amalgamation; ii) Retirements and disposals; iii) Impairment losses recognized in the statement of profit and loss during the period (if any); iv) Impairment losses reversed in the statement of profit and loss during the period (if any)'; v) Amortization recognized during the period; vi) Other changes in the carrying amount during the period. It is observed from the Balance Sheet as at 31/03/2010, 31/03/2011 and 31/03/2012 that the company has not disclosed the above classes of intangible assets, distinguishing between internally generated intangible assets and other intangible assets. Hence, there is violation of section 211(3A), (3B) and (3C) of the Act read with AS-26 issued by ICAI. Company's Submission We would like to draw your kind attention towards the following provisions with respect to the query raised in point (i): 3. As per Schedule VI, under each head of fixed assets the original cost, the additions and deductions thereto therefrom during the year, and the total depreciation written off or provided up to the end of the year is/are to be stated. 4. As required in point(i) above, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y explain our position and understand your perspective on this issue. C. Our Humble Submissions: 1. From the reply filed by the Company as above it is clear that the Company has complied with the provisions of Sections 211(3A), 211(3B) and 211(3C) of the Act read with AS-26 issued by the ICAI; 2. The Financial Statements of the Company for the years 2009-10, 2010-11 and 2011-12 have been audited by the Statutory Auditors, Price Waterhouse, which is a reputable firm of auditors, and have been audited in accordance with the applicable provisions of the Act and the Accounting Standards, guidance and clarifications issued by the ICAI. The Auditors' Reports for the financial years ending on March 31, 2010, March 31, 2011 and March 31, 2012 (the "Auditors' Reports") which clearly mention the following: - Firstly, the audit conducted by the auditors provides a reasonable basis of their opinion. Paragraph 2 in the reports states as follows: "We conducted our audit in accordance with the auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is based on a vague Inspection Report is clearly an unlawful exercise of jurisdiction and violative of the principles of natural justice. In light of these circumstances, and in the absence of such details, it is submitted that the notice is vague and hence, must be recalled. 4. Further, it is submitted that the directors and officers of the company have acted honestly and reasonably, and ought to be fairly excused since any breach under the provisions of Section 211 was not willful or deliberate. There is nothing on record to even vaguely suggest any willfulness in the alleged actions/omissions on the part of the company and/or its directions. 5. In our reply dated August, 5, 2014 to the SCN dated June 19, 2014, we had informed you that we were in the proceeds of obtaining an independent opinion on the accounting treatment and relevant disclosure under consideration. We have now obtained the external independent opinion which is annexed to this reply as Annexure A. The same is now being submitted for your kind consideration. 6. The Company requests you to reconsider the above and kindly withdraw and not to initiate any proceedings under the Show Cause Notice issued against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... complaint has been filed by the complainant, a public servant in discharge of his official duties. Therefore, pre-summoning evidence of the complainant is dispensed with u/s 200 of Cr.P.C. Heard. It is submitted that complaint is within limitation as the offence alleged against the accused is continuing in nature. I have perused the complaint along with documents attached with the same. Perusal of complaint, prima facie discloses commission of offence u/s 211(3A), (3B) and (3C) r/w AS-16 and AS-26 of the Companies Act, 1956. Issue summons to all the accused on steps to be taken by the complainant. Complainant has prayed for grant of exemption of his personal appearance stating that being public servant he will remain busy in discharging his official duties. In view of the facts stated, complainant is exempted through Ms. Kusum Yadav, company prosecutor who is appearing in the court and looking after the case of the complainant, till further order. Issue summons to all accused returnable for 11.11.2014. (D.K. Sharma) ACMM(Spl.Acts)/CENTRAL DELHI/ 18.09.2014" 13. In the summoning order dated 18th September, 2014 it was observed that the offences under Section 211( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egistrar of Companies 2010 (119) DRJ 545 this Court held as under:- "5. .....Whether the directors had resigned or not which is a question of fact which cannot be gone into by this Court and only the trial court, during trial can decide whether the directors had resigned or they continued to be the directors. I find no force in this petition. The same is hereby dismissed with no orders to costs." c. In the case of Iridium India Telecom Ltd. Vs. Motorola Inc., (2011) 1 SCC 74, the Supreme Court held as under:- "76. As noticed earlier, both the appellants and the respondents have much to say in support of their respective viewpoints. Which of the views is ultimately to be accepted, could only be decided when the parties have had the opportunities to place the entire materials before the Court. This Court has repeatedly held that the power of quash proceedings at the initial stage has to be exercised sparingly with circumspections and in the rarest of rare cases. The power is to be exercised ex debito justitiae. Such power can be exercised where a criminal proceeding is manifestly attended with malafides and have been instituted maliciously with ulterior motive. This inherent po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , over and above the purchased softwares. In the absence of the bare allegations, even if the complaint is read as a whole and its contents are assumed to be true, no tenable allegation of commission of offence can be said to have been made out against the Company or the petitioners. In the said circumstances, Iridium India Telecom (supra) also has no application in the present case. 20. The quashing of a complaint is permissible where the allegations made in the complaint, even if they are taken at their face value and accepted in their entirety do not prima facie constitute any offence or make out a case against the accused. The quashing of a complaint is permissible if there is an express legal bar engrafted in any of the provisions of the Cr.P.C. to the institution and continuance of the proceedings. Scope of Interference 21. The scope of Section 482 Cr.P.C. has been discussed in various cases including the case of State of Bihar v. Murad Ali Khan, reported in AIR 1989 SC 1 where the Supreme Court held as under:- "It is trite jurisdiction under Section 482 Cr.P.C. which saves the inherent power of the High court, to make such orders as may be necessary to prevent abuse of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be quashed. The saving of the High Court's inherent powers, both in civil and criminal matters, is designed to achieve a salutary public purpose which is that a court proceeding ought not to be permitted to degenerate into weapon of harassment or persecution. In a criminal case, the veiled object behind a lame prosecution, the very nature of the material on which the structure of the prosecution rests and the like would justify the High Court in quashing the proceeding in the interest of justice. The ends of justice are higher than the, ends of mere law though justice has got to be administered according to laws made by the legislature. The compelling necessity for making these observations is that without a proper realization of the object and purpose of the provision which seeks to save the inherent powers of the High Court to do justice between the State and its subjects, it would be impossible to appreciate the width and contours of that salient jurisdiction." 25. In the case of State of Haryana v. Bhajan Lal, 1992 (2) Supp (1) SCC 335 wherein it was held that :- "102. In the backdrop ..... "(1) where the allegations made in the First Information Report or the Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and would that be sufficient for the complainant to succeed in bringing charge home to the accused. It is not that the Magistrate is a silent spectator at the time of recording of preliminary evidence before summoning of the accused. The Magistrate has to carefully scrutinise the evidence brought on record and may even himself put questions to the complainant and his witnesses to elicit answers to find out the truthfulness of the allegations or otherwise and then examine if any offence is prima facie committed by all or any of the accused. Reliance is placed on Pepsi Food Ltd. and Another v. Special Judicial Magistrate and Others, (1998) 5 Supreme Court Cases 749. 29. The AS-16 requires that where a company has taken a loan for acquiring an asset and has capitalized the interest on the loan in the cost of the asset, then the amount of such interest must be shown separately in the books of accounts. In the present case, the Company never took any loan to acquire any asset and therefore, never capitalized any interest. Therefore, there is no requirement for the Company to comply with AS-16. The AS-26 requires that where a company owns purchased software as well as self-created sof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty for personal hearing, but the same letters have neither been dealt with nor disclosed by the respondent No.1 in the said complaint. The personal hearing, if had been granted to the Company, would have provided an opportunity to explain the perceptional difference and would not have necessitated filing of the instant complaint. The Company was however, not granted any opportunity of hearing and the complaint was filed on 18th September, 2014 long after its limitation period expired. It also bears noting that such show cause notices were issued on 17th June, 2014 and 21st August, 2014 i.e. after administrative instructions were granted for filing complaints on 2nd June, 2014. The manner in which the respondent No.1 has conducted itself is arbitrary and unreasonable. Admittedly, the complaint is based on the inspection report which was indisputably filed on 24th June, 2013 and the same being the date of knowledge of the offence, the limitation period for filing of the complaint expired on 23rd June, 2014. The complaint having been filed on 18th September, 2014 is clearly time-barred, therefore, the consequent summoning and the proceedings commenced thereby are liable to be quashed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Director (Inspection). 36. The Inspection Report was admittedly received by the Registrar of Companies on 24th June, 2013. Thus, the Registrar of Companies became aware of the alleged offence on 24th June, 2013 and the complaint if any ought to have been filed on or before 23rd June, 2014. 37. The complaint was filed on 18th September, 2014. It is on the face of it barred by limitation. The following decisions are referred by the learned Senior counsel for the petitioners : a. Nalco & ors v. Registrar of Companies, 96 (2003) CLT 592 it has been held as under:- "14 the knowledge of the Registrar of Companies can be attributed as on the date when the inspecting Officer on inspection found the anomalies and the Regional Director asked the Company to clarify the anomaly...." b. R. Aghoramurthy, Registrar of Companies, Bombay v. M/s Bombay Dyeing & Mfg. Co. Ltd. and Others. Criminal Appeal No. 585 of 1990 JT 1991(5) SC 432 it has been held in para 10 that "date of knowledge should be taken from the date of receipt of the report". c. Webcity Infosys Ltd v. Registrar of Companies (Delhi and Haryana), 2007 (98) DRJ 710 it has been held as under:- "15. Before concluding, a subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffence' has not been defined in the Cr.P.C because it is one of those expressions which does not have a fixed connotation, and therefore, the formula of universal application cannot be formulated in this respect." iii) In Balakrishna Savalram Pujari Waghmare & Ors V Shree Dnyaneshwar Maharaj Sansthan & Ors., AIR 1959 SC 798, this Court dealt with the aforementioned issue, and observed that a continuing offence is an act which creates a continuing source of injury, and renders the doer of the act responsible and liable for the continuation of the said injury. In case a wrongful act causes an injury which is complete, there is no continuing wrong even though the damage resulting from the said act may continue. If the wrongful act is of such a character that the injury caused by itself continues, then the said act constitutes a continuing wrong. The distinction between the two wrongs therefore depends, upon the effect of the injury. In the said case, the court dealt with a case of a wrongful act of forcible ouster, and held that the resulting injury caused, was complete at the date of the ouster itself and therefore there was no scope for the application of Section 23 of the Lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntinues. In the case of a continuing offence, there is thus the ingredient of continuance of the offence which is absent in the case of an offence which takes place when an act or omission is committed once and for all." Reliance be also placed on Bhagirath Kanoria & Ors. v. State of M.P., AIR 1984 SC 1688; and Amrit Lai Chum v. Devoprasad Dutta Roy, AIR 1988 SC 733. v) In M/s. Raymond Limited & Anr., v. Madhya Pradesh Electricity Board & Ors., AIR 2001 SC 238, this Court held that it cannot legitimately be contended that the word "continuously" has one definite meaning only to convey uninterruptedness in time sequence or essence and on the other hand the very word would also mean 'recurring at repeated intervals so as to be of repeated occurrence'. That apart, used as an adjective it draws colour from the context too. vi) In Sankar Dastidar v. Smt. Banjula Dastidar & Anr., AIR 2007 SC 514, this Court observed as under: "A suit for damages, in our opinion, stands on a different footing vis-vis a continuous wrong in respect of enjoyment of one's right in a property. When a right of way is claimed whether public or private over a certain land over which the tort-tease ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contravention of the Act. In another case he may not be aware of Offence until a report is made by the Inspecting Officer to him. Determination of this date of knowledge of the Registrar depends on facts of each case. In cases where the inspection of Books of Accounts and other Books of the Company is done under Clause (ii) of the Section 209-A(1) of the Companies Act, a report of the Inspection will have to be made to the Central Government under sub-section (6) of Section 209-A of the Companies Act and the Registrar of Companies may come to know about the commission of such offence against the Companies Act only when he receives a communication from the concerned officer of the Deportment of Company Affairs. In such cases, the date on which he receives a communication from the Concerned Officer of Department of the Company Affairs. In such cases, the date on which he receives communication in this regard will have to be taken as the starting point for limitation under section 469(l)(b) of the Code of Criminal Procedure." 43. The next explanation given by the respondents on the issue of delay in the Counter-affidavit is that the Registrar of Companies received instructions on a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person aggrieved by the offence or to any police officer, the first day on which such offence comes to the knowledge of such person or to any police officer, whichever is earlier: or (c) where it is not known by whom the offence was committed, the first day on which the identity of the offender is known to the person aggrieved by the offence or to the police officer making investigation into the offence, whichever is earlier." 47. Admittedly, Section 211 of the Act is punishable with six months imprisonment and fine. Under Section 468 Cr.P.C - no Court shall take cognizance of an offence punishable with imprisonment for a term not exceeding one year from the date of offence or the date of knowledge of the offence. Admittedly, the Inspector submitted his inspection report on 24th June, 2013 and the said complaint was only filed on 18th September, 2014, after the expiry of a year from the date of knowledge of the offence as provided under Section 468 (2) (b) Cr.P.C. 48. It is not mentioned in Section 211(7) of the Act rendering the offence a continuing one and the offence is complete with the failure to take all reasonable steps to secure compliance as respects any account laid b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case includes the ROC and admittedly actionable knowledge was gained by the ROC on 24th June, 2013 when the Director (Inspection & Investigation) submitted its report to both the Regional Director (Central Government) as well as the ROC. 51. Respondents have also placed reliance on Udai Shankar Awasthi. (supra) wherein the Supreme Court held that:- "29 the law on the issue can be summarised to the effect that, in the case of a continuing offence, the ingredients of the offence continue, i.e., endure even after the period of consummation, whereas in an instantaneous offence, the offence takes place once and for all i.e. when the same actually takes place. In such cases, there is no continuing offence, even though the damage resulting from the injury may itself continue....." In Udai Shankar Awasthi (supra) This judgment merely lays down the general principles with regard to continuing offence in contrast with a completed offence. The said judgment merely reiterates the general principles laid down in judgment of State of Bihar vs. Deokaran Nenshi, (supra) which in fact is being relied upon by the petitioners. There are a number of judgments which are referred to and rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nuing offence, there is thus the ingredient of continuance of the offence which is absent in the case of an offence which takes place when an act or omission is committed once and for all." Deokaran Nenshi (supra) has also been followed in C.K. Ranganathan (supra) on which the petitioners place reliance. 54. The said plea of the petitioners is correct in law as an offence under Section 211 is not a continuing offence and is complete the moment the Balance Sheet in question is issued by the Company unlike offences under Section 113, 162 and 168 of the Companies Act, 1956 which are continuing in nature. Reliance is placed on C.K. Ranganathan v. Registrar of Companies- 2003 (4) SCL 500 (Mad) wherein it was held as under- "13. Since the offence under Section 211(7) of the Act is not a continuing one, the learned Magistrate ought not to have taken cognisance of the offence in the present case after the expiry of the period of limitation in view of the bar under Section 468 of the Cr. PC and the proceedings are liable to be quashed." 55. As per the complaint, the Regional Director by his letter dated 2nd June, 2014 directed the respondent No.1 to lodge prosecution. However, despite i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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