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TMI Blog2023 (2) TMI 1269X X X X Extracts X X X X X X X X Extracts X X X X ..... and 463(2) of the Companies Act, 2013, the petitioners have come forward with the present petitions, seeking to relieve them from any liability arising from the alleged offences referred to in the respective show cause notices issued against the petitioners. 3. Immediately upon filing of the above Company Petitions, the respondent has taken categoric stand that the present petitions are not maintainable for the simple reason that subsequent to the issuance of the above show cause notices, the respondent filed criminal complaints and the same have been numbered as EOCC Nos. 51 to 59 of 2019 on the file of the Economic Offences Court, Egmore. The Criminal complaints were filed on 05.04.2019 and the present Company petitions were filed on 30.09.2019. 4. The learned Senior Panel Counsel appearing for the respondent would contend that subsequent to the filing of the complaints before the Economic Offences Court, the present Company Petitions came to be filed and hence, the same are not maintainable under Section 463 (1) and (2) of the Act as no person can claim relief who apprehends the initiation of the prosecution, subsequent to the initiation of the criminal proceedings before thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d proceedings also. The power under Section 633(2) is in addition to the power already available to the High Court under Section 633(1) and also under several other provisions of the Code. Such an additional power cannot be taken to mean the imposition of a restraint or limitation on the jurisdiction of the High Court to grant relief in pending proceedings. In other words, the conferment of an additional power under sub-section (2), to grant relief even in respect of anticipated proceedings, cannot be taken to mean that the power vested in sub-section (1) is taken away. Therefore, with great respect to the learned Judges of several High Courts, I am of the considered view that Section 633(2) does not limit the jurisdiction and powers of the High Court only to "apprehended proceedings". This is an additional power available to the High Court in view of the larger jurisdiction exercised by the High Court in respect of several matters prescribed under the Companies Act." 8. As against the above order of the learned single Judge, an appeal was preferred, wherein, a Division Bench of this Court, while dismissing the appeal, has held in para 58 as under: "58. A glimpse of Section 633( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing upon the merits of the controversies/disputes between the parties and also not expressing any opinion on the merits of the controversies in pending Company Petition No. 297 of 2013, on the file of this Court." 9. On a perusal of the above judgments, it is clear that the power conferred upon this Court under Section 633(2) of the Companies Act, 1956 is an additional one showered by the Companies Act, 1956 and the said power of the High Court cannot be interpreted in a parochial/narrow/restricted sense. In short, the additional power, as per Section 633(2) of the Companies Act, 1956 conferred upon the High Court to give relief in respect of 'apprehended proceedings' does not wipe out the powers envisaged under Section 633(1) of the Act. The provision under Section 633(1) and (2) of the Companies Act, 1956 is pari materia to the provision under Section 463 (1) and (2) of the Companies Act, 2013 and the verbatim is similar in both provisions. Due to enactment of new Companies Act, 2013, the said provision under Section 633(1) and (2) contained in the erstwhile Companies Act, 1956 is reflected under Section 463(1) and (2) of the Companies Act, 2013. Therefore, the law laid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... how cause notice, it is alleged that it has been noticed from the Directors' Report annexed to the Balance Sheet as at 31/03/2016 that a sum of Rs. 319.81 lakhs has been shown as the total amount to be spent on CSR during the year and that the said amount is the prescribed expenditure on CSR derived from the average net profit of the Company for the last three years. The respondent, has therefore alleged that the total amount to be spent on CSR during the year should be aggregate of the aforesaid amount and the amount carried forward from the previous year as unspent amounting to Rs. 81.53 lakhs and thus the amount stated is incorrect. Consequently the amount unspent disclosed in the report is incorrect. The Cumulative Expenditure up to the reporting period mentioned in the aforesaid report is also not the actual cumulative figure and hence provision of Section 135 of the Act read with Companies Social (Corporate Responsibility Policy) Rules, 2014 has been violated. 13. According to the learned counsel for the petitioners, Section 135 of the Companies Act, 2013 read with Companies (Corporate Social Responsibility Policy) Rules, 2014 ('CSR Rules') does not require the u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ext year as per the then existing rules and utilize the said amount along with the allocation for the next year. However, the respondent issued the show cause notice by non-application of mind and without taking into consideration the Department's clarification issued by way of FAQs. Hence, this Court does not find any intentional or otherwise negligence breach of duty, misfeasance or breach of trust as alleged by the respondent in the show cause notice. Therefore, this Court holds that the petitioners have acted honestly and reasonably and disclosed everything and prepared the Financial Report in terms of the provisions of the Act and CSR Policy and Rules by utilising the CSR allocations. 16. Show Cause Notice (ii) F. No. 4941/20645)/Insp.followup/ JTA(CL)P-18/2017 dated 25/05/2018: In the above show cause notice, It has been alleged that the Inspecting Officer observed that as per Section 134(3)(g) of the Companies Act, 2013, the Directors' Report shall include particulars of loans, guarantees or investments under Section 186 of the Act. However, the Balance Sheet as at 31.03.2015 and 31.03.2016 do not disclose the said details and instead it refers to Note numbers and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 4943/206(5)/Inspn.follow up/JTA (CL) P-28/2017 dated 25/05/2018; In the above show cause notice, it is alleged that during the course of inspection, it was observed that in the Directors' Report dated 29/05/2015, under the heading "Performance and Financial position of each of the subsidiaries, associates and joint venture". it has been stated that Report on the performance and financial position of each of the subsidiaries, associates and joint venture companies of the company is given along with the financial statements in Form AOC-1. By referring to the statement to be furnished under Rule 5 of the Companies (Accounts) Rules, 2014, and not reporting on the Performance and Financial position of each of the subsidiaries, associates and joint venture companies, this statement is not in due compliance of the requirements of Rule 8(i) of the said Rules. Similar violation is noticed in Board's Report dated 20.05.2016 attached to Balance Sheet as at 31.03.2016. 20. The learned counsel for the petitioners would submit that the Company replied to the said show cause notice on 14/06/2018 stating that the Company has reported the details of the financial performance of each ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tee given or security provided and the purpose for which the loan or guarantee or security is proposed to be utilised by the recipient of the loan or guarantee or security. But the Company has not disclosed the purpose for which loan or guarantee or security was proposed to be used by the recipient of the loan or guarantee or security in the balance sheet as at 31.03.2015 and thereby the Company has violated Section 186(4) of the Companies Act, 2013. 23. According to the learned counsel for the petitioners, a reply dated 14/06/2018 was issued to the Respondent, stating that disclosure with regard to purpose of guarantee had been furnished in Page no. 89 of the Annual Report of the year ended March 31, 2015. However, the Company was under bona fide belief that all disclosures under the Companies Act, 2013 had been made and also got a report from its Secretarial Auditor confirming the same. However, the disclosure in relation to the purpose for which loans or investments is to be utilized by the recipient was not made in the Annual Report for the year ended 31.03.2015 and the same had happened by oversight relying on the report of the secretarial auditor. 24. On consideration of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8/2017, wherein the Petitioners had given a detailed reply also giving reference to AOC-1 which was filed for the year ended 31.03.2016 and is available at Page 132 & 133 of the Annual Report for the year ended 31.03.2016. 27. On consideration of the submissions made by the learned counsel for the parties and on perusal of the records, this Court finds that the Board Report did not contain the AOC-1 statement but attached to the Balance sheet. Therefore, merely not attaching the said AOC-1 along with the Board report, will not amount that the petitioners have not prepared the Board Report and given correct reference in the Board report for the year ended as alleged in the show cause notice. The relevant particulars are available in the Annual Report which contains Board Report and Balance Sheet for the year ended 31.3.2016 and therefore, it would not be considered that the petitioners have concealed the material facts and violated Section 129 of the Companies Act, 2013. As rightly submitted by the learned counsel for the petitioners that it is only to avoid repetition it was attached to the Balance Sheet and to keep the annual report concise and brief. Thus, the Company has duly d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2014-15-page 61 of the Annual Report and (2) Financial Year 2015-16-page 71 of the Annual Report. 30. On consideration of the submissions made by the learned counsel for the parties and on going through the materials placed on record, it appears that the respondent has alleged that the petitioners have not disclosed the particulars in the Balance Sheet regarding short term borrowings. However, a perusal of the Annual Report discloses that they have provided all the particulars, but the respondent insisted in the format prescribed in which only, the petitioners have to provide the short term loans under the four headings mentioned above. Later, subsequent to the issuance of the show cause notice, it appears that the petitioners have been following instructions as suggested by the respondent and as far as the present show cause notice is concerned, the petitioners have disclosed all short term borrowings and they have not concealed any material. Upon a perusal of the Annual Report for the financial years 2014-15 and 2015-16, this Court finds that no material has been concealed or suppressed by the petitioners in the Balance Sheet. Therefore, this Court is of the view that the petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry course of business] under the heading "Outstanding balances due to the Company'. Further for the year ended 31.03.2016, the details of loans and advances to related parties referred under Note 10 in Page 79 of the Annual Report has been disclosed in Page no. 97 (III-Transaction with related parties in the ordinary course of business) under the heading Outstanding balances due to the Company' includes loans and advances to related parties, sale of goods and services rendered. 34. On consideration of the submissions of the learned counsel for the petitioners and on perusal of the records placed, particularly, Balance Sheet and Annual Report, this Court finds that there is no substance in the allegation made by the respondent since the the petitioners have disclosed all the particulars of the loans and advances made to the related parties in Note 10. However, the respondent insisted in a particular format for which also, the petitioners submitted that they would follow in future. As far as the present show cause notice is concerned, this Court is of the view that whatever they have furnished in Note 10 would be sufficient disclosure and even if there is any procedural laps ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided in the said Balance Sheets for the year ended 31/03/2015 and 31/03/2016. 37. Upon hearing the learned counsel for both parties and on perusal of the records, this Court finds that the above show cause notice was issued against the petitioners, alleging that the in the balance sheet, they have not furnished the details of loans and advances made to related parties in accordance with the provisions under Section 129 r/w 6(R)(i) of the General Instructions for preparation of Balance Sheet given under Schedule III of the Act. A perusal of the Balance sheet reveals that the petitioners have disclosed the details of the loans and advances under Notes No. 10 appended to the Annual Report for the financial years ended March 31, 2015 and 2016, but not in the prescribed format prescribed. In the present case, after commencement of the Companies Act, 2013 vis-a-vis new amendments with regard to the disclosure in the prescribed format, the petitioners have been following the same subsequent to the issuance of the show cause notice, but it is not that the petitioners have not at all disclosed anything. However, the petitioners were under bona fide belief that the disclosures made by way o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated. Further, the petitioners made relevant disclosures in respect of Financial Years 2014-15 and 2015-16 at page Nos. 74 and 86 in the Annual Report appended to the Balance Sheet. Therefore, the learned counsel for the petitioners would submit that the petitioners have not violated the provisions of the Act as alleged in the show cause notice. 40. On consideration of the submissions made by the learned counsel for the parties and on perusal of the materials, this Court finds that as far as the present show cause notice is concerned, it was alleged that the petitioners have not disclosed the profit and loss account details by way of a note on earning in foreign exchange as classified under 4 heads mentioned in the show cause notice. However, on a perusal of the Annual Reports discloses that the petitioners have disclosed the earnings in foreign exchange under the classified heads where the earnings have accrued, but by inadvertently, the company has not indicated the nature of the income. However, all the relevant disclosures were set out in the Annual Reports 2014-15 and 2015-16. Therefore, when the petitioners have disclosed that the income derived from the foreign exchange, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ging Director, Whole Time Director or manager, or the rules provide for no restriction on an individual being appointed as a director where the said individual is already holding another key managerial position. The intention of the Act is not to have any absolute restriction on an individual from taking up more than one responsibility. In fact the Annual Report as of 31/03/2016 reflects that Mr. V.G.Jaganathan was the CFO and Company Secretary till 31/03/2016, and from 04/04/2016, Mr. Meenakshisundaram has been appointed as the Chief Financial Officer. Therefore, the learned counsel would submit that the petitioners have not violated Section 203(1) of the Act. 43. On consideration of the submissions made by the learned counsel and on perusal of the documents, it reveals that one Mr. V.G.Jaganathan who is a qualified Chartered Accountant, was initially appointed as Company Secretary on 6.7.1982 and later in order to fulfill the requirement as per the new Companies Act, 2013, he has been appointed as full time Company Secretary and Chief Financial Officer of the Company with effect from 30.5.2014. However, the petitioners have not appointed independent Company Secretary. But in my ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of all the above 10 show cause notices issued by the respondent. 45. In the present case, Company applications were filed on 30.09.2019, whereas the criminal complaints were filed on 05.04.2019, but the summons were issued only on 21.01.2020. Therefore, summons were served only after filing of the Company Petitions. However, the complaints were registered in EOCC Nos. 51 to 59 of 2019 pending on the file of the Economic Offences Court, Egmore. As already discussed above, since the petitioners have taken all due care and caution in complying with the provisions of the Act and even if there may be minor lapses and unintentional acts on the part of the petitioners, those are required to be condoned. Therefore, since the petitioners have been managing the affairs of the company in the best possible manner, they have to be fairly excused. In fact, for such minor lapses, unintentional acts and defaults of technical nature, it is not just and proper to prosecute the company's highest ranking officers as it would be detrimental to the amelioration of the company. To prosecute a person is of a serious consequence. If there is no basic foundation, the person cannot be compelled to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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