TMI Blog2023 (2) TMI 1269X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 - 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. Petition allowed. - Krishnan Ramasamy, J. For the Appellant : T.K. Bhaskar. For the Respondents : T.V. Krishnamachari, Senior Panel Counsel. ORDER KRISHNAN RAMASAMY, J. 1. Since the legal issues involved in all these petitions as well as the parties are common, these petitions are taken up together and being disposed of by this common order. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility of the petitioners from prosecution if the Court comes to the conclusion that the petitioners are not liable and subjected to the prosecution. He would submit that the power available under Section 463(2) is in addition to the power already conferred upon the High Court under Section 463(1) of the Act and also several other provisions of the Act. Therefore, he would contend that such additional power cannot be taken to mean the imposition of a restriction or limitation on the jurisdiction of the High Court to grant relief in the pending proceedings. He would contend that the submissions of the respondent on the aspect of preliminary objection cannot be sustained. In this regard, the learned counsel relied upon the judgment of this Court rendered by a single Judge of this Court, in Visram Financial Services (P) Ltd. Versus V. Rajendran and another (2013) 6 CTC 183 and also a judgment rendered by a Division Bench of this Court in Visram Financial Services (P) Ltd. versus V. Rajendran and another (2018) 209 CompCas 400 (Mad) . 6. Since the learned counsel for the respondent raises preliminary objection as regards to the maintainability of the present petitions, this Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... default, breach of duty, misfeasance or breach of trust, he may apply to the High Court for relief and the High Court on such application shall have the same power to relieve him as it would have had if it had been a Court before which a proceeding against that officer for negligence, default, breach of duty, misfeasance or breach of trust had been brought under sub-section(1)' is of the considered view that they unhesitatingly speak of an Aggrieved/Affected person to apply to the High Court for seeking relief in respect of any negligence/default, misfeasance, etc., and this invocation of Section 633 (2) can be pressed into service by the Aggrieved person[s], even after initiation/commencement of criminal proceedings by the concerned complainant. Even after receipt of the summons in a criminal complaint, the affected parties can approach the High Court and the filing of a Company Petition by them seeking necessary relief to relieve the concerned persons from civil liability is not a bar. To put it succinctly, the power conferred upon the Hon'ble High Court under Section 633(2) of the Companies Act, 1956 is an additional one showered by the Companies Act, 1956 and the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in negation to the respondent. 10. Now coming to the merits of the case, it appears that the respondent issued the following show cause notices to the petitioners, viz., (i) F. No. 4943/206(5) Sec. 135/JTA (CL)P-10/2017 dated 31/05/2018; (ii) F. No. 4941/20645)/Insp.followup/JTA(CL)P-18/2017 dated 25/05/2018 ; (iii) F. No. 4943/206(5)/Inspn.follow up/JTA (CL) P-28/2017 dated 25/05/2018; (iv) F. No. 4943/206(5)/Inspn.followup/JTA (CL) P-19/2017 dated 25/05/2018, (v) F. No. 4943/206(5)/SUNDARAM-SUPP/ISR/JTA(SKK)P-ix/2017dated 25/03/2019; (vi) F. No. 4943/206(5)/Inspn.followup/JTA (CL) P-20/2017 dated 25/05/2018; (vii) F. No. 4943/206(5)/Inspn.followup/JTA (CL) P-22/2017 dated 25/05/2018; (viii) F. No. 4943/206(5)/Inspn.followup/JTA (CL) P-23/2017 dated 25/05/2018; (xi) F. No. 4943/206(5)/Inspn.followup/JTA (CL) P-26/2017 dated 25/05/2018. 11. According to the respondent, due to non-compliance of the provisions of the Companies Act, they have issued the above show cause notices against the petitioners and the only course available to the petitioners is to compound the offence or face the trial and prove their innocence and except this, the petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount to the subsequent years. As regards cumulative expenditure up to the reporting period, it was observed from various published annual Reports that varied practices are being followed by many Companies while calculating the cumulative expenditure and hence, a suitable clarification from the MCA in this regard would facilitate uniform disclosure. 14. Upon hearing the learned counsel for the parties and on going through the entire records, it appears that the respondent has issued the above show cause notice under the pretext that the unspent has to be carried forward to the next year. The reasons for not spending 2% of the average net profits of the last three financial years, according to the petitioners is that pursuant to the provisions of the CSR Policy to extend support for special circumstances, such as, natural calamities, the Company had contributed Rs. 3 Crore to Chief Minister's Public Relief Fund towards flood relief and did not seek a set off against the lower unspent amount and this contribution shows the intent of the Company towards CSR initiatives. Further, in this regard, the learned counsel referred to the clarification issued by the respondent to Freq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Note no. 9, 10 and 31 [ (18) (IV) and 29 to the standalone financial statements for the year ended March, 31, 2016. The Board of Directors in order to avoid repetition and for the sake of brevity have indicated the above mentioned Note no. reference in Page 7 of the Director's Report. 18. On consideration of the submissions made by the learned counsel for the respondents and on going through the materials placed before this Court, this Court finds that the particulars of loans given, investments made, guarantees given and securities provided along with the the purpose for which the loan and guarantees/securities were proposed to be utilized by the Company have been provided in Note Nos. 9,10, 18 and 29 under Note 31 to the standalone financial statement for the year ended 31 March, 2015 and in Note Nos. 9, 10 and 31 (18 (IV) and 29) to the standalone financial statements for the year ended 31 March, 2016. It appears that the Board of Directors in order to avoid repetition and for the sake of brevity, have indicated the above mentioned Note no. reference in page 7 of the Directors' Report. Therefore, it is not that the petitioners have not provided the particulars with r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icated in the Directors' Report in page no. 8 and page no. 9 of the Annual Report for the year ended March 31, 2015 and March 31, 2016 respectively in order to avoid repetition. 21. On consideration of the submissions made by the learned counsel for the parties and on going through the reply submitted by the petitioners, it appears that in the Director's Report dated 29/05/2015, under the heading Performance and Financial position of each of the subsidiaries, associates and joint venture , according to the respondent, the petitioners have reported on the performance and financial position of each subsidiaries associates and joint venture companies and thereby, they have violated Rule 8(1) of the Companies (Accounts) Rules, 2014. This Court perused the financial report, particularly at page 119 and 120 and also the financial report at page 132 and 133 of Annual Report and Form AOC-1 and find that the company provides all the particulars including performance and financial position of each subsidiaries, associates and joint venture companies. This Court does not find any deliberate omission on the part of the petitioners from reporting performance and financial position i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e/security as provided for the financial year ended 31st March 2015 in terms of the provisions of the Companies Act. Therefore, this Court is of the view that the petitioners have acted honestly and reasonably without any mala fide intention or breach of trust while preparing the financial statement and certainly on this aspect, the Balance Sheet disclosed the true and fair affairs of the company. Hence, the allegations contained in the show cause notice cannot be sustained and the petitioners are entitled for the relief as sought in the Company Petition. 25. Show Cause No. 5: F. No. 4943/206(5)/SUNDARAM-SUPP/ISR/ JTA (SKK)P-ix/2017dated 25/03/2019: In the above Show cause Notice, it has been alleged by the respondent that the Company has given wrong reference in its Boards report for the year ended 31.03.2016 and also stated that the Company has not given the AOC-1 statement for the year ended 31.03.2016. The Respondent has therefore alleged that there is violation of Section 129 of the Companies Act, 2013 read with rule 5 of Companies (Accounts) Rules, 2014. Section 129(3) of the Companies Act, 2013 requires that a Company having one or more subsidiaries or associate compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the Company Petition. 28. Show Cause Notice (vi): F. No. 4943/206(5)/Inspn. Followup/ JTA (CL) P-20/2017 dated 25/05/2018. In the above Show cause notice, it has been stated that the Classification of short term borrowings should be done in accordance with Para 6(F) of General Instructions for preparation of Balance Sheet as: a) Loans repayable on demand; (A) From banks (B) From other parties b) Loans and advances from related parties c) Deposits; d) Other loans and advances (specify nature) while so, it has been observed that, in the Balance Sheet as at 31/03/2015 and 31/03/2016, in respect of short term borrowings, there are no details as to whether it is received from the bank or other parties and whether it is repayable on demand or otherwise. Hence, according to the respondent, the said provision of Section 129(1) read with Para Para 6(F) of the General instructions for preparation of balance sheet given under Schedule III of the Act has been violated. 29. According to the learned counsel for the petitioners, the Company had replied to the said show cause notice on 14/06/2018 stating that in the standalone financial statement of the Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and advances should be classified as per Para 6(L)(i) of the General instructions for preparation of balance sheet given under Schedule III of the Act as (a) Loans and advances to related parties. While so, it has been alleged that in the balance sheet as at 31/03/2015 and 31/03/2016 in Note 10, the Company has not furnished the details of loans and advances made to related parties and instead it has referred to note on related party. It has been further alleged that on verification of the party disclosures, the said details as required have not been given and hence the provision of Section 129(1) read with Para Para 6(L) (i) of the General instructions for preparation of balance sheet given under Schedule Ill of the Act has been violated. 32. According to the learned counsel for the petitioners, the Company has disclosed all the details of the loans and advances under note no. 10 at page 67 of the Annual Report for the year ended March 31, 2015. In note no. 10, reference is made to note on related party, the details of which have been disclosed in page 84 and 85 of the annual report for the year ended March 31, 2015. For the year ended March 31, 2016, the detail advances have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 129(1) of the Act r/w para 6(L)(i) of the General Instructions given under Schedule III of the Act and thus they are entitled for the reliefs as sought in the Company Petition. 35. Show Cause Notice (viii): F. No. 4943/206(5)/Inspn. Followup/ JTA (CL) P-23/2017 dated 25/05/2018 According to the respondent, Short term Loans and advances should be classified as per Para 6(R)(i) of the General instructions for preparation of balance sheet given under Schedule III of the Act as (a) Loans and advances to related parties. While so, in the above show cause notice, it has been alleged that in the balance Sheet as at 31/03/2015 and 31/03/2016 in Note 10, the Company has not furnished the details of loans and advances made to related parties and instead it has referred to note on related party. It has also been alleged that, on verification of the party disclosures, the said details as required have not been given and hence the said provision of Section 129(1) read with Para Para 6(R)(i) of the General instructions for preparation of balance sheet given under Schedule Ill of the Act has been violated. 36. The learned counsel for the petitioners would submit that the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the present Balance Sheet. Hence, this Court is of the view that the petitioners have acted honestly and reasonably while preparing the Balance sheet and therefore, no mala fide motive can be attributed against the petitioners for the disclosure made in the Balance sheet. Therefore, this Court is of the view that they have not violated the provision under Section 129(1) of the Act r/w 6(R)(i) of the General Instructions as alleged by the respondent in the show cause notice. 38. Show Cause Notice (ix): F. No. 4943/206(5)/inspn.followup/JTA (CL) P-26/2017 dated 25/05/2018 According to the respondent, the Profit and Loss Account shall contain by way of a note on earnings in foreign exchange as per Para 5(viii)(e) of General Instructions for preparation of Statement of Profit and Loss account given under Schedule III of the Act, under the following heads: a) Export of goods calculated on F.O.B basis; b) Royalty, know-how, professional and consultation fees; c) Interest and dividend; d) Other income, indicating the nature thereof; While so, in the above impugned show cause notice, it has been alleged that from the Balance Sheet as at 31/03/2015 and 31/03/2016, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case, there was no such concealment of the material on the part of the petitioners. Therefore, this Court is of the view that the petitioners have acted fairly and reasonably and no mala fides can be attributed against them and as such they are entitled for the reliefs as sought in the Company Petition. 41. Show Cause Notice (x): F. No. 4943/206(5)/Inspn.followup/JTA (CL) P-32/2017, dated 25.05.2018: In this show cause notice, it has been alleged that in terms of Section 203(1) of the Companies Act, 2013, which has come into force on 01/04/2014, the Company is required to appoint a Whole time Chief Financial Officer as well as Company Secretary which positions requires them to discharge different duties and responsibilities under the Companies Act, 2013 In terms of the said provisions, a Whole Time managerial Personnel should be appointed for each of the above positions. While so, according to the respondent, appointing one and the same person for both the positions i.e., Company Secretary-Chief Financial Officer is not in compliance with the provisions of the Act. Mr. V.G. Jaganathan continued as such till 31/03/2016 and on 04/04/2016, the Company appointed differen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Managerial Personnel and is prohibited to act other than CFO. Therefore, the said post should be appointed by an independent person. Even though the individual who was appointed by the petitioners to act as both CFO and Company Secretary since qualified, in my considered view, he cannot be appointed and permitted to hold two posts as full time key managerial personnel. However, the petitioners have appointed Company Secretary with effect from 4.4.2016 but there was no Company Secretary upto 31.3.2016. In fact, the total number of Company Secretary posts who are available for appointment for total number of companies which are required to be appointed as Company Secretaries in India, is not sufficient and this might be the reason for non-appointment of key managerial personnel in time by the petitioners. Therefore, this Court is of the view that non-appointment of Company Secretary by the petitioners is not deliberate act on the part of the petitioners, but on the basis of the assumption and misinterpretation of the provisions of the Act that the Chief Financial Officer can also act as Company Secretary since he has also been qualified to be appointed as Company Secretary and henc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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