Calcutta High Court
Ambarish Dasgupta And Anr vs The Registrar Of Companies on 16 January, 2014
Author: Patherya
Bench: Patherya
ORDER SHEET
CP NO.259 OF 2013
IN THE HIGH COURT AT CALCUTTA
Original Jurisdiction
LOVELOCK AND LEWES CONSULTING SERVICES PVT. LTD.
AND
AMBARISH DASGUPTA AND ANR.
VS.
THE REGISTRAR OF COMPANIES, WEST BEBNGAL
BEFORE:
The Hon'ble JUSTICE PATHERYA
Date : 16th January, 2014.
MS.MANJU BHUTERIA,MR.RAVI ASOPA, MS.NIKITA JHUNJHUNWALA,
ADVOCATES FOR THE PETITIONERS
MS.MAMTA BHARGAVE,ADVOCATE FOR RESPONDENTS
The Court : This application has been filed under section 633(2) of the Companies Act, 1956.
The case of the petitioners is that two show cause notices both dated 26th February, 2013 were issued alleging therein violation of sections 187(C) and 628 of the Companies Act, 1956. Initially a show cause notice was issued under section 209A of the Companies Act, 1956 to which a reply was given. Thereafter a show cause notice was issued under section 628 for alleged false statement made in the report filed wherein it was alleged that the auditors had made a statement that the company had not granted any loan covered in the register maintained under section 301 of the Act. Therefore, for the false statement made the show cause was issued which required a 2 reply to be given in fourteen days. A reply has been given but the false report alleged will not be found in the report of the Directors to its shareholders nor in the profit and loss account or the schedules annexed thereto. If at all the statement will be found in the report of the auditor which has not been signed by the Directors and for which they cannot be held responsible. The advance was made by way of a loan to the holding company and the only persons who would be affected would be the shareholders and the creditors of the subsidiary company. Section 301 of the 1956 Act postulates disclosures to be made under sections 297 and 299 of the Companies Act, 1956, which disclosures have been made, therefore, the applicants herein be excused of criminal liability and be relieved of the defaults complained.
As far as the shareholding of the applicant no.1 is concerned, the same is of no consequence as no personal interest can be attributed to him in the giving of loan by a subsidiary company to its holding company. For issuance of show cause notice under section 628 of the 1956 Act, which postulate penal consequences, dishonest intent must be stated in the notice as held in 143 Companies Cases 531.
Violation of section 187(C) does not postulate penal consequences, therefore, the show cause notice issued on 26th February, 2013 alleging non-filing of Form 22B is bad and the petitioners in respect thereof be also excused of criminal liability. In fact, after receipt of notice under section 209A, Form 22B has been filed 3 on 19th May, 2012 after filing of late fees. Therefore, all that it could attract is imposition of fine but not penal consequences. Reliance has also been placed on 141 Company Cases 101 for the proposition that in a petition filed under Section 633(2) the court exercises the same power as a criminal court in case of apprehension or proceedings being brought and if the criminal court can relieve a charged officer so can the High Court. Therefore, orders be passed as sought.
Counsel for the Central Government submits that investigation has been initiated and no order need be passed on this application. The allegations made in the show cause notice are technical in nature and without taking oral and documentary evidence the default, if any, cannot be ascertained. False statements have been made by the auditor and, therefore, there has been contravention of section 628 of the 1956 Act. There is no comment on the false statement of the auditor by the Directors in the Directors' report. Therefore, the false statement of the auditor has been accepted by them and for non-making full disclosures, the Directors have attracted penal consequences to themselves. Therefore, the criminal proceedings contemplated be allowed to be initiated.
Having considered the submissions of the parties a show cause notice was issued under section 209A of the 1956 Act wherein violation was alleged under Sections 211, 217(1)(A) and 187(C) of the 1956 Act.
4
Pursuant to receipt of the said show cause dated 25th October, 2012 under Section 187C of the 1956 Act, Form 22B has been filed on 19th May, 2012. Therefore, the requirement of section 187(C) has been complied with though belated. Additional fees were also paid for late filing. In fact on a reading of section 187(C) 5(a) & (b) a person or company can only be punished with imposition of fine but no penal action is postulated. Therefore, the petitioners are relieved of the default complained in the show cause notice issued under section 187(C) of the Companies Act, 1956 dated 26th February, 2013.
The next show cause notice that is required to be considered is the one issued under section 628 of the 1956 Act also dated 26th February, 2013. Admittedly in the show cause notice dated 25th October, 2012 under section 209A there was no violation alleged of section 301 of the 1956 Act. This allegation has been stated in the show cause notice dated 26th February, 2013 issued under section 628 of the 1956 Act. The basis of the said show cause notice is a false statement made in the report filed by the auditor of the company. While making the said allegation what is noteworthy is that the basis is the report attached with the balance sheets for 2008-2009, 2009-2010 and 2010- 2011 in which it has been alleged that the applicants herein have made a statement regarding non-grant of loan covered in the register maintained under section 301 of the Companies Act, 1956. Two documents, therefore, need to be considered. One is the Directors' 5 report which has been signed by both the applicants herein wherein admittedly there is no mention of the loan given to the holding company. The non grant of loan that finds mention in the report of the auditors is the loans covered in the register maintained under section 301 of the 1956 Act and it is for not maintaining the said under section 301 that the show cause notice has been issued.
Section 301 of the 1956 Act postulates a register being maintained in respect of contracts under sections 297 and 299. Section 297 is in respect of goods and service contract, which is not the case here. Section 299 deals with agreements and contracts in which a Director may be interested and to that extent disclosures are necessary. Such disclosures would be required to be maintained under section
301. But in the instant case, the loan has been given to the holding company which cannot be construed as an agreement under section 301 of the 1956 Act. Therefore, the premise on which the show cause has been issued and violation is alleged is in respect of a statement made in the auditor's report and loan not covered under section 301. In fact, the statement made in the auditor's report is in respect of non- grant of loan covered in the register maintained under section 301 of the 1956 Act and how this could be constituted as a false statement vis-à- vis the disclosures or the annexures made to the relevant balance sheets is beyond one's comprehension. The concerned authority is not 6 to be guided by the auditor's report and the Directors' report alone but must fairly consider the balance sheet in its totality.
This aspect has been ignored by the authorities concerned as the company in its balance sheets has in schedule 9 specifically mentioned the related party transaction and a summary of the transaction has been set out in clause B.4, which for the purposes of convenience is set out herein below:
"B.4. Related Party Transactions The company has the following related parties:
Holding Company:
PricewaterhouseCoopers Private Limited Fellow Subsidiary Companies: PricewaterhouseCoopers Development Associates Limited PricewaterhouseCoopers Services Private Limited PricewaterhouseCoopers Securities Private Limited PricewaterhouseCoopers Business Advisory Service Private Limited Global BPO (India) Private Limited ECS Private Limited Directors:
Mr.Ambarish Dasgupta Mr.Vedamoorthy Namasivayam (resigned on August 17, 2009) Ms.Rachna Nath (joined on September 22,2009) Summary of transactions with related parties:7
Rs.
Particulars Holding Company
Advance given 2008-09 10,683.500
2007-08 10,402,444
Advance refunded 2008-09 -
2007-08 10,402,444
Interest received 2008-09 1,002,040
2007-08 945,533
Balance as at 31st March 2008-09 11,685,540
2007-08 Nil
Therefore, to rely on the report alone without looking at the balance sheet is not what is postulated by section 628 of the 1956 Act which reads as follows:-
"628. Penalty for false statements:-
If in any return, report, certificate, balance sheet, prospectus, statement or other document required by or for the purposes of any of the provisions of this Act, any person makes a statement-
(a) which is false in any material particular, knowing it to be false;
or
(b) which omits any material fact knowing it to be material, he shall, save as otherwise expressly provided in this Act, be punishable with imprisonment for a term which may extend to two years, and shall also be liable to fine."
From a reading of the above section it will be evidently clear that it makes note of a balance sheet too and therefore, the 8 statements in the report and the balance sheet must be read together. In fact even in the report of the auditor no false statement has been made as all that has been said is that there was no loan granted covered by the register maintained under section 301.The loan granted by the subsidiary company to the holding company cannot be construed as covering the loan maintained in the register under section 301 of the 1956 Act and therefore no false statement can be imputed to the Directors.
In view of the aforesaid, the petitioners are excused of criminal liability and relieved of the default complained in the show cause notice dated 26th February, 2013 under section 628 of the 1956 Act.
In view of the aforesaid, C.P.No.259 of 2013 is disposed of.
All parties concerned are to act on a signed photocopy of this order on the usual undertakings.
( PATHERYA, J.) sb.