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Judgment
(Per: Justice Sharad Kumar Sharma, Member (Judicial)
This Company Appeal is circumscribed in its own peculiar facts and circumstances, and for the purposes of scrutinizing the tenacity of argument as it has been extended by the Ld. Counsel for the Appellant, it becomes inevitable for us to deal with the factual and procedural circumstances under which the Impugned Order has been passed.
The Appellant challenges the Impugned Order of 02.04.2025, as it stood rendered in IA(CA)/226/CHE/2024, in CP(CA)/100/CHE/2021, on the ground that, the order is bad in the eyes of the law, since it is not in consonance with the provisions contained under Section 420(2) of the Companies Act, 2013. The argument in this context made by the Ld. Counsel for the Appellant is that, owing to the two prior orders that were passed by the NCLT, Chennai Bench Court II, ie, on 19.04.2023 and 07.06.2023, passing of the subsequent order, which is impugned in the present Appeal, would be in violation to the provisions contained under Section 420(2) of the Companies Act 2013, because of the fact that, the statute does not contemplate or provide for a power to review or recall an order, which has been passed by the Tribunal, that under law the power to review is limited to rectifying the mistakes, which are apparent from the face of record and when the same is brought to its notice by parties and the same cannot be expanded, in a manner to be exercised for recalling or reviewing of an order that has been already passed on merits. For the aforesaid purpose the appellants counsel has contrasted the impugned order dated 02.04.2025, with the orders dated 19.04.2023 and 07.06.2023 and has argued that, the order passed by the Ld. Tribunal on 19.04.2023, in fact, simply contained a direction, to conduct Secretarial Audit of the 1st Respondent Company for period2015-2023 in order to enable it to scrutinise the financial statements of the company, and to determine the real controversy regarding the status of the share capital of the company as there were the pending litigations in different shape and form before different forums, which was creating a difficulty is determining the same.
Thus, the direction given by the order of 19.04.2023, was to conduct the Secretarial Audit, so as to ascertain the position of complaints under Companies Act, 2013.
When the matter was taken up, as regards to the various aspects relating to the Companies Act, the Ld. Counsel for the Appellant submitted that, once the Ld. Tribunal has already considered the fact that, appointment of a Practicing Company Secretary (PCS) to conduct the Secretarial Audit was necessary for the purposes of Assessment of Books of Accounts for the period 2015-2023, that has to be a determination, being a specific order of appointment of a Practicing Company Secretary (PCS) for conducting Secretarial Audit. However in our view this would be misreading the order, for the reasons to be given hereunder.
The direction given therein in the order passed on 19.04.2023, is extracted hereunder: -
"Respondent 1 Company is directed to appoint a Practicing Company Secretary to conduct the Secretarial Audit of the Respondent 1 Company for the period 2015-2023, within a period of seven days from the date of this order. The appointed PCS shall undertake to complete the work latest by 30.05.2023 and copy of the report be filed before this Tribunal and also be served on the Respondent 1 Company and the Applicant herein. Financial Statement, if, at all, available with the Company should form part of such Secretarial Audit."
In fact, the order was passed on 19.04.2023, was based on the logic, which has been assigned in the body of the said order, which was only for the purpose of justifying the conclusion drawn by the Ld. Tribunal on the aspect of appointing of a Practicing Company Secretary (PCS) for conduct of Secretarial Audit. This conclusion drawn in itself, will not lead to an unshakable conclusion, as if, there was a determination that, a Secretarial Audit, is still required to be conducted and concluded, without there being a satisfaction of the required preconditions for holding the Secretarial Audit.
Obviously this Order dated 19.04.2023, will not create any impediment, in passing of the Impugned Order dated 02.04.2025, because it cannot be interpreted as if, the Tribunal by an order dated 19.04.2023 has determined that, the appointment of Practicing Company Secretary (PCS) to conduct a Secretarial Audit was a mandate required to be completed, without there being necessary preconditions available, to require the conduct of Secretarial Audit.
The other order, to which the reference has been made, by the Ld. Counsel for the Appellant, is the order of 07.06.2023. This order happens to be an order in continuation to the order of 19.04.2023 where the Ld. Adjudicating Authority has felt it necessary to conduct a Secretarial Audit, for the period from 2015-2023. The occasion arose for the Ld. Tribunal to pass the order dated 07.06.2023, because, the directions that were given in the order of 19.06.2023, was not being carried out by Respondent No.3. and hence the tribunal itself appointed Sri. K Gaurav Kumar to conduct Secretarial Audit. Hence it was nothing but a reiteration of the directions that were already contained in the earlier order of 19.04.2023.
In this context, if the impugned order dated 02.04.2025 is taken into consideration, the Tribunal has observed therein that, under the given set of facts and circumstances as available, there would be no necessity for conducting the Secretarial Audit. The Impugned Order passed wasrather an observation, which was in continuation and in harmony with the order dated 19.04.2023, to be read with order 07.06.2023, because it was only after the appointment of the Practicing Company Secretary (PCS), to conduct a Secretarial Audit, for the period of 2015-2023, the following facts was brought to the knowledge before the Ld. Adjudicating Authority, that is:-
The company has not been in business operation since 2015, and is effectively defunct,
There has been no business activity that was being carried out since 2015, as per records,
there is no statutory filing of financial returns before the ROC,
the Books of Accounts have not been not maintained, because of there being no business operations,
thus conduct of Secretarial Audit, would be a process of futility.
Thus, the Tribunal determined that, since the Company is not in operation, since 2015, and there was no material on record to show that the company was in operation during 2015-2023, the appointment of the Practicing Company Secretary (PCS) to conduct a Secretarial Audit, was not necessary. This fact was affirmed by Mr. Gaurav Kumar, the Practicing Company Secretary, who had confirmed the fact that, the company was not filing any returns before the ROC and therefore there was no actionable point requiring for conducting a Secretarial Audit as directed by the orders of 19.04.2023 and 07.06.2023.
Looking to the nature of the impugned order dated 02.04.2025, it will be only an order in continuation to the directions that were issued on 19.04.2023 and 07.06.2023, and in compliance to it, and therefore, the said impugned order will not amount to review or recall of the earlier orders so as to bring it within the ambit of restrictions imposed by the Provision contained under Section 420(2) of the Companies Act 2013. Even otherwise also, we see no logic, in continuing with the Secretarial Audit, when the report of the Practicing Company Secretary which was called for by earlier orders, opines that in the absence of documentary evidence on record to show that, the Financial Statements were submitted before the ROC, no purpose will be served by conducting a Secretarial Audit, The correspondences as well as, the counter that was filed before the NCLT, in themselves, cannot be accepted to be conclusive in nature, to dilute the factum which stood recorded by the report of Practicing Company Secretary (PCS) that, the company is not functioning, and hence there was no necessity to Conduct the Secretarial Audit. The, pleadings raised by way of a counter or in any other manner cannot be exclusively taken into consideration, until or unless, the contents of such pleading are subject to judicial scrutiny and a finding is recorded on the same, based upon the appreciation of evidence, which in the instant case had not chanced.
In that eventuality, the defence taken by the Appellant counsel to justify the conduct of the Secretarial Audit, cannot be accepted, in the absence of there being any basic ground and materials available to warrant conduct of such Secretarial Audit. As no effort has been made by the Appellant to establish the fact that, for any intervening Financial Year during the period 2015-2023, Financial Statement was ever submitted before the Registrar of Companies. who could have established that company was in business, thus, the argument extended by the Ld. Counsel for the Appellant is answered against him that, the bar of Section 420(2) of the Companies Act, 2013, will not come into play and the Impugned Order of 02.04.2025, is an order which has been only passed in continuance to the directions issued by the Order of 19.04.2023 and 07.06.2023, by the Ld. Adjudicating Authority.
It has to be borne in mind that when the basic parameters are not being satisfied, there couldn't have been any Secretarial Audit. It is not a case of the Appellant that, financial statements, had been filed with the Registrar of Companies, nor he has brought in any material to the contrary to establish the aforesaid fact. For the aforesaid reason, the Impugned Order, which dispensed with the conduct of Secretarial Audit, has to be considered to be a judicious order, based upon consideration of the evidence on record and the report of the Practicing Company Secretary (PCS), who had confirmed that, since, the company is not in operation since 2015-2023, the Secretarial Audit could not be conducted.
The said observation made in the Impugned Order, besides from the other records available in the Appeal, leads to conclusion that, the direction in Impugned Order for directing with the process of conducting the Secretarial Audit is absolutely justified, and the Appeal as preferred against the Impugned order would not be tenable.
Hence, the Appeal lacks merit and the same is accordingly "dismissed". All Interlocutory Application could stand "Closed".