AI Structured Summary
Not yet generated for this judgment
Judgment
[Per: Jatindranath Swain, Member (Technical)]
This instant company appeal TA NO. 27 of 2022 in CA (AT) No. 46 of 2019, has been filed by the Appellant against the impugned order passed in C.P. NO. 611/BB/2018 dated 31/12/2018 by the learned NCLT, Bengaluru Bench for compounding of offences under Section 441 of the Companies Act, 2013 for the offences made under Section 217 read with Section 220 of the Companies Act,1956 for which the penal provision is prescribed in Section 162 of the Companies Act, 1956.
2.Brief facts of the case
a. The Appellant, M/S Neurosynaptic Communications Private Limited a private limited company, was incorporated on 20.09.2002, under the Companies Act, 1956 with Registrar of Companies, Karnataka. It is represented by Mr. Sameer Subhash Sawarkar, Director along with Mr. Rajeev Kumar, Director.
b. The main business of the company is, among other things, developing, designing, manufacturing, processing, assembling, and manipulating the technology relating to neuron impulses of living bodies for understanding and controlling the functions of the nervous system with the application of electronic and engineering methods. The company has business operations in India as well as Abroad.
c. The relevant date for issue and adoption of the Board’s Report along with financial statements for the financial year ending on 31.03.2011 & on 31.03.2014.
| Financial Year 2010-2011 | Financial Year 2013-2014 | |
|---|---|---|
| Date of issue of Board’s Report | 07.09.2011 | 05.09.2014 |
| Date of adoption by AGM | 29.09.2011 | 26.09.2014 |
| Date of filing before ROC in e-Form 23 AC/ACA | 03.11.2011 | 26.11.2014 |
d. The Appellant No. 1 being the company, failed to attach the copy of the Board’s Report for the Financial Years ending 31/03/2011 and 31/03/2014 along with the balance sheet filed in respective e-form 23 AC filed with the Registrar of Companies, Bengaluru, and hereby committed an offence under Section 220 of the Companies Act, 1956.
e. Appellant No. 1 along with Appellant No. 2 & 3 filed a composite compounding application on 26.04.2017 seeking composition of the offence under Section 621 A of the Companies Act, 1956 for not filing the Board’s Report as above in violation of Section 220 of the Companies Act 1956. f. The Registrar of Companies, Bengaluru prepared its report and forwarded the same to the learned NCLT, Bengaluru Bench. The said application came to be numbered as C.P No. 611/BB/2018 before the learned NCLT, Bengaluru Bench. The learned NCLT, Bengaluru Bench after hearing both sides passed the Impugned Order on 31.12.2018 in CP No.611/BB/2018.
3. Appellant’s submissions
a. The Learned counsel for the Appellant submits that he had moved the compounding Application Suo-Moto and no show cause notice was ever received by the Appellant from any statutory authority in regard to the offences committed. Further, the said lapse was inadvertent as the Board Report for the relevant financial years was duly prepared and placed before the Annual General Meeting but could not be attached to the documents filed before the Registrar of Companies (ROC), and that he had filed the rest of the financial statements of the relevant financial years, within the stipulated time.
b. He further states that in most cases, the proceedings before learned NCLT have been drawn after the institution of Criminal Complaint by the Registrar of Companies (ROC) and in those cases, the penalty imposed is much less. Further, in those cases entire financial statements were not filed till ROC pointed it out and issued notice whereas in his case, only the Board Report was not filed, and that too, due to an inadvertent error on his part which he discovered later on, rectified the same, and moved the compounding application. Hence, he should be shown the same level of leniency.
c. The Appellant submits that the gravity of the offences is non-serious and technical in nature as it was not intentional and that in the other financial years since the inception of the Company, the relevant documents have been filed without fail.
d. The Appellant also contended that the Copy of Directors report was duly sent to the shareholders as required under section 219 of the Companies Act, 1956 and the only lapse was that of non-filing with ROC.
e. He has contended that the Registrar of Companies had made an error in the computation of period of default, which he has corrected vide his counter affidavit filed on 03.07.2019 in the appeal proceedings and had agreed with the appellant’s calculation of period of delay which is 2007 days for FY 2010-11 and 914 days for 2013-14. Therefore, the penalty levied should be recalculated accordingly.
f. The Appellant has submitted that as per the circular of the Ministry of Corporate Affairs 08/2014, dated 04/04/2014, it has been clarified that the Provisions of Companies Act,1956, shall apply to the filing of the financial statements for the financial years commencing before 01.04.2014. However, the learned ROC in its Report to the Learned NCLT, Bengaluru had erred by applying penal provisions of the Companies Act, 2013, instead of the Companies Act, 1956. However, later the Learned ROC vide its counter affidavit filed in the appeal proceedings has partially changed its stand, stating that the provisions of the Companies Act, 1956 will apply in case of the financial year 2010-11 whereas the provision of the Companies Act, 2013 will apply in case of the financial year 2013-14.
g. The learned PCS for the Appellant relied upon the judgment in the matter of Surojit Kumar vs ROC Kolkata [Company Appeal (AT) 33 & 34 OF 2017] by the Hon’ble NCLAT, DELHI [Chairperson’s court], where it has been held that the penal provisions under the Companies Act, 2013 cannot be retrospectively made applicable to the offences committed and punishable under the provisions of Companies Act, 1956.
h. He has further submitted that learned NCLT, Bengaluru has compounded the offences at the rate of 20% and 30% of the maximum penalty leviable in the case of the company and each Director respectively for the period it deemed to be covered under the Companies Act, 1956. Further, it has compounded the offences @ 50% on the company and 58.78% on each Director for the period it deemed to be covered under the Companies Act, 2013. He has contended that the rate of penalty is excessive & that applying provisions of the Companies Act, 2013, for the instant case is erroneous and needs to be rectified.
The learned counsel for the Appellant has relied upon the Judgment, Goyal Vegolis Limited & Ors. Vs ROC, Jaipur [Company Appeal (AT) No.419 of 2018; Hon’ble NCLAT, Chairperson’s Court], and has prayed for a grant of relief on similar lines for compounding the offence in this case.
4. Respondent’s Submissions
a. The Respondent has contended that in the said application by the Appellant, it has been admitted that the company failed to attach the Board report to the balance sheet for the financial years 2010-11 and 2013-14 filed with the Registrar of Companies (ROC), Bengaluru and hence it is defective and in violation of Section 220 of the Companies Act, 1956.
b. He has further submitted that as per Section 220(1) of the Companies Act, 1956, the duly signed balance sheet and profit and loss account together with all related documents of which the Board Report is a part, are required to be filed within thirty days from the date on which the same have been laid before the Annual General Meeting. Further as per Section 137(1) of the Companies Act, 2013, the financial statement including consolidated financial statement, if any, along with other documents which are required to be attached to such financial statements under this act, duly adopted at the AGM of the company shall be filed with Registrar within thirty days of the date of AGM in such manner, with such fees or additional fees as may be prescribed.
c. He has also submitted that as per Section 220(3) read with 162 of the Companies Act, 1956, if a company fails to comply with provisions of Section 220 of the Companies Act,1956, the company and every officer in default shall be punishable with a fine which may extend to five hundred rupees for every day during which the default continues. Further as per Section 137(3) of the Companies Act, 2013, the company shall be punishable with a fine and every officer in default shall be punishable with imprisonment for a term which may extend to six months or a fine or with both.
d. The Respondent contends that the appellant failed to attach the Board Report to the balance sheet for the financial years ending on 31.03.2011 and 31.04.2014, that therefore the balance sheets filed are defective and cannot be taken on record and hence those balance sheets are deemed to be not filed, which is a violation of Section 220(1) of the Companies Act, 1956.
e. The Respondent has submitted that the Appellant company did not rectify the offence till the date of filing of compounding application 26.04.2017 and therefore, the leviable compounding fee has been calculated till the date of filing of the compounding application which is 26.04.2017 since the said violation is a continuing offence.
f. The Respondent has submitted that the maximum penalty for the offence committed for the financial year 2010-11 should be levied as prescribed under Section 162 of the Companies Act, 1956, and for the financial year 2013-2014 as per Section 137(3) of the Companies Act, 2013.
Analysis and Findings:
It is an admitted fact that the Appellants 1, 2 & 3 have failed to file Board Report with the financial statement for the financial years 2010-11 and 2013-14 respectively within the stipulated time and hence the offences have been committed. They have to be taken as a continuing offence. Penalty for Non-filing of Board Report for financial year ending on 31.03.2011 will be determined as per the provisions of Section 220 r/w Section 162 of the Companies Act, 1956 which is not disputed by either party.
Appellant claims that non-filing of the Board Report for the financial year ending on 31.03.2014 should also attract provisions of Section 220 of the Companies Act 1956 as this pertains to the financial year 2013-14 and as per the General Circular 8/2014 of the Ministry of Corporate Affairs dated 04.04.2014. The relevant portion of the said Circular No.1/19/2013-CL-V of Ministry of Corporate Affairs, Government of India dated is extracted below:
“A number of provisions of the Companies Act, 2013 Including those relating to maintenance of books of account, preparation, adoption & filing of financial statements (and documents required to be attached thereto), Auditors reports and the Board of Directors report (Board's report) have been brought into force with effect from 1st April, 2014. Provisions of Schedule II (Useful lives to compute depreciation) and Schedule III (Format of financial statements) have also been brought into force from that date. The relevant Rules pertaining to these provisions have also been notified, placed on the website of the Ministry and have come into force from the same date.
The Ministry has received requests for clarification with regard to the relevant financial year with effect from which such provisions of the new Act relating to maintenance of books of account, preparation, adoption and filing of financial statements (and attachments thereto), auditors report and Board's report will be applicable. Although the position in this behalf is quite clear, to make things absolutely clear it is hereby notified that the financial statements (and documents required to be attached thereto), auditors report and Board's report in respect of financial years that commenced earlier than 1st April, 2014 shall be governed by the relevant provisions/ Schedules/rules of the Companies Act, 1956 and that in respect of financial years commencing on or after 1 April, 2014, the provisions of the new Act shall apply.”
The Appellant has also cited the judgment of the Principal Bench of this Tribunal in the matter of Surojit Kumar Vs. ROC Kolkata (Company Appeal (AT) 33 & 34 of 2017) dated 08.03.2017 to support his contention. The relevant para 16 & 17 are extracted below:
“16.Sub-Section (6) of Section 217 of Act, 1956 stands replaced by Sub Section (8) of Section 134 of the Companies Act, 2013 w.e.f. 1st April, 2014, as quoted below:
"(8)If a company contravenes the provisions of this section, the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than fifty thousand rupees but which may extend to five lakhs rupees, or with both."
17.Admittedly, Sub-Section (8) of Section 134 came into force from 1.4.2014. Therefore, the said provision can not be made applicable for the offence committed during the financial year ending 31.3.2014. Learned NCLT failed to consider the aforesaid provision and compounded the offence in terms of Sub- Section (8) of Section 134 of Companies Act, 2013 which was not applicable for the financial year ending 31.3.2014. This also appears to have been committed because of wrong report given by the Registrar of Companies.”
This contention of the Appellant is sought to be controverted by the Respondent stating that Board Report for the financial year 2013-14 was due to be filed by 26.10.2014 and therefore penalty for compounding the offence for not filing the correct financial statement has to be calculated under Section 137(3) of the Companies Act, 2013. However, this may not be acceptable in light of the Circular dated 04.04.2014 of the Ministry of Corporate Affairs and the Judgment of this Tribunal (Supra). It is to be held that filing of the said financial statement/ board report pertained to financial year 2013-14 only and hence non-filing of the same will have to be dealt with under the relevant provisions of the Companies Act, 1956.
Appellant submits that penalties have been determined by the learned NCLT Bengaluru Bench @ 20% of the maximum leviable fine in the case of the Company and @ 30% of the maximum leviable fine in the case of Directors which is excessive. The appellant has cited many orders passed by Learned NCLT, Bengaluru, Mumbai, and Delhi benches to demonstrate that a much more lenient view has been taken in similar circumstances. Of particular interest will be four such orders passed by Ld. NCLT, Bengaluru bench in C.P No.69/2017, CP. No. 89/BB/2017, TP 131/2016 in CA 205/621A/CB/2014 and in TP 183/2016 in CA 234/621A/CB/2015. In the respective orders, the learned NCLT Bengaluru Bench has compounded the offence of violation of Section 220 of the Companies Act, 1956 @ Rs.50/day for the number of days of delay.
The Respondent on the other hand, has requested this Tribunal to impose maximum penalty as prescribed under Section 162 of the Companies Act, 1956 for violation committed for the financial year 2010-11 and the maximum penalty as prescribed under Section 137(3) of the Companies Act, 2013. He has not given any reason as to why the penalty should be imposed at the maximum rate.
The Appellant has contended that the mistake is inadvertent, that he himself has found out the mistake and has sought to rectify it by seeking composition of the offence, that he has failed to file the Board Report with ROC only, and that it has been circulated to shareholders within the due date, that the omission is not prejudicial to the interest of members, creditors, regulators or other stakeholders and that the content of the Board Reports was such that there is nothing to hide.
In view of absence of any assertion to the contrary by the Respondent, the above contention is acceptable.
The Appellant has also contended that the Companies Act has been amended in 2018 and in 2020 to decriminalize many provisions and to reduce penalties for technical and non-serious offences including those relating to filing of financial statements and the Board Reports. He has stated that Section 137(3) of the Companies Act, 2013 has been amended vide the Amendment Act 2020 with effect from 21.12.2020 where the penalty for the Company is Rs.10,000 and Rs.100/day thereafter, subject to a maximum of Rs.2,00,000 and for the directors, Rs.10,000 and Rs.100/day thereafter subject to a maximum of Rs.50000/-. He has pleaded citing the judgment of Hon’ble Apex Court in the matter of T.Barai Vs. Henry AH Hoe and Anr. (1983 AIR 150) that he may be granted the benefit of the Rule of Beneficial Construction. It is to be noted that the said amendment in the Companies Act came into effect on 21.12.2020 while Ld. NCLT passed orders on 31.12.2018. Hence, this rule will not be applicable in the instant case.
Summarising it is to be held that offences were committed for the financial year 2010-11 and financial year 2013-14 under Section 220 of the Companies Act, 1956 only and that penalty levied for compounding appears excessive in view of orders issued by the same Ld. Tribunal and other Tribunals in similar cases and therefore penalty should be levied at the rate of Rs.50 per day for every day during which the default continued, both for the company and for the directors.
Accordingly, the compounding fees are to be levied will be as under:
| S.No. | Offence / Particulars | Days of violations | Penalty / Compounding Fees | ||
|---|---|---|---|---|---|
| Appellant 1 | Appellant 2 | Appellant 3 | |||
| 1 | Violation of Section 220 for FY 2010-11 | 2007 | 50 x 2007 1,00,350/- | 50 x 2007 1,00,350/- | 50 x 2007 1,00,350/- |
| 2 | Violation of Section 220 for FY 2013-14 | 914 | 50 x 914 45,700 | 50 x 914 45,700 | 50 x 914 45,700 |
| 1,46,050/- | 1,46,050/- | 1,46,050/- | |||
Accordingly, the “Impugned Order” is “set aside” and the “appeals” are “allowed” with the aforesaid terms.
Let a copy of the order be communicated to the Registrar of Companies, Bengaluru to ensure its compliance.