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Judgment
This Compounding Application was filed under section 441 of the Companies Act, 2013 ("the Act") against the Registrar of Companies Goa, Daman and Diu ("RoC") for violation of section 134 (3) (o) r/w Section 135 (5) of the Companies Act, 2013 wherein the Company did not make the required expenditure for CSR and the reason for not spending the CSR amount have not been disclosed in Board of Directors Report of Financial Year 2014-15.
Submissions by the Applicants / Defaulters herein:
The Ld. Counsel for the Applicants/Defaulters herein, submits that this application was filed because the Company had to file the form GNL-1 u/s 441 of the Companies Act, 2013 for compounding and also violated the provisions of Section 134(3) (o) r/w Section 135 (5) of the Companies Act, 2013(hereinafter as Act) whereas, as per section 135(5), the Board of every company liable for CSR u/s 135(1) shall ensure that the Company having its net worth of Rupees Five Hundred Crore or more during any financial year, spends at least two percent (2%) of the average net profit of the company during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility policy, provided that if company fails to spend such amount, the Board shall, in its report made under clause (O) of sub-section (3) of Section 134 of the Act, specify the reasons for not spending the amount. The Average Net profit of the Company was in excess of Rs. 5,00,00,000/- (Rupees Five Crores ) for the years 2011- 12, 2012-13 and 2013-14. A detailed working of the Average Net Profit and the amount to be spent on CSR is as follows :-
Particulars
Amount (Rs.)
Net Profit before tax for the year 31.03.2012
13,74,15,555
Net Profit before tax for the year 31.03.2013
18,73,62,032
Net Profit before tax for the year 31.03.2014
15,77,60,437
TOTAL PROFIT FOR 3 YEARS
( As per section 198 of CA 2013)
48,25,38,024
AVERAGE PROFIT
16,08,46,008
2% of the Average Profits to be spent in the year 2015.
32,16,920.16
Amount required to be spent on CSR
32,16,920.16
The Registrar of Companies, Goa Daman and Diu, issued a Show Cause Notice dated 24.07.2017 to the Company for violation of Section 134(3) (o) r/w Section 135 (5) of the Companies Act, 2013.
The Counsel Counsel for the Applicants/Defaulters herein, submits that the Directors Report for the year ended 31.03.2015 did not contain the reasons for non-disclosure.
The Board of Directors of Company vide its Resolution dated 13.10.2017 authorized Mr. Cedric Maria Menezes, Director of the Company to file an application for compounding of offence under Section 134(3) (o) r/w Section 135 (5) for Financial Year 2014-2015.
The Applicants/Defaulters herein, submits that the Directors of the Company are extremely serious about the compliance of provisions relating to CSR and in pursuance to that the Company has constituted a CSR committee comprising of two directors.
The Applicants/Defaulters herein, submits that the Company has spent a total amount of Rs. 65,00,000/- (Rupees Sixty-Five Lakh) towards the Konkan Development Society, Goa. The Applicants/Defaulters submits that the default resulting in the said show cause notice was inadvertent and was purely on account of unawareness and the Company has taken immediate steps to comply with the provisions of CSR and has thus made the default good.
The Counsel for the Applicants/Defaulters herein, submits that, the Contravention of the said provisions of the Act was bona fide without any mala fide intention because the CSR contribution was made and incurred. The Company and its Directors inadvertently have not complied with the said provisions of the Act.
It is submitted that since the Applicants / Defaulters herein had not deliberately conducted the said offence and subsequently, after ascertaining the correct position, made good the committed default. Hence, the Ld. Counsel for the Applicants/ Defaulters prayed that the present Application be allowed and minimum Compounding fee may be imposed.
Findings:
The Bench has gone through the pleadings on record and the submissions made by the Counsel for the Applicants / Defaulters herein. The sections which are relevant in this case are as follows:
"Section 134. Financial statement, Board's report, etc.
(3) There shall be attached to statements laid before a company in general meeting, a report by its Board of Directors, which shall include-
(o) the details about the policy developed and implemented by the company on corporate social responsibility initiatives taken during the year;"
"Section 135. Corporate Social Responsibility
(5)The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy:"
Punishment
"Section 134(8): If a company contravenes the provisions of this section, the company shall be punishable with fine which shall not be less that 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.
It is noticed that the Company has transferred a sum of Rs. 65,00,000/- (Rupees Sixty Five Lakh) to the Konkan Development Society, Goa and has made the default good. The said receipts of proof are on record.
On examination of the circumstances as discussed above and after considering the submissions made, a Compounding Fee of Rs. 50,000-/- (Rupees Fifty Thousand only) by the Company and Rs. 1,00,000/- (Rupees One Lakh only) each by the 3 Directors herein i.e. in total Rs 3,50,000/- (Rupees Three Lakh Fifty Thousand only) shall be sufficient as a deterrent for not repeating the impugned default in future. The imposed remittance shall be paid by way of Demand Draft drawn in favour of "Registrar of Companies" within 30 days from the receipt of this order.
This Compounding Application bearing CP No. 2359/441/MB/C-II/ 2018 is, therefore, disposed of on the terms directed above. Needless to mention the offence shall stand compounded subject to the remittance of the Compounding Fee imposed. A compliance report, therefore, shall be placed on record. Thereafter the Ld. RoC shall take the consequential action.
Ordered accordingly. To be consigned to Records.