By Pooja J. Punjabi, Chartered Accountant
7. Navbharat Gasflame Pvt. Ltd. vs. ROC
[2017] 87 taxmann.com 160 (NCLT – New Delhi) Date of Order: 27th October,
2017
Section 560 of Companies Act, 1956 –
Company failed to file its annual return from 1998 to 2014 – There was no proof
of any activities carried out by the company in the said period – ROC’s action
in striking off the name was upheld by the Tribunal.
Section 3(3) of Companies Act, 1956 – No
effort was made by a private company to increase its paid up capital to minimum
amount of Rs. 1 lakh in the time stipulated by Companies (Amendment) Act, 2000
– Company was deemed to be a defunct company.
FACTS
NCo. was a private company incorporated on
24.11.1997 engaged in the business of trading of fabrics, textiles goods and
other related activities. The subscribed capital of NCo was Rs. 300/- divided
into 30 equity shares of Rs. 10/- each. NCo had failed to file its annual
return right from 1998 up to 2014 as per the reply filed by the Registrar of
Companies (ROC). Name of the company was struck off vide notification dated
23.06.2007 published in the official gazette. NCo filed an application for
restoration of its name u/s. 560 of Companies Act, 1956 (the Act). ROC
submitted that company had not filed any annual return or income-tax return
right since its incorporation till 2014.
NCo submitted that it had carried out its
operations and that it had filed its income-tax return for assessment year
2014-15. ROC submitted that there was no acknowledgement of any tax paid or
return filed by NCo. NCo had merely submitted its accounts which was not a
conclusive evidence of any operations being carried out by it.
HELD
The Tribunal examined the provisions of
section 560 of the Act which required that in order to pass the direction for
restoration of name with ROC, the Tribunal needs to be satisfied that the
company at the time of striking off had been carrying on business or in
operation or otherwise it is just that the company be restored to the register
of the Registrar of Companies.
The Tribunal observed that the company did
not give any proof of its operations in the year 2007 when its name was struck
off. Also, there was no explanation furnished as to why the company did not
respond from 2007 to 2014 and the nature of its business activity in the said
period.
Further, the Tribunal examined section
3(1)(iii) of the Act which defined a private company as a company which has a
minimum paid-up capital of one lakh rupees or such higher paid-up capital as
may be prescribed by its articles. The consequence of not enhancing the paid-up
capital was that such a company shall be deemed to be a ‘defunct company’
within the meaning of section 560 and the Registrar would be under a legal
obligation to strike off the name of such a company from its register.
The Tribunal observed that NCo had failed to
increase its paid up capital in the time stipulated under Companies (Amendment)
Act, 2000. Accordingly, it upheld the action of striking off of the name of
company by the ROC and dismissed the petition with a cost of Rs. 20,000.
8. N.
C. Karany & Co. vs. New Timonhabi Tea Co. Pvt. Ltd.
C. P. No. 19/140(1)/140(4)/GB/ 2017
Date of Order: 22nd November, 2017
Sections 101, 139 and 140 of Companies Act,
2013 – Non-ratification of appointment of an auditor gives rise to a casual
vacancy envisaged u/s. 139 – Auditor should however, be given an opportunity of
being heard – Removal of auditor without applying this principle was held to be
bad in law.
FACTS
N Co was appointed as statutory auditor of
NT Pvt. Ltd. (Respondent) in the AGM held on 26.09.2014. The re-appointment was
confirmed for a block of four years in the AGM held on 26.09.2015. The notice
of said appointment was filed in form ADT-1 with the ROC in due course.
Respondent then proceeded to appoint A Co as the statutory auditor prior to the
term of N Co getting over without any prior intimation of such appointment. On
13.02.2017, NCo received a letter from one of the directors of the Respondent
company stating that A Co had been appointed as its auditor and requested it to
furnish its resignation at the earliest. N Co also received a letter from A Co
on 03.04.2017 seeking its NOC for appointment of A Co. Subsequently, on
08.05.2017, N Co received an email from one of directors of respondent that his
appointment was not ratified in the AGM and therefore, his appointment stands
vacated from the company.
Respondent submitted that appointment of A
Co was arising out of a casual vacancy in light of N Co’s non-reappointment at
the AGM of the company. Accordingly, the subsequent appointment of A Co was in
accordance with section 139(8) of the Companies Act, 2013 (the Act). Accordingly,
the Respondent was not required to follow the procedure laid down u/s. 140 of
the Act. N Co submitted that its removal and subsequent appointment of A Co was
illegal and in violation of provisions of section 101 and 140 of the Act.
HELD
The Tribunal examined the provisions of
sections 139(8), 140(1) and 140(4)(i) of the Act. Section 140(1) provides that
a statutory auditor appointed u/s. 139 can be removed from his office before
the expiry of the term provided a special resolution is passed at the general
meeting and prior approval of Central Government is obtained. Additionally, the
auditor concerned is given an opportunity of being heard.
However, section 139(8) provides that the
procedure laid down u/s. 140(1) need not be followed where a casual vacancy
arises in the office of an auditor.
Respondent submitted that non-ratification
of appointment of N Co gave rise to a casual vacancy; a claim which was
strenuously disputed by N Co; and therefore, the same was duly filled by the
Board of Directors in accordance with section 139(8) of the Act.
The Tribunal examined the meaning of the
term “casual vacancy” using various dictionaries which suggested that “Casual”
means something which occurs without being foreseen or expected. What required
attention of the Tribunal was whether non-ratification of appointment of the
auditor at the AGM constituted casual vacancy. The Tribunal held that
resignation of the auditor was tantamount to a casual vacany arising in the
office of the auditor as a company always expects the auditor to complete his
term of appointment. Non-ratification of appointment of auditor stood on a
similar footing as the company would expect the shareholders to ratify the
appointment already made. Such non-ratification therefore, did give rise to a
casual vacancy.
The Tribunal held it was sine-qua-non
for a company to give an opportunity of being heard to its Auditor who is
sought to be removed from his office prior to the expiry of his term. A
conjoint reading of sections 101 and 146 of the Act makes it imperative that an
auditor is required to be given an opportunity of being heard in case his
appointment is not being ratified by the shareholders in the AGM. A removal
without following the aforesaid procedure would make such an act unsustainable
in law.
In the facts of the present case, the
Respondent did not give a notice of the AGM to its statutory auditor N Co which
is the mandate of section 101 of the Act. The Tribunal observed that
Respondents stand that there was a casual vacancy in the office of auditor did
not hold good on several grounds. Firstly, respondents submitted that they sent
letter dated 13.02.2017 seeking resignation of N Co and notice dated 03.04.2017
seeking NOC of N Co.
This conduct, as per the Tribunal, was
against the stand that casual vacancy arose owing to non-ratification of
appointment of the auditor at the AGM. Secondly, the Act or the Rules do not
give any authority to the Board of directors to seek resignation of the auditor
before the expiry of its term unless procedure laid down u/s. 140 of the Act
has been duly complied with.
The Tribunal further held that N Co had
filed the petition in the time frame stipulated under the Limitation Act, 1963
which was applicable in respect of proceedings under the Act. Claim of the
respondents that conduct of N Co was barred by principle of delay and latches
was wholly without any substance.
Accordingly, the Tribunal held that removal
of N Co was illegal and consequent appointment of ACo as the auditor was
equally illegal and therefore unsustainable in law. The position – N Co was
reinstated as the auditor of the company till expiry of its term, unless it was
removed following due procedure of law.
9. Ramesan Maithiyeri vs. UOI
[2017] 85
taxmann.com 19 (Kerala)
Date of Order: 19th July, 2017
Section 234 of
Companies Act, 1956 – No action can be taken against a person who was
wrongfully named as a director of the company in the annual returns filed by it
until scrutiny and enquiry by ROC is complete.
FACTS
An individual R
was named as a director in the annual returns of company (B Ltd.) from 2005 to
2014 where in fact he was neither a shareholder nor a director. His name was suo
motu deleted as the director from the year 2015 onwards. R contended that
inclusion of his name as director was illegal and he apprehended that he will
be liable for any misdemeanour of the Board of the company for this period. He
therefore filed a writ petition praying that ROC be directed to initiate
proceedings u/s. 234 of the Companies Act, 1956 (the Act) for correction of the
books of the company.
Central
Government accepted that as per the inquiry and investigation conducted by
them, R had never been a director or a shareholder of B Ltd. R further informed
the court that he made investments in B1 Ltd. and purchased a flat in the
property being developed by B1 Ltd. B Ltd and B1 Ltd. had common directors. And
there were separate allegations of manipulation and misappropriation on part of
directors of B Ltd.
HELD
The High Court
examined the provisions of section 234 of Companies Act, 1956 and held that ROC
had powers to cause a scrutiny into books and documents maintained by the
company. These provisions are intended and designed to vest with ROC, the power
of inspection, enquiry and investigation into the affairs of the Company and to
rectify mistakes or deliberate entries in the books and documents maintained by
it. Regulation No. 17 of the Companies Regulations, 1956 also empowers ROC to
examine the documents and to direct the company to rectify the defects and
additionally mandates that no document of the company can be taken on record
unless the defects are rectified.
In light of the
facts, the High Court directed the ROC to carry out scrutiny and investigation
into the books and documents maintained by the company and follow it up with
such action as is warranted and mandated by law.
It was further
held that as name of R was wrongfully inserted as a director from 2005 to 2014,
no action shall be taken against him until the scrutiny by the ROC was
complete. _
