Corporate Law Corner

 1.      
Deccan
Chronicle Holdings Ltd. (DCHL) vs. ROC [2017] 83 taxmann.com 315 (NCLT – Hyd.) Date of Order: 5^th July, 2017

Section 297 read
with section 621A of Companies Act, 1956 – Money was advanced to a related
party without any interest without obtaining prior approval of concerned
authority – Even though the amount was returned by such a related party; the
same still violated section 297 – Offence could be compounded subject to
payment of hefty fees.

FACTS

“D Ltd.” a listed company, filed an
application for compounding an offence committed u/s. 297 of Companies Act,
1956 (“the Act”). Section 297 prohibited related party transaction except with
the consent of the Board of Directors and in case the company had a paid up
share capital of not less than Rs. 1 crore, prior approval of Central
Government was required. D Ltd. had transferred Rs. 99 crores to a company ‘F
Ltd.’ towards aircraft maintenance and other fund transfers. ROC issued a notice
demanding an explanation for violation of section 297. D Ltd. submitted that
the transactions with F Ltd. were out of purview of section 297 and also that
owing to some other reasons, F Ltd. was asked to repay all the sums transferred
to it and F Ltd. had duly complied with such request. In view of these facts,
proceedings, if any should be dropped. D Ltd filed an application with NCLT
which was dismissed by it. The Applicants therefore filed an appeal and
Appellate Tribunal directed the NCLT to examine the case in terms of section
621A of the Act which provides for compounding of offences.

Before the Tribunal, D Ltd. urged that the
transactions had been fairly concluded and all amounts remitted to F Ltd. had
been received back. As the offence did not continue, the same qualified for
compounding.  

HELD

The Tribunal observed that although the
amounts advanced to F Ltd. were recovered in full, there was no payment of any
interest by F Ltd. Such advancing of money without payment of interest caused
loss to the shareholders of D Ltd. The Tribunal observed that transparency in
operations is one of the key elements of listed company and appropriate
disclosures of related party transactions are very essential to various
stakeholders and as such, the same is the duty of the Company/Board of
Directors to give true and fair picture of the functioning of the Company to
its shareholders especially any decision having adverse financial impact on the
Company which in turn will have an impact on the shareholders whether directly
or indirectly.

The Tribunal held that D Ltd. was guilty of
violation of section 297 of the Act and directed that offence may be compounded
u/s. 621A upon payment of heavy charges in respect thereof.

2.             Chartered Accountants Act, 1949, In
re

[2017]
84 taxmann.com 175 (All)  Date of Order: 2^nd
August, 2017

Sections 21 and
22 of Chartered Accountants Act, 1949 – Chartered Accountant had resigned from
Board of company prior to the opening of its public issue but signed the
prospectus for the same – The Chartered Accountant was held to be guilty of
other misconduct.

 FACTS

Mr. ‘S’ was a member of the Institute of
Chartered Accountants of India (ICAI) and a director of B Co. S had resigned
from the company before opening of its public issue, but his resignation was
accepted on 09.09.1997 which was after the close of issue. Public issue of BCo
opened on 25.07.1996 and closed on 05.08.1996. Mr. S signed the prospectus of
this public issue on 17.06.1996 which named him as a director of BCo. Mr. S did
not object to the inclusion of his name in the prospectus of BCo.

The disciplinary committee of the ICAI found
him guilty of “other misconduct”. The Council of ICAI considering the said
findings recommended the removal of his name as a member for a period of three
months to the High Court.

Mr. S argued that although he resigned prior
to opening of public issue, his resignation was accepted only on 09.09.1997. He
further submitted that since no public money was received by BCo; there was no
question of misleading investors and inducing them to subscribe to the shares
of the said company.

Counsel appearing for the ICAI urged that
under the Companies Act, 1956, resignation of a director comes into effect the
moment it is tendered. As Mr. S accepted that he in fact resigned from the
company before the opening of the public issue, his name should not have
appeared as a director in the prospectus.

HELD

The High Court observed that the Companies
Act, 1956 did not have any specific provision relating to resignation of
director from the company. Neither of the parties produced the Memorandum Of
Association and Articles Of Association of the company to show anything in this
regard. Accordingly, it was held that common law principle would apply in so
far as resignation of directors was concerned.

The Court having relied on various judgements,
came to a conclusion that resignation of a director of a company was a
unilateral act that came into effect as soon as the resignation was tendered by
the director of the company. The directors were merely agents of the company
and agents were competent to determine the agency at their own end.

As Mr. S had resigned before the opening of
the public issue, his name should not have appeared in the prospectus as a
director of the company which was in fact there. The Court held that such an
act amounted to lending of name to the prospectus and misleading the investors.
It was immaterial whether any investor was actually mislead. The act of
misconduct was nonetheless completed.

3.             APC Credit rating (P.) Ltd. vs. ROC

[2017]
84 taxmann.com 75 (NCLT – New Delhi)       Date
of  Order: 19^th July, 2017

Section 420 of
Companies Act, 2013 – NCLT does not have an inherent power to review its own
decision – NCLT can only rectify its decision.

FACTS

ACo had violated various provisions of the
Companies Act, 1956 and filed applications with the Tribunal u/s. 441 of the
Companies Act, 2013 for compounding the same. The Tribunal dismissed the
applications vide order dated 26.09.2016 for reasons mentioned therein.
Subsequently, ACo preferred application under Rule 154 of National Company Law
Tribunal Rules, 2016 (“Rules”) for review of the orders in light of certain
decisions which were not considered by the Tribunal. The Tribunal, vide order
dated 28.04.2017, dismissed the applications by holding that review was
different from appeal and it was not possible to replace one order with
another. 

ACo challenged
this order before the Tribunal and also filed an application for condonation of
delay in filing the appeal.

HELD

The Tribunal examined the provisions of
section 420 of Companies Act, 2013 along with Rules 11 and 15. The Tribunal
observed that it has limited power to rectify any mistake apparent from the
record and to amend the order accordingly, but there is no inherent power to
review its own order.

It held that the present case did not fall
within the meaning of ‘mistake apparent on the face of the record’ of appellant
and therefore, there was no occasion for the Tribunal to exercise power
conferred by section 420 (2) of the Act. Further, non-reference to previously
rendered judgement did not constitute an “omission”.