Corporate Law Daily
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Today’s newsletter analytically summarizes the top Corporate Law stories reported at taxmann.com.
In the instant case, the NFRA had received information from the SEBI in the case of Vikas Wsp Limited (VWL) wherein it was stated that the company did not recognise the interest amount in its borrowings from the bank in the P&L account which lead to the overstatement of profits.
A show causes notice on the Engagement Partner of the statutory auditor by NFRA as to why the interest cost on borrowing was not recognised.
The NFRA held that the Engagement partner was guilty of Professional Misconduct under the Chartered Accountants Act, 1949 (CA Act, 1949) for not disclosing in his audit report the non-recognition by the company in its financial statements of interest costs in respect of borrowings classified by lender banks as NPA based on non-charging of interest by lender banks on such NPA borrowings. The non-recognition was based on the mere proposal by the company of One Time Settlement with banks based on the mere assumption that banks will waive off interest.
The CA was held guilty of professional misconduct as he failed to conduct audit in accordance with Auditing Standards, including non-compliance with requirements of SA 230 regarding Audit Documentation, relying on Management Representation Letter (MRL) not obtained on letterhead, non-documentation by minutes of meetings with management regarding discussions on non-recognition of interest cost and OTS and not getting audit reviewed under ECQR(Engagement Quality Control Review) before issuing audit report.
The NFRA further imposed a monetary penalty of Rs 3 Lakhs on CA and debarred him for 3 years from being appointed as auditor/internal auditor of any company/body corporate. Further, he was advised to take training in SAs and Ind As due to his poor knowledge of the same.
Brandbaron Marketing (P.) Ltd. v. Times Internet Ltd. - [2022] 142 taxmann.com 57 (NCLAT- New Delhi)
In the instant case, the appellant-operational creditor entered into an agreement with 'T', as a service provider. Thereafter 'T', to whom services were provided by the appellant, was merged with the respondent - corporate debtor. The appellant filed a winding up petition against the respondent - corporate debtor. However, the said petition was dismissed by the High Court.
Consequently, after the dismissal of the winding up petition, the appellant issued a notice to the corporate debtor claiming its outstanding amount. In reply to the said notice, the corporate debtor denied the outstanding claim of the appellant. Thereafter, the appellant filed an application u/s 9 of the IBC before the Adjudicating Authority (NCLT).
The National Company Law Tribunal (NCLT) dismissed the said application on the ground that the application filed by the appellant was time-barred. Then, an appeal was filed to the National Company Law Appellate Tribunal (NCLAT) against the order passed by the NCLT.
The appellant claimed that the Adjudicating Authority committed an error in rejecting the application u/s 9 of the IBC as time-barred. Further, the appellant claimed that while dismissing the winding up petition, the High Court itself had granted liberty to proceed against the real entity i.e. the corporate debtor. ?
The NCLAT observed that the winding up petition stood dismissed since the real entity, i.e. 'TI', with whom ‘T’ was merged was neither noticed nor impleaded in the winding up petition. No statutory notice having been sent to the 'TI', the winding up petition was dismissed. Thus, the winding up petition stood dismissed due to the defect of procedure as noticed in the judgment of the High Court of Delhi.
The NCLAT held that the appellant had made out a sufficient cause for condonation of delay in filing section 9 application and the period during which winding up petition was pending before the High Court ought to be excluded in computing the period of limitation within the meaning of section 14(2) of the Limitation Act, 1963.
The market regulator SEBI, on being satisfied that it would be in the interest of the trade, and also in the public interest, has granted renewal of recognition to the ‘Metropolitan Stock Exchange of India Limited’ for a period of 1 year commencing on the 16th of September 2022 and ending on the 15th day of September 2023. The recognition is subject to a condition that the Stock Exchange shall comply with conditions specified by SEBI.
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