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Central Govt. can assign probe to SFIO based on interim report of inspectors u/s 210 of CA 2013: HC
Exalogic Solutions (P.) Ltd. v. Director, Serious Fraud Investigation Office - [2024] 159 taxmann.com 556 (HC - Karnataka)
In the instant case, the question was placed before the High Court whether the Central Government can assign a probe to the Serious Fraud Investigation Office (SFIO) based on the interim report of inspectors u/s 210 of the Companies Act, 2013.
The director of the petitioner co. challenged the investigation by the SFIO against the company. The Senior Advocate appearing on behalf of the petitioner co. contended that an inquiry and investigation have begun against the co. after the issuance of notice u/s 206(4) of the Companies Act, 2013.
The same resulted in an order being passed u/s 210 which deals with the investigation into affairs of the Company. The documents sought by the competent officer u/s 210 have been submitted and all necessary documents, the proceedings are yet to conclude.
Further, he contended that during the pendency of the proceedings u/s 210, the SFIO could not have been assigned with the investigation u/s 212 of the Act. Moreover, only after a report is made u/s 210 of the Act, it can perhaps lead to the commencement of proceedings u/s 212 of the Act, as the circumstances that would warrant investigation by the SFIO are only four that are listed in clauses of section 212(1) of the Act.
He also argued that the basis of invoking the power u/s 212 of the Act should be the formation of an opinion that is necessary to have the investigation concluded into the affairs of the company, however in this case, there was no such opinion formed.
The High Court observed that Section 210 does speak of a report, the report can be either interim or final, and it need not be the final report only. During an investigation u/s 210, if the inspectors, out of serendipity come across information that would prima facie touch upon skullduggery and thereon necessity emerges to assign the investigation to a multi-disciplinary body like the SFIO, created under the Act, the Court cannot put shackles on the hands of the Central Government for such assignment.
The High Court, further observed that the contention of the petitioner that the phrase 'interim report' is found only in sub-section 11 of Section 212, and nowhere in Section 210 suffers from want tenability. The report u/s 210, can either be interim or final. The said report will not result in any penalty being imposed straight away against any company. It is for the purpose of investigation.
The High Court noted that the investigation is to unearth the alleged unethical activities of any company, in the case at hand, the petitioner/Company. The Apex Court, in the plethora of cases, has made observations on the seriousness of economic offences and said “It is therefore, to unearth such intricate or minute details about the transactions it becomes necessary to hand it over to a multi-disciplinary body, like the SFIO.
The High Court held that the multidisciplinary body would bring about multi-departmental correspondence to arrive at any finding. Therefore, no fault can be found with the action of the Union of India, in entrusting the investigation to the SFIO. Further, the High Court held that if the Union Government has thought it fit to entrust the investigation to the SFIO, owing to certain factors which have emerged while conducting of investigation u/s 210 and in the public interest, the Court cannot in the exercise of its jurisdiction under Article 226 of the Constitution of India, annul such opinion, unless it is contrary to the statute or the action is demonstrably arbitrary.
In view of the above, once an investigation has commenced u/s 210 of the Companies Act, 2013, the statute does not render the Government of India powerless to assign the investigation to the SFIO u/s 212 of the Act. It neither results in duplication of investigation nor takes away any right of the petitioner.
Govt. notifies the list of reporting entities to perform aadhaar authentication service under the Aadhaar Act
The Ministry of Finance has notified 24 reporting entities that shall comply with the standards of privacy and security under the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016. Further, these entities are permitted to perform authentication under the Aadhaar Act for the purposes of section 11A of the Money Laundering Act.
ROC penalizes company signatory for defective E-form PAS-3 filing and PCS for wrong certification – A Case Study
1. A small brief about this case
This is a case involving defective e-form Pas- 3 (return of allotment) filled with incorrect details by the company officials and also certified for its correctness by a practicing company secretary, the certifying professional of e-form PAS-3 for its correctness before the same is filed. The defect as pointed out by the Registrar of Companies / Adjudication Officer was that in the attachment to the board resolution to the PAS-3 e-form, the total consideration was stated as Rs. 8,86,06,610 instead of Rs. 8,86,06,800 for the allotment 2,21,517 shares.
The company upon realizing the defective form which was duly certified was filed with the Registrar of Companies, filed an application for adjudication suo-moto to the Registrar of Companies seeking to adjudicate the matter. The Registrar accordingly followed the procedure of issuing the adjudication notice for which the signatories to the e-form PAS-3 i.e., the authorised signatory of the company i.e. the managing director who signed the form and the practicing company secretary who erroneously certified the e-form PAS-3 both accepted the violation committed by them in terms of Rule 8(3) of the Companies (Registration Offices and Fees) Rules 2014. The Adjudication officer passed the adjudication order on this matter by levying a penalty on both the signatories of the form. Let us go through this case in detail in order to understand the provisions of the Companies Act 2013 read with the relevant rules and consequences of default / non-compliance.
2. Provisions relating to this case under the Companies Act 2013.
The following are the relevant provisions under the Companies Act 2013, relevant to this case as given below.
3. Consequences of default/violation - action from the Regulator
To understand the consequences of any default / non-compliance relating to Rule 8(3) of the Companies (Registration Offices and Fees) Rules 2014 in filing the e-form PAS-3 (Return of allotment)let us go through the decided case law on this matter decided by the Registrar of Companies of NCT of Delhi & Haryana on 9th February 2024.
4. The relevant case law on this matter
We shall go through the adjudication order bearing no. ROC/D/Adyorder/718-721 passed by the Registrar of Companies, NCT of Delhi & Haryana on 9th February 2024 in the matter of M/s. Drishtee Development and Communication Limited - order of penalty pursuant to Rule 8(3) of the Companies (Registration Offices and Fees) Rules 2014.
5. Details of the company
M/s. Drishtee Development and Communication Limited was incorporated on 10th August 2000 under the provisions of the Companies Act 1956 having its registered office at 19/21, Shakti Nagar, New Delhi in the union territory of Delhi. The company falls under the jurisdiction of the Registrar of Companies of NCT of Delhi & Haryana and the office of the Registrar is situated at Delhi. The company, as per the details shown at the MCA portal has three directors on its board out of which one of them is a managing director. The company had established kiosks that offer affordable Internet access, consumer products and community services to rural Indian villages.
Financial details of the company
The financial & other details of the company for the immediately preceding financial year 2022-23 as available on theMinistry of corporate portal is as below:-
6. Facts about this case
The following were the facts and events that took place relating to this case.
i.?The company had passed a board resolution for allotment of 2,21,517 shares amounting to Rs. 8,86,06,800 in its board meeting held.
ii.?After the allotment of the shares, the company filed the return of allotment in e-form PAS-3 pursuant to section 39(4) and 42(9) of the Companies Act 2013 and Rule 12 and 14 of Companies (Prospectus and Allotment of Securities) Rules 2014 on 11th December 2023.
iii.?In the attachment to the board resolution to the PAS-3 e-form, the total consideration as stated as Rs. 8,86,06,610 instead of Rs. 8,86,06,800.
iv.?The e-form PAS-3 containing the incorrect details was signed by the managing director of the company as the authorised signatory by the company.
v.?The e-form was duly certified by one of the practicing company secretaries PCS).
The above facts reveal that the company had filed the PAS-3 form with incorrect/defective details which was also duly certified by the practicing company secretary.
7. Action taken by the company
Upon realizing that the company had committed the default in filing the incorrect details in the e-form PAS-3 pertaining to the return of allotment, decided to file an adjudication application to the Registrar of Companies for adjudicating the matter. Accordingly, the company filed the adjudication application on 30th December through the e-form GNL-1 seeking the adjudication of penalties for a defect in filing e-form PAS-3 which was filed by the company on 11th December 2023 for the allotment of 221517 shares amounting Rs. 8,86,06,800.
8. Action taken by the Registrar of Companies / Adjudication Officer
Upon receipt of the adjudication application from the company, the Registrar of Companies, on the examination of the document /information submitted to him observed that the managing director of the company and a practicing company secretary – the certifying professional had filed e-form PAS-3 with wrong attachment. The Registrar of Companies, therefore, issued a show cause notice dated 30th January 2024 to the company's managing director who was the signatory of the e-form PAS-3 and also to the practicing company secretary who certified the e-form stating that the details to be correct as stated in the e-form. The show cause directed the company's managing director and the practicing company secretary to show cause as to why penal action could not be taken against them for defective filling and certifying the e-form for filing.
9. Response from the company / PCS
In response to the show cause notice, the company and certifying professional both submitted a reply vide email dated 6th February 2024 wherein the above-mentioned default had been admitted and both had accordingly requested to adjudicate the matter by taking a lenient view on this matter.
10. Personal hearing notice was not issued
Since the managing director of the company and the certifying professional i.e. the practicing company secretary had accepted the default committed by them and made a request to the authorities, no personal hearing notice was issued and based on the submissions made by signatories to the PAS-3 form, the Adjudication Officer proceeded on this matter and passed the adjudication order under the provisions of section 450 of the Companies Act 2013.
11. Conclusions reached by the Registrar of Companies / Adjudication Officer
With respect to the facts of the case and submissions made by the parties, the Adjudication Officer noted that the managing director – the authorised signatory of the company and the certifying professional i.e. the practicing company secretary both had filed the e-form PAS-3 on 11th December 2023 with incorrect attachments. Therefore, pursuant to Rule 8 of the Companies (Registration Offices and Fees) Rules 2014 read with section 450 of the Companies Act 2013 signatories of the e-form PAS-3 were liable for the correctness of the content of e-form PAS-3 and enclosures attached there with. Accordingly, signatories were liable for penalty under the provisions of the Companies Act for the default committed by them.
12. Applicability of lesser penalty by virtue of small company
Section 446B of the Companies Act 2013 states that if a penalty is payable for non-compliance with any of the provisions of this Act by a One Person Company (OPC), small company, start-up company or Producer Company, or by any of its officer in default, or any other person in respect of such company, then such company, its officer in default or any other person, as the case may be, shall be liable to a penalty which shall not be more than one-half of the penalty specified in such provisions subject to a maximum of two lakh rupees in case of a company and one lakh rupees in case of an officer who is in default or any other person, as the case may be. As per sub-section (85) of section 2 of the Companies Act 2013, a small company means a company whose paid-up capital and turnover shall not exceed rupees four crores and rupees forty crores respectively.
The Registrar of Companies after considering the above provision came to the conclusion that the company did not get covered under the purview of a small company as defined under section 2(85) of the Companies Act 2013 and hence, the benefit of section 446B of the Companies Act 2013 would not be applicable on the company. Therefore he passed the adjudication order accordingly.
13. Adjudication order passed by the Registrar of Companies / Adjudication Officer
The Registrar of Companies / Adjudication Officer, in exercise of the powers conferred on him vide Notification dated 24th March 2015 and having considered the reply submitted on 6th February 2024 in response to the notice issued vide letter dated 30th January 2024, imposed the penalty on the signatories for defect in e-form PAS-3 pursuant to Rule 8(3) of the Companies (Registration Offices and Fees) Rules 2014 read with section 450 of the Companies Act 2013.
a.?The order directed the parties as mentioned in the table above to pay the penalty amount as per column no. 'C' therein and stated that in the case of parties other than the company, such amount was required to be paid out of their own funds.
b.?The order also stated that the amount of penalty shall have to be paid online by using the website www.mca.gov.in (Misc. head) in favour of "Pay & Accounts Officer, Ministry of Corporate Affairs, New Delhi, within 90 days of receipt of this order, and directed the persons to intimate the office of the Registrar of Companies with proof of penalty paid.
c.?The order also spelt out that an appeal against this order may be filed with the Regional Director (NR), Ministry of Corporate Affairs, B-2 Wing, 2nd Floor, Paryavaran Bhawan, CGO Complex, Lodhi Road, New Delhi within a period of sixty days from the date of receipt of this order, in Form ADJ [available on Ministry website www.mca.gov.in ] setting forth the grounds of appeal and shall be accompanied by a certified copy of the order. [section 454(5) & 454(6) of the Act read with Companies (Adjudicating of Penalties) Rules 2014].
d.?The order concluded by inviting the attention to section 454(8) of the Companies Act 2013 in the event of non-compliance with this order.
14. Despatch of the order
The order was sent by the Registrar of Companies, NCT of Delhi & Haryana in terms of the provisions of sub-rule (9) of Rule 3 of Companies (Adjudication of Penalties) Rules 2014 as amended by Companies (Adjudication of Penalties) Amendments Rules 2019 to the company i.e. M/s Drishtee Development and Communication Limited, to its managing director
and to the concerned practicing company secretary who certified the e-form PAS-3 in default andcopies to the Regional Director (NR), Ministry of Corporate Affairs, B-2 Wing, 2nd Floor, Paryavaran Bhawan, CGO Complex, Lodhi Road, New Delhi.
15. The complete order for reading
The readers may like to read the complete adjudication order passed by the Registrar of Companies, NCT of Delhi & Haryana on 9th February 2024 - adjudication order bearing no. ROC/D/Adyorder/718-721 in the matter of M/s. Drishtee Development and Communication Limited - order of penalty pursuant to Rule 8(3) of the Companies (Registration Offices and Fees) Rules 2014 at the MCA website at https://www.mca.gov.in/ content/ mca/ global/en/ data-and-reports/ rd-roc-info /roc- adjudication-orders.html. (the order is uploaded on 9th February 2024 under ROC –Delhi titled as adjudication order
16. Conclusion
As seen in this case, the managing director of the company and the practicing company secretary – the certifying professional both had to pay a penalty for filling up the incorrect details and certifying the e-form to be correct while filing the return of allotment form PAS-3. This case emphasises the importance of strict compliance as mandated under the provisions of the Companies Act 2013 read with the relevant rules and therefore the company's directors / authorized signatory of the company should ensure the absolute required compliance with the applicable legal provisions and especially exercise diligently before filing any form, returns, documents etc., on the certification, authentication aspect and ensure that the required certifications are in place. Similarly, the certifying professional i.e. the practicing company secretary needs to ensure the correctness of the form in all aspects before certifying the same. Rule 8 (3) of Companies (Registration Offices and Fees) Rules 2014 spells out that the authorised signatory and the professional, if any, who certify the e-form shall be responsible for the correctness of the contents of the e-form and the correctness of the enclosures attached with the electronic form. To avoid penal actions from regulators, it is absolutely essential that the required compliance is required to be met by the company officials and also by the practicing company secretary who certifies the form for its correctness.
We could conclude by saying that the company need to put a proper mechanism to ensure compliance by having a proper checklist and also adopting the principle maker-checker system in place in the company in order to avoid any penal actions by ensuring absolute compliance and on the other hand, the certifying professional needs to exercise his due diligence and his professional skills to ensure the correct certification of the form before it is filed.
References:-
1.?The Companies Act 2013
2.?Companies (Prospectus and Allotment of Securities) Rules 2014
3.?Companies (Registration Offices and Fees) Rules 2014
4.?Companies (Adjudication of Penalties) Rules 2014
5.?Companies (Adjudication of Penalties) Amendments Rules 2019
6.?Adjudication order passed by the Registrar of Companies, NCT of Delhi & Haryana on 9th February 2024 order bearing no. ROC/D/Adyorder/718-721 in the matter of M/s. Drishtee Development and Communication Limited - order of penalty pursuant to Rule 8(3) of the Companies (Registration Offices and Fees) Rules 2014.
That’s it from us for today! Stay Tuned for more updates from Taxmann.com .
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