Failure to attach board report along with financial statement in annual filing is compoundable offence

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Failure to attach board report along with financial statement in annual filing is compoundable offence

CL: Where a company contravened provisions of section 271 by not attaching board report with balance sheet of company while filing e-form 23AC with MCA portal, in view of fact that alleged offence was made compoundable and could be compounded because it was punishable with imprisonment upto six months or with fine alone or both, application for compounding of said offence was to be allowed

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[2019] 105 taxmann.com 308 (NCLT – Ahd.)

NATIONAL COMPANY LAW TRIBUNAL, AHMEDABAD BENCH

Pranatpal Tradelink (P.) Ltd., In re

HARIHAR PRAKASH CHATURVEDIAND MS. MANORAMA KUMARI, JUDICIAL MEMBER

C.P. NO. 32/441/NCLT/AHM/2018

MARCH  28, 2019

Section 621A, read with section 134, of the Companies Act, 2013/Section 441, read with section 271, of the Companies Act, 1956 – Special Courts – Compounding of certain offences – During course of technical scrutiny of balance sheet of applicant company ROC observed that board report of company was not attached with balance sheet in e-form 23AC filed with MCA portal for financial year 2010-11, and thus, company had violated provisions of section 271(1) – It was a case of applicant-directors that such violation was unintentional and with no mala fide intention – According to them while submitting e-form 23AC that was required for filing balance sheet on MCA portal, by mistake another file was attached with said form – It was noted that alleged contravention was technical in nature and due to some procedural lapses on part of directors of company for not enclosing boards report along with company’s balance sheet – However, applicants had now attached board report along with instant compounding application, and, thus, they made good of alleged lapses – Whether thus, instant application for compounding of offence was to be allowed as alleged offence was made compoundable and could be compounded because it was punishable with imprisonment upto six months or with fine alone or both – Held, yes [Para 10]

FACTS

The applicants were directors of company. The applicants received show cause notices, from the Registrar of Companies pointed out that as per section 217(1) the Board’s Report was to be attached to every balance sheet. However, at the time of scrutiny of balance sheet for the financial year 2010-11 it was found that the board’s report of the company was not attached with the balance sheet as at 31-3-2011 which was mandatory under section 217(1) and thus, contravened provision of section 217(1).
It was explained and submitted by the applicants that the Board of Directors of the company had prepared a Director’s Report for the financial year 2010-11 as per the provisions of section 217(1). Same was approved by the Board of Directors of the company in their Board Meeting and further circulated to the shareholders of the company in its Annual General Meeting.
The applicants further submitted that while submitting Form No. 23AC and ACA on MCA portal for the financial year 2010-11, by mistake another file was attached to the form, thus, the board report was lapsed to be filed. They further submitted that such violation of not attaching company’s board report with the balance sheet for the financial year 2010-11 was unintentional and with no mala fide intention of the directors. They thus, filed instant application for compounding the offence.

HELD

The provisions of section 441 confers necessary power to NCLT, for compounding of certain offences. The section 441 came into force with effect from 1-6-2016, while the alleged breach of the statutory provisions of section 217(1) was detected by RoC, during the course of making scrutiny of company’s balance sheet of 31-3-2011, such violation/offences are made punishable under section 217(5) but also made as compoundable under section 621A. Hence, the issue involved in the present application needs to be dealt with above stated provisions specifically sections 217(5) and 621A. [Para 7]
By perusal of the material available on record, the alleged contravention seems to be technical in nature and due to some procedural lapses on the part of its directors for not enclosing board’s report along with the company’s balance sheet as on 31-3-2011. However, the applicants have now attached the Board’s Report for the financial year 2010-11 along with this compounding application, thus, they have made good of alleged lapses. The applicants have further explained that non-attaching of Board’s Report of the company with the balance sheet was erroneous, but without having any wrongful intention to its Directors. Thus, the applicants have admitted their default, but has sought compounding of offence. [Para 9]
The instant application deserves to be allowed as the alleged offence is made compoundable and can be compounded well by instant Court, because it is made punishable with imprisonment up to six months or with fine alone or with both. [Para 10]

Jaymeen Trivedi, PCS for the Petitioner.

ORDER

Harihar Prakash Chaturvedi, Judicial Member. – Present Applicants, being Directors of the Company, viz., M/s. Pranatpal Tradelink Private Ltd., earlier filed an Application before the Registrar of Companies, Gujarat, Dadra and Nagar Haveli, for compounding of offences against them for alleged violation of Section 217(1) of the Companies Act, 1956 (Act 1956).

  1. Thereafter, the Registrar of Companies, Gujarat, forwarded their Application along with its comments to this Tribunal to be decided on its merits. Thereafter, it is registered in this Tribunal as Company Petition No. 32/441/NCLT/AHM/2018.
  2. The averments made in the present Company Application for compounding the offence alleged are stated hereunder;

3.1 M/s. Pranatpal Tradelink Private Limited, is a company, and its registered office is situated at Block No..304, 3639, G.S.C.B., Gota, Ta. Daskroi, Ahmedabad-382 481. Mr. Sandeep Vinodchandra Dave, i.e. the Applicant No.1, Director of the above said Company, and he resigned from office of director on February 1, 2016. It is further stated that Mr. Hitesh Chinubhai Shah i.e. the Applicant No.2, is the Director of the aforesaid company from June 7, 2010.

3.2 It is stated that both the applicants received Show Cause Notices dated 10th November 2017, from the Dy. Registrar of Companies, Gujarat, Dadra & Nagar Haveli, against alleged contravention of the provision of Section 217(1) of the Companies Act, 1956, the show cause notice contains as such—

‘WHEREAS M/s. Pranatpal Tradelink Private Limited is a company registered under the provisions of the Companies Act, 1956 (hereinafter referred to as the “Act”) in the state of Gujarat and having its registered office situated at Block No..304, 3639, G.S.C.B, Gota, Tal Dakroi, Ahmedabad-382 481.

AND

WHEREAS, during the course of technical scrutiny of Balance Sheet as at 31.03.2011 under section 206(1) of the Companies Act, 2013, it was observed that inter alia pointed out by this office vide Point No. 4 of this office letter dated 16.01.2017 that the provisions of Section 217(1) of the Companies Act, 1956 has been contravened as under:—

“It is noticed from the Balance Sheet of the company as at 31.03.2011 that the Boards Report is not attached with the Balance Sheet as at 31.03.2011 as required under section 217(1) of the Companies Act, 1956. Therefore, the company and every officers of the company, have violated the provisions of section 217(1) of the Companies Act, 1956.

AND

WHEREAS, in view of the above observation, the provision of Section 217(1) of the Companies Act, 1956 has been contravened and every officer of the company, in default, have rendered themselves liable to be prosecuted under Section 218 of the Companies Act, 1956.

NOW IN VIEW OF what is stated herein above, you are hereby called upon to show cause as to why legal action under Section 218 of the Companies Act, 1956 should not be initiated against the company and every officers of the company, in default.

PLEASE NOTE that if no satisfactory reply is received within 10 days from the date of this notice, it will be presumed that you have nothing to say in the matter and there after this office shall have no other alternative but to take legal action as aforesated.

The company and every officers of the company, in default are however at liberty to approach the compounding authority for compounding of the offences so committed, if they so desire, by filing appropriate compounding application in accordance with the provisions of the Companies Act, 2013″‘.

3.3 It is explained and submitted by the applicants that the Board of Directors of the company had prepared a Director’s Report for the Financial Year 2010-11 as per the provisions of Section 217(1) of the Companies Act, 1956, the same was approved by the Board of Directors of the company in their Board Meeting dated 10th August 2011, and further circulated to the shareholders of the company in its Annual General Meeting held on 3rd September, 2011. It is further submitted that as per Section 217(1) of the Companies Act, 1956, “The Board’s Report was to be attached to every balance sheet laid before a company in general meeting. However, the inspecting Officer pointed out that at the time of scrutiny of balance sheet for the financial year 2010-11 and the board’s report of the company was not attached with the Balance Sheet as at 31.03.2011 which is mandatory under Section 217(1) of the Companies Act, 1956.

3.4 The applicants further submitted that while submitting Form No.23AC and ACA on MCA portal for the financial year 2010-11, by mistake another file was attached to the form, thus, the board report was lapsed to be filed. They further submitted that such violation of not attaching company’s board report with the Balance Sheet for the financial year 2010-2011 was unintentional and with no mala fide intention of the directors.

3.5 The applicants further referred to the penal provision under Section 217(5) of the Companies Act, 1956, which reads as under:

“If any person, being a director of a company, fails to take all reasonable steps to comply with the provisions of sub-sections (1) to (3), or being the chairman, signs the Board’s report otherwise than in conformity with the provisions of sub-section (4), he shall, in respect of each offence, be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to twenty thousand rupees, or with both”.

3.6 It is further pointed out that Section 441 of the Companies Act, 2013 governs compounding of offence and provides that:

(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (s of 1974), any offence punishable under this Act (whether committed by a company or any officer thereof) with fine only, may, with before or after the institution of any prosecution, be compounded by—

(a) The Tribunal; or
(b) Where the maximum amount of fine which may be imposed for such offence does not exceed five lakh rupees, by the Regional Director or any officer authorized by the Central Government.

On payment or credit, by the company or, as the case may be, the officer, to the Central Government of such sum as that Tribunal or the Regional Director or any officer authorized by the Central Government, as the case may be, may specify.

  1. For the aforesaid reasons, applicants have prayed for compounding the alleged offence/statutory violation with following prayers:
(a) that every officer of the company who is in default mentioned herein as Applicant 1 and Applicant 2 may be discharged as if no offence has been committed or allow composition of offence by imposing minimum possible compounding fees under the provisions of the Companies Act, 1956 as indicated in the show cause notice.
  1. In the present matter, the Registrar of Companies, Gujarat, Dadra and Nagar Haveli, has submitted a report dated 27th February, 2018, by making some observations and comments, which are reproduced hereinbelow:

comments

It is submitted that during the course of technical scrutiny of the balance sheet of the company as at 31.03.2011, it was observed that the Boards Report is not attached with the Balance Sheet as at 31.03.2011 as required under section 217(1) of the Companies Act, 1956. Therefore, the officers of the company, in default have violated the provisions of section 271(1) of the Companies Act, 1956.

The applicants in para no. 4.7 of the Compounding application submitted that the violation of not attaching board report of the company with the balance sheet of the company for the financial year 2010-11 was totally erroneously and there was no such wrongful intention to the directors.

The applicants have admitted the default and filed this compounding application for compounding of offence committed under section 217(1) of the Companies Act, 1956, which may be considered by this Tribunal on merits.

Fine provided in section

As per Section 217(5) of the Companies Act, 1956, if any person, being a director of a company, fails to take all responsible steps to comply with the provisions of sub-sections (1) to (3), or being the chairman, signs the Board’s report otherwise than in conformity with the provisions of sub-section (4), he shall, in respect of each offence, be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to twenty thousand rupees, or with both.

  1. By looking to the period of default of the alleged violation of Section 217(1) of the Companies Act, 1956, this Tribunal is required to follow the relevant procedure for compounding of offences under Section 621A of the Companies Act, 1956, which speaks that this Tribunal has been empowered to compound the offence punishable with imprisonment or with fine or with both. Therefore, this Tribunal took into consideration the period of default, as the alleged violation pertains to the Financial Year of 2010-2011 which is against the provisions of Section 217(1) of the Companies Act, 1956. The Central Government through Ministry of Corporate Affairs, vide its Notification No. SO 1936-E, dated 1st June 2016, has declared that matters transferred from the Company Law Board to National Company Law Tribunal shall be disposed of by this Tribunal in accordance with the provisions of the Companies Act, 2013 or the Companies Act, 1956.
  2. The provisions of Section 441 of the Companies Act, 2013, also confers necessary power to this Tribunal, for compounding of certain offences. The section 441 of the Companies Act, 2013 came into force w.e.f 01.06.2016, while the alleged breach of the statutory provisions of Section 217(1) of the Companies Act, 1956 was detected by Registrar of Companies, Gujarat, Dadra and Nagar Haveli, during the course of making scrutiny of company’s Balance Sheet of 31.03.2011, such violation/offences are made punishable under Section 217(5) of the Companies Act, 1956, but also made as compoundable under Section 621A of the Companies Act, 1956. Hence, the issue involved in the present application needs to be dealt with above stated provisions specifically Sections 217(5) and 621A of the Companies Act, 1956.
  3. We have heard the submission of Ld. PCS of the applicants and have gone through the contents of present compounding application.
  4. By perusal of the material available on record, the alleged contravention seems to be technical in nature and due to some procedural lapses on the part of its directors for not enclosing board’s report along with the company’s balance sheet as on 31.03.2011. However, the applicants have now attached the Board’s Report for the Financial Year 2010-2011 along with this compounding application. Thus, they have made good of alleged lapses. The applicants have further explained that non-attaching of Board’s Report of the Company with the Balance Sheet was erroneous, but without having any wrongful intention to its Directors. Thus, it may be seen that the applicants have admitted their default, but has sought compounding of offence.
  5. We carefully examined the aforesaid peculiar facts and circumstances of the present case and we are of the view that the present application deserves to be allowed as the alleged offence is made compoundable and can be compounded well by this Court, because it is made punishable with imprisonment up to six months or with fine alone or with both.
  6. For the aforesaid reasons, the present Company Petition No.32 of 2018 is conditionally allowed by permitting the Petitioners 1 and 2 to compound the offence for alleged violation of Section 217(1) of the Companies Act, 1956, subject to depositing compounding fees by each of the applicants with the Registrar of Companies.
Sl. No. Name of Applicant Amount
1 Sandeep Vinodchandra Dave Rs.20,000/-
2 Hitesh Chinubhai Shah Rs.20,000/-

The above stated amount shall be paid within four weeks from the date of receipt of an authentic copy of this order. This can be paid by way of Demand Draft in favour of Central Government, Ministry of Corporate Affairs or any other Mode, as directed by the Office of the Registrar of Companies, Ahmedabad, Gujarat.

  1. In case the Petitioners fail to pay the above ordered amount within the stipulated period or further extended period, then the Registrar of Companies, Gujarat, Dadra and Nagar Haveli, shall proceed to take appropriate action, including prosecution against Petitioners, as per applicable law under intimation to this Tribunal.
  2. With the aforesaid observation and direction, the present Company Petition is conditionally allowed and stands disposed of.
  3. The Registry is directed to communicate a copy of this order to the Petitioners for necessary compliance, and also to the Registrar of Companies, Gujarat, Dadra and Nagar Haveli, for ensuring such compliance.

 

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