2023 (2) TMI 1269 - HC - Companies Law

Company officers relieved from liability under Section 463 for CSR policy violations despite technical defaults

Arathi Krishna and Ors. Versus The Registrar of Companies

The HC allowed company petitions filed under Section 463 of the Companies Act, 2013, relieving petitioners from liability for alleged violations of ... Violation under Sections 129, 134, 135 and 186 of the Companies Act, 2013 r/w Companies (Corporate Social Responsibility Policy) Rules, 2014 - respondent would contend that subsequent to the filing of the complaints before the Economic Offences Court, the present Company Petitions came to be filed and hence, the same are not maintainable under Section 463 (1) and (2) of the Act - HELD THAT:- This Court is of the considered view that the petitioners have acted honestly and reasonably and therefore, they are not liable for any contravention of any provision of law as alleged in the respective show cause notices. Therefore, in such circumstances, this Court feels it appropriate to relieve all the petitioners from the liabilities in terms of all the above 10 show cause notices issued by the respondent. In the present case, Company applications were filed on 30.09.2019, whereas the criminal complaints were filed on 05.04.2019, but the summons were issued only on 21.01.2020. Therefore, summons were served only after filing of the Company Petitions. However, the complaints were registered in EOCC Nos. 51 to 59 of 2019 pending on the file of the Economic Offences Court, Egmore - since the petitioners have taken all due care and caution in complying with the provisions of the Act and even if there may be minor lapses and unintentional acts on the part of the petitioners, those are required to be condoned. Therefore, since the petitioners have been managing the affairs of the company in the best possible manner, they have to be fairly excused. In fact, for such minor lapses, unintentional acts and defaults of technical nature, it is not just and proper to prosecute the company's highest ranking officers as it would be detrimental to the amelioration of the company. Petition allowed. Issues Involved:1. Maintainability of the petitions under Section 463(1) and (2) of the Companies Act, 2013.2. Alleged violations under Sections 129, 134, 135, and 186 of the Companies Act, 2013.3. Issuance of multiple show cause notices for various alleged non-compliances.Detailed Analysis:1. Maintainability of the Petitions:The respondent contended that the petitions were not maintainable under Section 463 (1) and (2) of the Companies Act, 2013, as the criminal complaints had already been filed before the Economic Offences Court. The petitioners argued that the High Court retains jurisdiction to grant relief even after the initiation of criminal proceedings. The court referred to the judgments in 'Visram Financial Services (P) Ltd. Versus V. Rajendran and another' (2013) and (2018), concluding that the High Court has additional power under Section 463(2) to relieve liabilities even in pending criminal proceedings. Thus, the preliminary objection was rejected, affirming the High Court's jurisdiction.2. Alleged Violations and Show Cause Notices:Show Cause Notice (i):The petitioners were accused of not carrying forward the unspent CSR amount from the previous year. The court found that there was no mandatory requirement to carry forward the unspent amount, and the petitioners had provided valid reasons for not spending 2% of the average net profits. The court concluded that the show cause notice was issued without considering the Department's clarification and held that the petitioners acted honestly and reasonably.Show Cause Notice (ii):The petitioners were alleged to have violated Section 134(3)(g) by not disclosing particulars of loans, guarantees, or investments in the Directors' Report. The court observed that all relevant details were provided in the notes to the financial statements, and no material was concealed. The court held that the petitioners acted honestly and reasonably.Show Cause Notice (iii):The petitioners were accused of not reporting the performance and financial position of subsidiaries, associates, and joint ventures in the Directors' Report. The court found that the petitioners had disclosed all necessary details in Form AOC-1 attached to the Annual Reports. The court concluded that the petitioners complied with the requirements and granted relief.Show Cause Notice (iv):The petitioners were alleged to have violated Section 186(4) by not disclosing the purpose of loans, guarantees, or securities in the financial statements. The court found that the omission was an oversight and that the petitioners had disclosed all other relevant details. The court held that the petitioners acted honestly and reasonably.Show Cause Notice (v):The petitioners were accused of not attaching the AOC-1 statement to the Board Report. The court found that the statement was attached to the Balance Sheet and that the petitioners had disclosed all necessary details. The court concluded that there was no concealment of material facts and granted relief.Show Cause Notice (vi):The petitioners were alleged to have violated Section 129(1) by not classifying short-term borrowings as per the prescribed format. The court found that the petitioners had disclosed all relevant details and had followed the prescribed format in subsequent years. The court held that the petitioners acted honestly and reasonably.Show Cause Notice (vii):The petitioners were accused of not disclosing details of loans and advances to related parties in the prescribed format. The court found that the petitioners had disclosed all relevant details and that any procedural lapse was not intentional. The court granted relief.Show Cause Notice (viii):The petitioners were alleged to have violated Section 129(1) by not disclosing details of short-term loans and advances to related parties in the prescribed format. The court found that the petitioners had disclosed all relevant details and that any omission was inadvertent. The court granted relief.Show Cause Notice (ix):The petitioners were accused of not disclosing the nature of other income in the Profit and Loss Account. The court found that the petitioners had disclosed all relevant details and that the omission was inadvertent. The court held that the petitioners acted honestly and reasonably.Show Cause Notice (x):The petitioners were alleged to have violated Section 203(1) by appointing the same person as both Chief Financial Officer and Company Secretary. The court found that the petitioners had appointed separate individuals for these positions after the transition period and that the initial appointment was based on a misinterpretation of the Act. The court held that the petitioners acted honestly and reasonably.Conclusion:The court concluded that the petitioners acted honestly and reasonably in all instances and were not liable for any contravention of the law as alleged in the show cause notices. The court relieved the petitioners from all liabilities and directed the closure of the criminal complaints pending against them.