2017 (7) TMI 222 - Tri - Companies Law

Case transferred from CLB, Chennai to NCLT, Hyderabad due to jurisdiction. Violation of Companies Act, compounding application dismissed.

In Re : Mr. Jella Jagan Mohan Reddy, & Others

The case was transferred from CLB, Chennai Bench to NCLT, Hyderabad Bench due to jurisdictional reasons. The Applicant Company violated Section 211(1) of ... Compounding the offence under Section 211(1) of the Companies Act, 1956 - 'True & Fair view” is not depicted in the Balance Sheet - Held that:- Upon scrutiny of the Balance Sheets for both the financial years, there is no mention about the reduction of share capital from approx. ₹ 106.41 Crores to approx. ₹ 84.41 Crores (approx.. ₹ 22.00 crores is the capital reduction). Balance sheet of a Company is an important / basic Financial Statement used by stakeholders for various purposes. Generally, Audited Balance Sheet will depict correct /factual amount under various heads and especially there cannot be any factual error with reference to Authorised, Issued and Subscribed Capital of any Company. Therefore, the Balance Sheet as at 31.03.2009 is not in accordance with Section 211(1) of Companies Act 1956 in as much as “True & Fair view” is not depicted in the Balance Sheet, thereby resulting in disclosing false particulars of issued capital. Further, the applicants have also failed to exercise / exhibit due regard and failed to take reasonable steps while preparing the Balance Sheet for the year 2008-09. Therefore, the applicants submission that by inadvertent, default has not caused any prejudice to Members (or) Creditors, not to affect public interest, no harm is caused to public interest etc. does not hold good in the instant facts of the case as discussed supra. Generally the decrease in paid up capital can occur in various ways viz buyback of shares, forfeiture of shares, reduction of share capital etc., However the current balance sheet does not have any of these events / information. Considering the fact that different/contradictory amount is shown in different documents produced before this Bench as discussed above, we are of considered view that the instant case is not fit case for compounding the alleged offence as prayed for and liable to be dismissed. Issues:- Transfer of case to NCLT Hyderabad Bench- Violation of Section 211(1) of the Companies Act, 1956- Application for compounding the offence- Submission of Registrar of Companies, Hyderabad- Power of NCLT to compound offences- Examination of Balance Sheet discrepancies- Decision on compounding the offenceTransfer of Case to NCLT Hyderabad Bench:The case was initially filed before the Company Law Board (CLB), Chennai Bench, but was transferred to the NCLT, Hyderabad Bench, due to jurisdictional reasons related to the states of Andhra Pradesh and Telangana.Violation of Section 211(1) of the Companies Act, 1956:The Applicant Company was found to have violated Section 211(1) of the Companies Act, 1956 by falsely disclosing the Issued Capital in the Balance Sheet for the year 2008-09, leading to inaccurate reporting of financial information.Application for Compounding the Offence:The Applicants filed an application under Section 621A of the Companies Act, 1956 for compounding the offence under Section 211(1), acknowledging the inadvertent error in reporting the Issued Capital and asserting that it did not prejudice the interests of members, creditors, or the public.Submission of Registrar of Companies, Hyderabad:The Registrar of Companies, Hyderabad, raised concerns about the Applicants not clearly explaining how the offence was rectified, emphasizing the need for strict proof of correction.Power of NCLT to Compound Offences:The learned PCS argued that NCLT has the authority to compound offences without involving Criminal or Special Courts, citing relevant case laws to support the contention.Examination of Balance Sheet Discrepancies:Upon scrutiny of the Balance Sheets, discrepancies were found in the reporting of share capital amounts for different financial years, indicating false reporting and a lack of due regard in preparing the financial statements.Decision on Compounding the Offence:The Bench concluded that the case was not suitable for compounding the alleged offence due to contradictory information in the documents presented, leading to a dismissal of the application. The Registrar of Companies/Regional Director was directed to take appropriate action against the Applicants as per the provisions of the Companies Act, 1956.