2020 (4) TMI 419 - Tri - Companies Law

Invalid Incorporation Due to Fraud; Liability Imposed on Respondent; Petitioner Can Pursue Remedies

The Tribunal declared the incorporation of the Respondent No. 1 Company invalid due to fraud, holding the second Respondent responsible for all ... Incorporation vitiated by fraud - false or incorrect particulars in incorporation documents - professional certification and statutory duty of certifying professional - liability of promoter for acts of company formed by fraud - jurisdiction of Tribunal to set aside certificate of incorporationIncorporation vitiated by fraud - false or incorrect particulars in incorporation documents - jurisdiction of Tribunal to set aside certificate of incorporation - Incorporation of M/s. Colour Books Associates Private Limited was effected without the petitioner's consent and is vitiated by fraud; the certificate of incorporation is invalid. - HELD THAT: - The Tribunal examined the incorporation records and the admissions in the pleadings. The process was initiated by Respondent No.2 who engaged the professional (Respondent No.3). The certifying professional's own statements and the incorporation documents show that the professional certified that both subscribers had signed before him while also admitting the petitioner was not physically present before him. Comparison of the signatures on incorporation documents with other known signatures of the petitioner showed obvious discrepancies. The Registrar of Companies' role is ministerial and it does not have the technical means to verify the veracity of declarations; the statutory scheme places reliance on the professional certification. Where documents filed for registration contain false particulars or omit material information, Section 7(5) and related provisions empower the Tribunal to act. On the materials and admissions, the Tribunal found the incorporation to have been procured by submission of false/forged particulars and therefore the certificate of incorporation cannot stand. [Paras 10, 12, 13, 14, 15]Certificate of Incorporation dated 14th May, 2018 is declared invalid and the incorporation of the company is set aside.Professional certification and statutory duty of certifying professional - false or incorrect particulars in incorporation documents - liability of promoter for acts of company formed by fraud - The certifying professional failed in statutory duties by certifying incorporation formalities despite the petitioner's non-presence and gave a false declaration; the promoter (Respondent No.2) is responsible for transactions undertaken on behalf of the company. - HELD THAT: - The professional (Respondent No.3) had to verify by physical inspection and certify compliance in the mandated declaration. His declaration (Form INC-32/INC-9 material) asserted verification and that documents were true and signed by required persons. However, he admitted that the petitioner had not signed before him and relied on the second respondent's assurance. That conduct breaches the professional's statutory duty to verify and renders his certification false. The Tribunal concluded that the professional failed to fulfil statutory obligations and that the promoter who procured incorporation by fraud is liable for consequences of transactions undertaken in the company's name. Notwithstanding findings of criminal culpability, the Tribunal declined to direct criminal prosecution through this order and granted liberty to the petitioner to pursue other remedies. [Paras 8, 11, 12, 14, 15]Respondent No.3's certification was erroneous and the incorporation effected through such certification is vitiated; Respondent No.2 is held responsible for liabilities of the company arising from transactions he caused, while criminal action was not directed by the Tribunal in this order and the petitioner is left free to pursue other remedies.Final Conclusion: The Company Petition is allowed in part: the incorporation of M/s. Colour Books Associates Private Limited is declared void for fraud and its certificate of incorporation is invalidated; Respondent No.2 is directed to discharge liabilities arising from transactions he caused and the petitioner is granted liberty to pursue other available remedies; no order as to costs. Issues Involved:1. Validity of incorporation of the Respondent No. 1 Company.2. Allegations of fraud and forgery in the incorporation process.3. Jurisdiction of the Tribunal to address allegations of fraud and forgery.4. Responsibility for liabilities incurred by the Respondent No. 1 Company.5. Other reliefs sought by the Petitioner.Issue-wise Detailed Analysis:1. Validity of Incorporation of the Respondent No. 1 Company:The main issue was whether the incorporation of the Respondent No. 1 Company was done in accordance with extant provisions of law with due consent of the Petitioner. The Tribunal found that the incorporation process did not comply with the legal requirements. The Respondent No. 3, a Chartered Accountant, admitted that he did not witness the Petitioner signing the requisite documents and relied on the second Respondent's assertions. The Tribunal concluded that the incorporation of the company was ab initio void due to the false declaration made by the third Respondent.2. Allegations of Fraud and Forgery in the Incorporation Process:The Petitioner alleged that the second Respondent forged her signatures and used her personal documents without her consent to incorporate the company. The Tribunal found that the signatures on the incorporation documents did not match the Petitioner's genuine signatures. Additionally, the Petitioner had filed criminal cases for forgery, supporting her claims of fraud. The Tribunal determined that the incorporation was vitiated by fraud perpetrated by the second Respondent in connivance with the third Respondent.3. Jurisdiction of the Tribunal to Address Allegations of Fraud and Forgery:The Tribunal affirmed its jurisdiction to address allegations of fraud and forgery under Section 7 of the Companies Act, 2013. The Act empowers the Tribunal to take appropriate action if the incorporation of a company is based on false declarations. The Tribunal held that it had the authority to declare the incorporation invalid due to the fraudulent actions of the Respondents.4. Responsibility for Liabilities Incurred by the Respondent No. 1 Company:The Tribunal directed the second Respondent to discharge all liabilities incurred on behalf of the company. Since the second Respondent was responsible for the fraudulent incorporation, he was held solely accountable for any transactions made in the course of the company's business.5. Other Reliefs Sought by the Petitioner:The Tribunal rejected the Petitioner's other reliefs but granted her the liberty to pursue remedies available under the Companies Act, 2013, and the Rules made thereunder for her other grievances. The Tribunal did not recommend criminal action against the second and third Respondents due to the ongoing matrimonial disputes between the Petitioner and the second Respondent.Conclusion:The Tribunal declared the incorporation of the Respondent No. 1 Company invalid due to fraud and directed the second Respondent to discharge all liabilities of the company. The Petitioner's other reliefs were rejected, but she was granted the liberty to seek other legal remedies. No costs were ordered.