TaxTMI 
TaxTMI 
2020 (3) TMI 921
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....the time of incorporation of the Company, the Applicant, the Promoters and Directors were (a) Shri M.G. Mohan Kumar; (b) Shri B.K. Purushothama Kalachari. (b) That the present Majority Shareholder, namely Mrs. Bhanu Prabha Krishna Hebbar, and CEO of the Applicant had joined this Company and become Majority Shareholder with effect from 28th August, 2012. The Majority Shareholder and CEO's status is Non Resident Indian and was residing in the United States of America. The business of the Applicant Company in terms of the Memorandum of Association was mainly concentrated in India, stationed at Bangalore. (c) That the CEO and Majority Shareholder of the Applicant entered into an arrangement with the erstwhile Founder Promoter Shri M.G. Mohan Kumar by executing a Power of Attorney in his favour for running the day-to-day affairs of the Applicant Company. (d) During the middle of the year 2014-15, the Majority Shareholder was informed by one of the Ex-Senior employee of the Applicant that the affairs of the Applicant are not run as per the provisions of the Companies Act and rules and regulations, and guidelines as issued by the Ministry of Corporate Affair....
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....-16 and 2016-17 to incorporate the changes in the opening balance, subject to ratification by members in a general meeting. (j) That the Financial Statements of the Company and Report of the Board do not comply with the provisions of Section 129, according to which the Financial Statements shall give true and fair value of the state of affairs of the Company to comply with the accounting standards under section 133 of the Companies Act, 2013 and advice was given to repair and revise the Financial Statements for a revised report in respect of the three preceding financial years after obtaining approval of the Hon'ble Tribunal and after following the due process of law. (k) In the Board's Report in the relevant financial years for which such revision is needed, the Applicant has already filed the necessary Form GNL1 at MCA Portal. 3. On 07.02.2018, this Tribunal ordered notices to be issued to the Registrar of Companies, Regional Director, concerned Income Tax Department Officer, the Auditor of the Company and to publish the next date of hearing in "The Financial Express" English Daily Bangalore edition and "Vijaya Karnataka" Kannada Daily Newspaper and t....
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....orate Affairs, South-East Region, Hyderabad represented by Registrar of Companies has filed an Affidavit dated 25.07.2019, inter alia, making the following observations: (i) It is submitted that the Petitioner Company viz., American Road Technology & Solutions Private Limited was incorporated with the Registrar of Companies, Karnataka on 07/05/2012 as a private limited company. The status of the company is 'Active' and it has filed Annual Returns and Financial Statements till 2016-17. Present directors are Bhanu Prabha Krishna Hebbar, and Kiran Srinivas Murthy. No complaint or prosecution is pending against the Company. (ii) It is submitted that the Company has filed the present application under Sec. 131 of the Companies Act, 2013 for revision of Financial Statement and Board Reports for the Financial Years 2012-13, 2013-14 and 2014-15. It is submitted that the application is not made for revision of any of the three immediately preceding financial years but for the earlier years. Hence the same does not fall under the provisions of Section 131 of the Act and that too for revision of financial statements to reflect suspicious transactions and falsificatio....
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....ancial Statements for the years 2012-13, 2013-14 and 2014-15 without actually specifying or limiting itself to any particular entry or disclosure. Hence the petition filed is not maintainable. Further, it appears that the revision of financial statements based on alleged fraud will not fall within the ambit of Section 134 of the Companies Act, 2013. 7. Respondent No. 4, has filed statement of objections dated 23.04.2019, inter alia, making the following averments: (1) The Respondent No. 4 is the erstwhile Director of the Applicant Company and has been impleaded as Respondent No. 4 in the instant proceeding vide an order of this Hon'ble Tribunal dated 11.05.2018. (2) A bare perusal of section 131(b) of the Act shows that after copies of financial statement or report have been sent out to members or delivered to the Registrar or laid before the company in its general meeting, the revisions must be confined to (a) the correction in respect of which the previous financial statement or report do not comply with provisions of section 129 or section 134, and (b) the making of any necessary consequential alternation. However, the Applicant herein has sought blanket....
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....e Act. (4) Without prejudice to the contentions taken hereunder, it is also submitted that even under Section 465(e) of the Act, the Application will not survive since the provision clearly suggests that a procedure not in existence prior to its enactment will not be revised or restored. Therefore, it is reiterated that since section 131 of the Act did not exist prior to 2013, and further was not notified till June 1, 2016 as a result of which it shall not be applicable for the Financial Years before 2013-14, in any event. Even otherwise, the Applicant has failed to seek any condonation of delay in filing the Application. Therefore, this proceeding cannot be saved and or delay cannot be condoned presently. It is also submitted that this Application is an afterthought to protract the insolvency proceedings initiated against the Applicant by the Respondent No.4 viz. C.P. (IB) No.99/BB/2018, C.P. (IB) No. 116/BB/2018, and C.P. (IB) No.117/BB/2018 which are presently pending before this Hon'ble Tribunal. It is clear from such acts of the Applicant that the Application is in serious abuse of law and filed with malicious intent and that the Applicant has not approached this ....
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...., making the following submissions: (1) The present majority shareholder and CEO of the Company is a Non Resident Indian and was residing in the United States of America whereas the business of the Company was mainly concentrated in India. The majority shareholder and CEO of the Company entered into an arrangement with erstwhile Founder Promoter Shri MG Mohan Kumar by executing Power of Attorney in his favour to run the day-to-day affairs of the Company. The majority shareholder was assigned the duties of providing technological support and infrastructure for fulfilment of objectives of the Company. (2) During the middle of 2015, the majority shareholder and CEO of the Company came to know of financial irregularities taken place during the years 2012-13, 2013-14 and 2014-15 and appointed an Independent Chartered Accountant, M/s V. Raghavan & Co. for an independent audit on June 08, 2015 and the report of the independent audit of the affairs of the Company was submitted to the majority shareholder on 19th October 2015. The Statutory Auditors of the Company for the Financial Year 2014-15 also noted several financial irregularities by the key managerial persons and o....
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.... (6) The erstwhile Director, Shri Mohan Kumar joined by two others has filed IBC petitions as Financial Creditor before this Bench under section 7 and another Petition under section 9 of the IBC, in addition to another petition under section 9 of IBC filed by GV Sudhindra, all of which are pending. (7) The said erstwhile Director, Shri Mohan Kumar has availed loans from Banks and third parties under the pretext of Working Capital for the Company but misappropriated and swindled the money misusing his fiduciary powers. The present Board has filed criminal complaints against him before Police authorities who have registered, charge-sheeted, and filed cases before the IV Additional Chief Metropolitan Magistrate, Bengaluru vide C.C. No.30462/2018, 30471/2018 and 30474/2018 which are currently pending. In this connection, the High Court of Karnataka has rejected the anticipatory bail application of Shri Mohan Kumar and other while observing "there is prima facie case to show that there is misappropriation of amount by the applicants. The documents, receipts, vouchers, bills were not properly maintained. Even for the loan there is no security taken." (8) Shri Mohan Kuma....
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....hat the present management of the company has come across several cash drawn transactions without supporting documents for the period from 06.01.2014 to 12.03.2015. (14) The statutory auditors of the said period have not qualified their report in regard to the cash drawn transactions in the financial statement pertaining to balance sheet as at 31.03.2014. The statutory auditors for the following financial years 2014-15 i.e. M/s. Bhat & Associates have qualified their report the details of which is dealt in para 19 separately. After the appointment of independent auditor by the present management the fraudulent misappropriation of funds has been confirmed hence the objections of the statutory auditors of the said period does not warrant any merits in objecting to the present petitions. The present statutory auditors of the Company vide the letter dated 19.03.2018 informed this Bench that the investigation pursued by the management resulted in quantifiable errors in the books of account from 2013 onwards and that it will be pertinent to recast the same in order to ensure compliance of sections 129 and 134 of the Companies Act, 2013. (15) It is submitted that only up....
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....ons raised by the Respondent number 4 in his submissions. Firstly, since the Statutory Auditors have themselves mentioned that the Applicant's records need improvement and the controls are not commensurate with the size and nature of business, have acknowledged quantifiable errors in the books of account and suggested recasting of the same, and have mentioned that various acts of omission and commission have been detected by the Company, their being impleaded is not required. Secondly, the contention that section 131 cannot be invoked as the requirements of sections 129 and 134 have not been met, is also not acceptable. As will be seen later, the errors and misreporting in the accounts are far too many, and very specific, because of which there is no possibility that the already completed financial statements can give a true and fair picture of the state of affairs of the company, as required by section 129. Also section 131 refers to compliance with section 129 OR section 134, not 129 and 134, as mentioned by Respondent No. 4. Hence, if the accounts do not give a true and fair picture as mentioned in section 129, even if the procedure for adopting the accounts is followed, as ....
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....d vouchers. (b) An amount of Rs. 26.08 lakhs has been accounted under prior period gains and Rs. 20.34 lakhs as cash paid to Mr. M.G. Mohan Kumar is not supported by any documentary evidences. (c) The internal controls system is not commensurate with the size of the company and nature of its business with regard to execution of contracts and raising invoices. (d) The company does not have any internal audit system in place for the year under review. (e) The outstanding borrowing from third party as on 31st March 2017 was Rs. 147 lakhs. The said borrowing was from the entity in which no director or member of the company are interested. (f) An amount of Rs. 57.25 lakhs were repaid in cash to share applicants against the outstanding share application money in violation of section 42 of Companies Act, 2013. (g) The shares were allotted to Mr. A V Balasubramanya for Rs. 5.00 lakhs during the year 2013-14. There were neither actual funds received from him nor the allotment was sweat equity. Hence the allotment may be void ab initio. (h) The key managerial personnel and some of the mid and lower level management was involved i....
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.... not maintained during 12.05.2012 to 31.12.2014. Purchase of the raw materials and consumables are not supported by delivery challans. (t) Vouchers are missing for the period 2012-13 and cash payment vouchers are also missing for the period 01.04.2013 to 23.11.2013. (u) There are no agreements for the unsecured loans availed from individuals, HUF and Companies. Some names of the lenders as per bank statements are not matching. (v) As per Notes to Account of the Audited financial statements of FY 2013-14, revenues are recognised on time proportion basis but there are no workings maintained or provided to verify the same. 14. The above narrated sample of accounting deficiencies are culled out from the Reports and observations of qualified and expert Accounting /Auditing Firms, and cannot be factually questioned in the present proceedings. On an overview of the same we are in agreement that a case is clearly made out for revising the financial statements and Board's reports. Even if we disregard the opinion with regard to any misappropriation, fraud etc., these facts are clearly such as would distort the Final Accounts and not give a true and fair pic....
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....val to prepare revised financial statement or a revised report. This date 22.01.2018 falls within the FY 2017-18. Section 131, even going by the contention of the Respondent number 4, namely that the words "in respect of any of the three preceding financial years" should mean "immediately" preceding three financial years, then such preceding three financial years would be 2016-17, 2015-16 and 2014-15. Thus FY 2014-15, which is one of the years in which the incorrect financial reporting has been detected and in respect of which approval for revision has been sought, is squarely covered by section 131. 19. Further, when a Balance Sheet is drawn for a particular year, it brings forward balances as on 31st March of the preceding year, and carries forward the balances as on 31st March of that FY into the 1st of April of the succeeding FY. Hence, when FY 2014-15 is covered for our purpose in the instant case, as mentioned above, it implies that any incorrect reporting of loans, income, expenditure, allotment of shares or increase/reduction in assets such as Cash in Bank or Hand etc. etc., in earlier years, will necessarily impact the Balance Sheet for the YE 31.03.2015, i.e.. for FY 2....
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....gs, new provisions in the Companies Bill including Section 131 for re-opening of accounts by companies after obtaining approval of this Tribunal. The relevant portion of the said Report of the Standing Committee is extracted below: "The change proposes to provide procedural requirement in respect of revision in accounts in certain cases. The present law is silent in respect of re-opening or re-casting of accounts. In certain cases, particularly, in cases relating to fraud, there may be need to re-open/recast accounts to reflect true and fair accounts. In case of Satyam, such recasting was ordered by the Court. The provisions in the Bill mandate such re-opening on the order of Court or Tribunal. In other cases the re-opening is being permitted, through order of Tribunal, with adequate safeguards." (emphasis supplied) 22. Further, we see that Chapter IX which deals with Accounts of Companies, in which section 131 falls, seeks to prevent preparation of accounts fraudulently, mismanagement of the affairs of the company or to ensure that a true and fair picture is reflected in the accounts. Similarly, several provisions in the Act are inserted mainly to prevent frau....