TaxTMI 
TaxTMI 
2015 (9) TMI 1742
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....nd the proceedings emanating therefrom. 2. As common legal issues are involved thus, the same are being decided together by a single order. 3. The petitioners are having their respective position as above said in the Company named Religare Finvest Limited (hereinafter referred to as the 'Company'). The Company being a non banking financial company focusing on financing small and medium enterprise (SME). It provides SME mortgage loans, SME working capital loans, and retail capital markets financing. The company is a subsidiary of Religare Enterprises Limited. 4. The brief relevant facts of the case are that on 1st June, 2010 the statutory auditors Price Waterhouse (PWC) issued its Audited report of the balance sheet of the Company, the related Profit and Loss Account and Cash Flow Statement as on 31st March, 2010. On 30th May, 2011 PWC issued auditors' report of the balance sheet of the Company, related Profit and Loss Account and Cash Flow Statement as on 31st March, 2011. On 22nd May, 2012, PWC issued auditors' report of the balance sheet of the Company, related Profit and Loss Account and Cash Flow Statement as on 31st March, 2012. The respondent No.2 by its l....
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.... computer software in the Company's books of accounts for the year 31st March, 2010, 31st March, 2011, 31st March, 2012; and - (ii) non-disclosure of each class of intangible assets, distinguishing between internally generated intangible assets and other intangible assets. 7. Without granting any hearing or any further discussions, the complaint was filed. In the complaint, the clarification/plea raised by the company was not specifically averred except the copy of the reply was filed as annexed. In the complaint it was stated that the petitioners had failed to comply with the statutory requirements of Sections 211(3A), (3B) and (3C) of the Act read with AS-16 and AS-26 and hence liable for prosecution under Section 211(7) of the Act. It is the case of the respondents, the Ministry of Corporate Affairs, respondent No. 2 vide letter dated 16th January, 2013 directed that the Inspection of the books of account and other records of the company under Section 209A of the Act be conducted. The inspection of the books of accounts of the said company was carried out by Assistant Director (Inspection) in April, 2013. The Inspecting Officer submitted the Inspection report on 24th June....
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....mited ("RFL" or "Company") respectfully submits as under : At the outset, we wish to state and submit for your kind consideration that the contents of the same are wholly misconceived, incorrect and are denied, the reasons for which are sought to be elucidated hereunder : This reply is in three parts; Part A deals with the background in light of which the reply is being filed; Part B deals with the issues raised in these Show Cause Notices and other responses thereto; Part C deals with our submissions and preliminary objections. The responses in Part B are subject to the submissions made in Part C. A. Background 1. The books of accounts and records of the Company were inspected under Section 209A of the Companies Act, 1956("Act") by an officer of the Office of the Regional Director (NR), Ministry of Corporate Affairs ("Inspecting Officer"). The Inspecting Officer observed that the Company has violated certain requirements of Sections 211(3A), 211 (3B) and 211 (3C) read with AS-16 and AS-26 issued by the Institute of Chartered Accountants of India (ICAI) for the Financial Years 2009-10, 2010-11 and 2011-12; 2. The Company had furnished a ....
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.... their intended use or sale when acquired also are not qualifying assets. 4. Para 6 of AS 16 further states that - Borrowing Costs that are directly attributable to the acquisition, construction or production of a qualifying asset should be capitalized as part of the cost of that asset. The amount of borrowing costs eligible for capitalization should be determined in accordance with this Statement. Other borrowing costs should be recognized as an expense in the period in which they are incurred. 5. Para 7 of AS 16 states that - Borrowing costs are capitalized as part of the cost of a qualifying asset when it is probable that they will result in future economic benefits to the enterprise and the costs can be measured reliably. Other borrowing costs are recognized as an expense in the period in which they are incurred. 6. Para 23 of AS 16 states that the financial statements should disclose : (a) the accounting policy adopted for borrowing costs; and (b) the amount of borrowing costs capitalized during the period. 7. Accordingly, the Company has made the following disclosures in Schedule S [Point 2 (o)] Notes to the Financial Stat....
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....at the financial statements should also disclose the following for each class of intangible assets, distinguishing between internally generated intangible assets and other intangible assets: a) the useful lives or the amortization rates used; b) the amortization methods used; c) the gross carrying amount and the accumulated amortization d) a reconciliation of the carrying amount at the beginning and end of the period showing : i) Additions, indicating separately these from internal development and through amalgamation; ii) Retirements and disposals; iii) Impairment losses recognized in the statement of profit and loss during the period (if any); iv) Impairment losses reversed in the statement of profit and loss during the period (if any)'; v) Amortization recognized during the period; vi) Other changes in the carrying amount during the period. It is observed from the Balance Sheet as at 31/03/2010, 31/03/2011 and 31/03/2012 that the company has not disclosed the above classes of intangible assets, distinguishing between internally generated intangible assets and other intangible asset....
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....ar - Depreciation for the year - Accumulated depreciation as at the beginning and at the end of the year - Net block as at the beginning and at the end of the year It is further submitted that the Company does not have any self/internally generated intangible assets. In view of the above, the Company has not violated the provision of Section 211(3A) of the Act read with Accounting Standard 26 as issued by the ICAI. We have also been given to understand that the process followed at RFL is similar to all other participants in NBFC and Banking Industry. In this connection, we would like to meet you so that we are able to personally explain our position and understand your perspective on this issue. C. Our Humble Submissions: 1. From the reply filed by the Company as above it is clear that the Company has complied with the provisions of Sections 211(3A), 211(3B) and 211(3C) of the Act read with AS-26 issued by the ICAI; 2. The Financial Statements of the Company for the years 2009-10, 2010-11 and 2011-12 have been audited by the Statutory Auditors, Price Waterhouse, which is a reputable firm of auditors, a....
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....s under Section 211 of the Companies Act and, (b) What ought to have been stated in the Balance Sheet and Financial Statement in relation to Accounting Standards AS-16 and AS-26. iv. The notice under reply is vague and based on mere conjectures and surmises. There is nothing on record to show what was it that the company had to do with regard to every particular transaction and that it failed to do so. There is a complete omission of the particulars of which would be in any alleged violation of the Companies Act, 1956 and how that violation had any nexus with the specific provision. v. The show cause notice reflects utter lack of any application of mind in verifying any particular act of breach by the Company. Mere mechanical issuance of a show cause notice which is based on a vague Inspection Report is clearly an unlawful exercise of jurisdiction and violative of the principles of natural justice. In light of these circumstances, and in the absence of such details, it is submitted that the notice is vague and hence, must be recalled. 4. Further, it is submitted that the directors and officers of the company have acted honestly and reaso....
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.... there is violation of Section 211(3A), (3B) and (3C) of the Act read with AS- 26 issued by ICAI. 11. The said complaint was filed by the respondent No.1, Registrar of Companies (NCT of Delhi & Haryana) on 18th September, 2014 under Section 211(7) of the Act for alleged contravention of Sections 211(3A), (3B) and (3C) of the Act, read with AS-16 and AS-26 against the petitioners and other persons including the Directors and other employees of the Company. In the said complaint the ACMM took cognizance of the alleged offence under Section 211(7) of the Act and issued summons against the petitioners and others by summoning order dated 18th September, 2014, returnable on 11th November, 2014. 12. The summoning order dated 18th September, 2014 has been reproduced here as under:- "18.09.2014 Fresh complaint filed. It be checked and registered. Present : Complainant Rajneesh Kumar Singh with Company prosecutor. Present complaint has been filed by the complainant, a public servant in discharge of his official duties. Therefore, pre-summoning evidence of the complainant is dispensed with u/s 200 of Cr.P.C. Heard. It is submitted....
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....The first submission of the learned counsel for the respondents is that the power under Section 482 Cr.P.C. should not be used to quash a proceeding where disputed questions of fact are involved since disputed questions of fact can only be decided during trial. Learned counsel has referred the following decisions:- a. In the case of Manjit Jaju v. Registrar of Companies 2010 (159) Comp Cas 112 this Court held as under:- "5. With due regard to the, Single Judge, under Section 482, the Court cannot enter into an inquiry and cannot decided the disputed questions of facts. Disputed questions of fact can only be decided during trial. The power under Section 482 Cr.P.C. is to be exercised very sparingly and only where the trial court has acted in gross illegality. Where the trial court had not even gone into the issue of limitation and the facts are yet to be proved, this Court cannot go into the issue of limitation, since limitation is a mixed question of law and facts, and quash the complaint" b. In the case of Ajay Jain v. Registrar of Companies 2010 (119) DRJ 545 this Court held as under:- "5. .....Whether the directors had resigned or not which is....
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....it, in general meeting with the provisions of the Section as to the matters to be stated in the accounts by the person concerned is undoubtedly an offence punishable under Section 211(7) of the Act and it is punishable with imprisonment for a term which may extend to six months or with fine or with both. A complaint in respect of such an offence has to be filed within one year as per Section 468(2) (b) of the Cr. PC. 19. It is true and it has been rightly held by the Supreme Court in Iridium India Telecom (supra) which merely lays down the general and well settled principle that the complaint has to be examined in its entirety, on the basis of allegations made therein and the truth or falsity of the allegations in the complaint cannot be entered at the stage of Section 482 Cr.P.C. In the present case, as pointed out in the written submissions filed by the petitioners on 19th August, 2015, that in the complaint there is not even a bare allegation that Company had capitalized interest on borrowing, as part of the cost of its assets, or that the Company had self-created softwares, over and above the purchased softwares. In the absence of the bare allegations, even if the complaint ....
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....imilar view was taken by the Supreme Court in the case of Popular Muthiah v. State represented by Inspector of Police, reported in (2006) 7 SCC 296. 23. Thus, it is to be examined as to whether on the face of the complaint any offence is made out or the complaint filed by the respondents is time barred or not, if the answer is yes, then the Court is empowered to interfere with, otherwise no. 24. Normally, while exercising the discretion, the High Court should not interfere, unless it is found from the impugned order passed by the trial Court that it is a perverse order and against the law then the Court is empowered to quash the summoning order as per law laid down by the Supreme Court and High Courts from time to time. The Supreme Court in State of Karnataka v. L. Muniswamy and Others AIR 1977 SC 1489, observed as under:- "In the, exercise of this whole some power, the High Court is entitled to quash a proceeding if it comes to the conclusion that allowing the proceeding to continue would be an abuse of the process of the Court or that the ends of justice require that the proceeding ought to be quashed. The saving of the High Court's inherent powers, both in ....
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....of whether any breach of any Accounting Standards could possibly be alleged to have been committed by Company. Consequently, the said judgment is wholly irrelevant and inapplicable in the present case. Similarly, the judgment of this Court in Ajay Jain (supra) lays down that disputed questions of fact cannot be decided by this Court. For the reasons already explained, this judgment is also irrelevant in the present case. 28. There is a reason behind the said logic about the scope of interference of summoning order while exercising the power vested with the High Court under Section 482 Cr.PC., as it is settled law that summoning of an accused in a criminal cases is a serious matter. Criminal law cannot be set into motion as a matter of course. It is not that the complainant has to bring only two witnesses to support his allegations in the complaint to have the criminal law set into motion. The order of the Magistrate summoning the accused must reflect that he has applied his mind to the facts of the case and the law applicable thereto. He has to examine the nature of allegations made in the complaint and the evidence both oral and documentary in support thereof and would that be ....
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....e along with the depreciation/amortization rate and also the depreciation method used as a part of the notes to accounts; attached to the Balance Sheet disclosing the fact in accordance with the Para 90 of the AS-26. The Company does not have any self/internally generated intangible assets. The particulars provided in relation to the software are same as that of the other companies which use computer software as intangible assets provide in their balance sheets. There is nothing extraordinary about the Company's approach in this regard. Therefore, the respondents have acted in a discriminatory manner against the petitioners. 31. In para 8 of the complaint it is mentioned that the show cause notices dated 17th June, 2014 and 21st August, 2014 were issued by the respondent No.1 to the Company. The complaint does not disclose the fate of such show cause notices. The Company responded to the show cause notices. It is also relevant to mention that the Company vide its letter dated 13th August, 2014 and another letter dated 16th September, 2014 explained in detail as to how and why no offence is made out at all and also requested the respondent No.1 to grant an opportunity for ....
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.... petitioners. Merely, the same was filed as annexures. The impugned order does not reveal or discusses the said aspect. 34. The objections are also raised on behalf of the petitioners that in the summoning order dated 18th September, 2014 the ACMM took cognizance of the offences upon a bare perusal of documents filed by the respondent No.1 which are not admissible in evidence. The documents at Annexure-I, Annexure-II and Annexure-III to the complaint are not the documents which could have been taken cognizance of, since the same are not admissible in evidence (even for conducting pre summoning evidence) under Section 610(3) of the Act and/or Section 399(3) of the Act, 2013, since the said documents have not been certified by the Registrar or anyone so empowered under the Act. 35. The other issue raised by the petitioners is that the complaint is barred by limitation. Under Section 469(1)(b) read with Section 468 Cr.P.C, the complaint had to be filed within one year of the date on which the offence came to the knowledge of the complainant, the Registrar of Companies. Para 3 of the complaint expressly mentions that the complaint is based on the inspection report of the Assistan....
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....he face of the complaint, it is time barred, the summoning orders would not have been passed. The trial court by ignoring the law has passed the impugned order. 39. It is argued on behalf of the respondent No. 1 that as per Section 209 A (6) of the Act, the report of the inspector has to be mandatorily sent to the Central Govt. The Central Government may accept the report of the Inspector and order that the prosecution be filed against the "officer in Default" or may reject the findings of the Inspection report. Thus, it is only when the Central Govt. passes an order or accords its permission to file prosecution, the period of limitation would start. Moreover, the default continued without being rectified i.e. the offence was a continuing one and not barred by limitation. Pertaining to limitation in continuing offences, learned counsel appearing on behalf of the respondents have referred the following decisions:- ii) In Udai Shankar Awasthi vs. State of U.P & Anr. (2013) 2 SCC 435 it has been held as under :- "10. Section 472 Cr.P.C. provides that in case of a continuing offence, a fresh period of limitation begins to run at every moment of the time period duri....
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....after the period of consummation, as, the offence of carrying concealed weapons. In the case of instantaneous crimes, the statute of limitation begins to run with the consummation, while in the case of continuous crimes it only begins with the cessation of the criminal conduct or act." While deciding the case in Gokak Patel Volkart Ltd. (supra), this Court placed reliance upon its earlier judgment in State of Bihar v. Deokaran Nenshi & Anr., AIR 1973 SC 908, wherein the court while dealing with the case of continuance of an offence has held as under: "A continuing offence is one which is susceptible of continuance and is distinguishable from the one which is committed once and for all. It is one of those offences which arises out of a failure to obey or comply with a rule or its requirement and which involves a penalty, the liability for which continues until the rule or its requirement is obeyed or complied with. On every occasion that such disobedience or non-compliance occurs and recurs, there is the offence committed. The distinction between the two kinds of offences is between an act or omission which constitutes an offence once and for all and an act or omission w....
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....en the detainer's possession becomes unlawful. " 40. By referring these cases, learned counsel for the respondents submits that in the case of a continuing offence, the ingredients of the offence continue, i.e. endure even after the period of consummation, whereas in an instantaneous offence, the offence takes place once and for all i.e. when the same actually takes place. 41. His further contention is that the trial court prima facie already gave its opinion that the offence was a continuing one and, therefore, the bar of limitation was not attracted. 42. The issue as to what would be the starting point of the limitation in the cases filed by the Registrar of Companies, the High Court of Karnataka in the matter of Registrar of Companies, Karnataka v. Fairgrowth Agencies Limited Crl. Rev. P. Nos. 710 and 711 to 715 /2000 decided on 12th April, 2006 while relying on the judgment of State of Rajasthan v. Sanjay Kumar, 1998(5) SCC 82 has held as under: "In a case registered on the Complaint lodged by the Registrar of Companies in respect of an offence against the Companies Act, one has to consider the date on which such offence came to his knowledge. In one case,....
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....ndia 2007 (3) CTC 650 "49. There is no provision under the Act contemplating prior sanction for prosecution of the companies under Section 207 of the Act and as such the complainant cannot take shelter under the guise of obtaining sanction for the purpose of computing the period of limitation. ..." 45. Thus, the time period taken by the Regional Director to take the decision to direct the Registrar of Companies to launch prosecution cannot be excluded for the purpose of computing the period of limitation as both the Regional Director, i.e. the Central Government as well as the Registrar of Companies was competent to launch prosecution once they had knowledge of the commission of the offences as on 24th June, 2013, i.e. when the inspection reports were filed with either of them. Since for the offences under Section 211(7), 211(3A), (3B) and (3C) of the Act, no consent/sanction for prosecution from the Central Government is required. Section 470 (3) Cr.P.C cannot be relied upon by the respondents. 46. The relevant part of Section 469(1) Cr. PC relating to the commencement of the period of limitation is as follows: "Commencement of the period of limitation.--(l) The per....
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....der the guise of obtaining sanction for the purpose of computing the period of limitation. ..." 50. For the computation of the period of limitation the respondents have placed reliance on Registrar of Companies, Karnataka v. M/s Fairgrowth Agencies Limited, (supra). The said case can be distinguished from the present case as in the present case, both the Central Government as well as the Registrar of Companies had knowledge of the offence on 24th June, 2013 when the Director (Inspection and Investigation) submitted its report. As per Section 621 of the Act, cognizance of any offence, against the Company can be taken on the complaint in writing of the Registrar, or of a shareholder of the company, or of a person authorized by the Central Government in that behalf, both the Central Government as well as the Registrar of Companies were competent to prosecute the Company as contemplated under Section 621(1) of the Act, but instead they slept over it and the complaint was filed by the Respondents only on 18th September, 2014 which was beyond the prescribed period of limitation. In response to the same the petitioners have placed reliance on Webcity Infosys Ltd. Vs. Registrar of Co....
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....rar may have come to know about the offence on the date when the Inspecting Officer detects the contravention of the Act. In another case he may not be aware of Offence until a report is made by the Inspecting Officer to him". In the present case there can be no doubt whatsoever that he Registrar of Companies, who is the Complainant came to know of the offence on 24th June, 2013, when the inspection report was submitted to him has been filed as Annexure P-1 read with Annexure P-9. 53. The petitioner does not dispute the aforesaid position. The said judgment relies on State of Bihar vs. Deokaran Nenshi, (supra) which has been quoted in paragraph no. 26 "A continuing offence is one which is susceptible of continuance and is distinguishable from the one which is committed once and for all. It is one of those offences which arises out of a failure to obey or comply with a rule or its requirement and which involves a penalty, the liability for which continues until the rule or its requirement is obeyed or complied with. On every occasion that such disobedience or non-compliance, occurs and recurs, there is the offence committed. The distinction between the two kinds of offences is be....