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2025 (5) TMI 943
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....d analogously. 2. Facts of the case are as under : - 2.1. The Respondent No. 2 herein has filed the aforementioned Complaint under Section 143 of the Companies Act, 2013 ("Companies Act") on the allegation that Petitioner, as auditors, have failed to make certain disclosures pertaining to related party transactions in the financial statements and are therefore in contravention of Section 143 of the Companies Act and thus liable to be prosecuted under Section 147(2) of the Companies Act. It is further submitted that allegations made against Petitioner, if proven, amount to imposition of a civil penalty at best and therefore the entire proceeding is sans jurisdiction. Hence, present petitions. 3. Learned Senior Advocate Mr.Mihir Joshi assisted by learned advocate Ms.Nisha Ojha and learned advocate Ms.Vinisha Jain for the petitioners would submit two fold submissions in seeking quashment of Criminal Complaints. He would submit that M/s. Deloitte Haskins and Sells - partnership firm was appointed as auditors for Mafatlal Industries Limited for the year 2013- 2014, 2014 - 2015 and 2015 - 2016. He would submit that show cause notice was issued on 22.03.2017 by Regional Director ....
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....laints. 4. Learned advocate Mr.Kshitij Amin appearing for other side submitted that violation of Accounting Standard 18 is prima facie visible. Relationship of Mr. Priyavarta Mafatlal is not mentioned in the audit report and it clearly attracts violation of section 129 and 133 of Companies Act, 2013. Complaint was filed and the learned Trial Court has taken cognizance of it and therefore, the complaints should not be quashed at threshold. 4.1. Making above submissions it is submitted to dismiss the petitions. 5. Learned APP would adopt the arguments of learned advocate Mr.Amin for respondent no.2. 6. I have heard learned advocates for both the sides and gone through record of the present case. As per section 206(5) of the Companies Act, Books of Accounts and other records of the Company was to be inspected by officer appointed by Central Government. Record indicates that Inspecting Officer pointed out violation of section 143 of the Companies Act, 2013 as under :- "During the inspection of books of accounts and financial statements of the company, it was observed from the Note No. 31.5 of notes on financial statements for the year ended 31.03.2014, 31.03.2015 and 31.03.....
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....s or have acted in fraudulent manner or abetted or colluded in any fraud by or in relation to or by the company or its directors or officers, the liability, whether civil or criminal as provided in this Act or in any other law for the time being in force, for such act shall be of the partner or partners concerned of the audit firm and of the firm jointly and severally". 11. In order to bring partner or partner of the partnership firm within outline of civil or criminal liability, it has to be proved that they have acted in fraudulent manner or colluded in any fraud. If it is not proved then partner cannot be held for punishment under section 139 to 146 of Companies Act. 12. In the case of Sharad Kumar Sanghi (supra), Hon'ble Apex Court in para 9 to 13 has held as under :- "9. The allegations which find place against the Managing Director in his personal capacity, as we notice, are absolutely vague. When a complainant intends to proceed against the Managing Director or any officer of a company, it is essential to make requisite allegation to constitute the vicarious liability. In Maksud Sajyad vs. State of Gujarat (2008) 5SCC 668, it has been held, thus: ....
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....te an offence against a person, the complaint is liable to be dismissed." After so stating, the Court analysed Section 141 of the Act and after referring to certain other authorities answered a referent and relevant part of the answer reads as follows:- "It is necessary to specifically aver in a complaint under Section 141 that at the time the offence was committed, the person accused was in charge of, and responsible for the conduct of business of the company. This averment is an essential requirement of Section 141 and has to be made in a complaint. Without this averment being made in a complaint, the requirements of Section 141 cannot be said to be satisfied." 10. The same principle has been reiterated in S.K. Alagh v. State of UP3; Maharashtra State Electricity Distribution Company Ltd. v. Datar Switchgear Ltd. (2008) 5 SCC 662 and Employees Stock Option Trust v. India Infoline Ltd. (2013) 4 SCC 505. 11. In the case at hand as the complainant's initial statement would reflect, the allegations are against the company, but the company has not been made arrayed as a party. Therefore, the allegations have to be restricted to the Managing Director. As ....
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....ase. Before the Magistrate issues summons to a Chairman, Managing Director, Director or any other official of the company, the Magistrate has to record his satisfaction of a prima facie case against him/her in his/her own capacity is sine qua non for initiation of criminal proceedings against a Chairman, Managing Director or officer of a company. It is well settled that no official of a company can be dragged into criminal proceedings only in his/her capacity as official of the company, without any specific role attributed to him/her in relation to the offence alleged against the company. 26. In Ravindranatha Bajpe v. Mangalore Special Economic Zone Limited and Others 2021 SCC Online SC 806, this Court held:- "......All of them are arrayed as an accused as Chairman, Managing Director, Deputy General Manager (Civil & Env.), Planner & Executor, Chairman and Executive Director respectively. Therefore, as such, in absence of any specific allegations and the specific role attributed to them, the learned Magistrate was not justified in issuing process against accused nos. 1 to 8 for the offences punishable under Sections 427, 447, 506 and 120B read with Section 34 IPC. ....
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.... they cannot be arrayed as an accused, more particularly they cannot be held vicariously liable for the offences committed by A1 & A6." 27. In Maksud Saiyed v. State of Gujarat (2008) 5 SCC 668, this Court held:- "13. Where a jurisdiction is exercised on a complaint petition filed in terms of Section 156(3) or Section 200 of the Code of Criminal Procedure, the Magistrate is required to apply his mind. The Penal Code does not contain any provision for attaching vicarious liability on the part of the Managing Director or the Directors of the Company when the accused is the Company. The learned Magistrate failed to pose unto himself the correct question viz. as to whether the complaint petition, even if given face value and taken to be correct in its entirety, would lead to the conclusion that the respondents herein were personally liable for any offence. The Bank is a body corporate. Vicarious liability of the Managing Director and Director would arise provided any provision exists in that behalf in the statute. Statutes indisputably must contain provision fixing such vicarious liabilities. Even for the said purpose, it is obligatory on the part of the complainant t....
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.... the other party in making financial and / or operating decisions. 10.2. Related party transaction - a transfer of resources or obligations between related parties, regardless of whether or not a price is charged. 10.3. Control (a) - ownership, directly or indirectly, of more than one half of the voting power of an enterpirse or (b) control of the composition of the board of directors in the case of a company or of the composition of the corresponding governing body in case of any other enterprise or (c) a substantial interest in voting power and the power to direct, by statute or agreement, the financial and /or operating policies of the enterprise. 10.5. An associate - an enterprise in which an investing reporting party has significant influence and which is neither a subsidiary nor a joint venture of that party. 10.9. Relative - in relation to an individual, means the spouse, son, daughter, brother, sister, father and mother who may be expected to influence, or be influenced by that individual in his / her dealings with the reporting enterprise." 16. Coming back to case on hand, it is case of prosecution that description o....