M/S. Sanchar Tele Systems Limited vs Registrar Of Companies, Nct Of Delhi & ...

[Against the order dated 18.08.2017 passed by the National Company Law Tribunal, New Delhi in C.P. No.16/110/2017]

With

Company Appeal (AT) No.412 of 2017

[Against the order dated 18.08.2017 passed by the National Company Law Tribunal, New Delhi in C.P. No.16/94/2017]

IN THE MATTER OF:

1. M/s. Sanchar Tele Systems Limited Having its Registered Office at: Ground Floor, Okhla Industrial Area, Phase - II, New Delhi - 110020

2. Chandra Kant Bhardwaj, S/o Shri Om Prakash Bhardwaj, R/o B-392, Meera Bagh, Outer Ring Road, New Delhi - 110063

3. Sanjay Gupta, S/o Shri Kanchi Lal Bandhu, R/o 7, Rama Park, Kishan Ganj, Delhi - 110007

4. Suresh Chandra Gupta, S/o Late Shri Mutsaddi Lal Aggarwal, R/o D-829, 1st Floor, New Friends Colony, New Delhi - 110025

5. Priyanka Gupta, W/o Late Shri Suresh Chandra Gupta, R/o D-829, 1st Floor, New Friends Colony, New Delhi - 110025 ...Appellants Nos.1 to 5

Versus 2

1. Registrar of Companies, NCT of Delhi & Haryana, 4th Floor, IFCI Tower, 61, Nehru Place, New Delhi - 110019 ...Respondent

(Cause - Title in both the Appeals is same.)

Present: Shri Krishnendu Datta and Shri Rahul Malhotra, Advocates for the Appellants

Ms. Aparna Mudiam, Assistant Registrar of Companies For ROC

JUDGEMENT

A.I.S. Cheema, J. :

Both these appeals relate to same Appellant No.1 Company with regard

to defaults committed, and separate compounding applications filed for the

different defaults which have been disposed. The RoC has filed common

affidavit in reply in both the appeals. Both the appeals have been heard

together and are being taken up for disposal together.

2. Company Appeal (AT) No.411 of 2017

This appeal is against impugned order dated 18.08.2017 passed in CP

16/110/17 by National Company Law Tribunal, New Delhi ('NCLT' in short).

3. The Company Petition was filed by the Appellants under Section 441 of

the Companies Act, 2013 (new Act) for offence punishable under Section 383A

of the Companies Act, 1956 (Old Act - in short) read with Section 203 of the

Companies Act, 2013 (New Act - in short). Appellants prayed to compound

offence of the default in appointment of whole-time Secretary during the

Company Appeal (AT) No.411 & 412 of 2017 3

period from 01.04.2011 to 31.03.2017. The Appellants claimed that earlier

they could not find suitable candidate but that they had now appointed a

whole-time Secretary and sought compounding. The default Section attracted

here is Section 203 of the New Act corresponding to old Section 383A(1A) of

the Old Act. The default spanned the period when old Act was in force and

continued even after the new Act came into force.

4. The NCLT considered the provisions and observed:

"In terms thereof, the RoC has recommended the fine as under

section 383A (1A) of the 1956 for Rs.547500/- on the company

and each of the applicants for 1095 days (being the period

01.04.2011 to 31.03.2014) and under Section 205(3) of the 2013

Act for Rs.5 Lakhs on the company and Rs.11,44,000/- on each

of the other applicants for 1095 days (being the period

01.04.2014 to 31.03.2017)."

5. The NCLT recorded reasons and took a lenient view to impose one fifth

of the maximum fine treating the same as just and equitable. Following fine

was imposed on Appellants 1 to 5: -

S. Name Fine Under Fine Under Amount No. Defaulter Section Section 203(5) (in Rs.) 383A(1A) (New Act) (Old Act)

1. Sanchar Telesystems Rs.1,10,000/- Rs.1,00,000/- Rs.2,10,000/- Limited

2. Mr. Chandra Kant Rs.1,10,000/- Rs.2,25,000/- Rs.3,35,000/- Bhardwaj

Company Appeal (AT) No.411 & 412 of 2017 4

3. Mr. Sanjay Gupta Rs.1,10,000/- Rs.2,25,000/- Rs.3,35,000/-

4. Mr Suresh Chandra Rs.1,10,000/- Rs.2,25,000/- Rs.3,35,000/- Gupta

5. Ms. Priyanka Gupta Rs.1,10,000/- Rs.2,25,000/- Rs.3,35,000/-

NCLT directed that the Directors/Officers shall pay the fine from their

personal accounts.

6. The learned counsel for the Appellants referred to copy of application

being Company Petition 16/110/2017 to submit that the Appellants had

mentioned in the Company Petition that the Appellant No.2 is the whole-time

Director and Appellant Nos.3 to 5 were Directors. According to the learned

counsel, only the Company and whole-time Director of the Company could

have been held in default and not the other Directors. It has been argued that

as per the provisions of the old and new Companies Acts, it is only the whole-

time Director read with definition of "officer who is in default" could be

responsible and not all the Directors. According to the learned counsel even

if before NCLT, this legal question was not raised, the same can be raised in

this appeal. Further submission is that the penal provisions have to be

construed strictly and if the provisions are applied strictly, the Appellants 3

to 5 could not be held responsible. He submits that even if the Appellant

committed mistake in making the application for compounding on behalf of

all the Appellants, by that itself, liability cannot be imposed, and NCLT was

bound to apply correctly.

Company Appeal (AT) No.411 & 412 of 2017 5

7. Company Appeal (AT) No.412 of 2017

This appeal is arising out of impugned order passed in CP 16/94/2017

by the learned National Company Law Tribunal, New Delhi ('NCLT' in short).

The Appellants filed application under Section 441 of the new Act read with

Section 621A of old Act praying for compounding the offence under Section

137 of the new Act for the default in not filing the Financial Statements and

Annual Returns of the Company for the Years 2013 - 2014. It was claimed

that the compounding application was moved after making good the default.

It was claimed before NCLT that the default was made good by filing

Annual Returns and Financial Statements on 11.04.2017 and 31.03.2017 for

the two years.

8. The NCLT considered the relevant provisions and the fact that the RoC

had recommended higher fine against all the five Appellants and decided that

the one fifth of the maximum fine would be just and equitable. As the default

spanned over period of the old Act as well as the new Act, NCLT imposed fine

as under on the Appellants 1 to 5.

S. Name Fine Under Fine Under Amount No. Defaulter Section 162 Section 137(3) (in Rs.) (Old Act) (New Act)

1. Sanchar Telesystems Rs.89,500/- Rs.104,000/- Rs.193,500/- Limited

2. Mr. Chandra Kant Rs.89,500/- 1,00,000/- Rs.189,500/- Bhardwaj

3. Mr. Sanjay Gupta Rs.89,500/- 1,00,000/- Rs.189,500/-

4. Mr Suresh Chandra Rs.89,500/- 1,00,000/- Rs.189,500/- Gupta

Company Appeal (AT) No.411 & 412 of 2017 6

5. Ms. Priyanka Gupta Rs.89,500/- 1,00,000/- Rs.189,500/-

9. In this matter, learned counsel for the Appellants referred to the

complaint filed by the RoC before ACMM, Tis Hazari, Delhi copy of which is

at page - 43 to submit that in that matter the RoC had arrayed only Appellant

No.1 and Appellant No.2 as liable under concerned Sections 99 and 137 (3)

for contravention under concerned Sections 96 and 137. According to the

learned counsel, it was error on the part of the Appellants to have moved the

application for compounding (copy of which is filed at page - 48) on behalf of

the Appellants although it was mentioned in the petition that the Appellant

No.2 was the whole-time Director and rest of the Appellants 3 to 5 were

Directors. Like in the other matter, the learned counsel for the Appellants is

referring to the concerned provisions and definition of officer responsible, to

submit that in this matter also other than Appellants 1 and 2, rest of the

Directors could not have been imposed fine.

10. Against this, the learned counsel for the RoC has submitted that even

if with reference to the dispute in CA 412 of 2017, RoC had filed complaint

only against the Appellant Nos.1 and 2, it would not mean that it had given

up its right to proceed against the Directors separately. She states that the

act of all the Appellants in moving compounding applications shows that all

the Appellants were aware of their defaults in both the matters and all of them

had sought compounding. They had thus admitted their offences. The RoC

has right to move against all defaulting parties. According to the learned

Company Appeal (AT) No.411 & 412 of 2017 7

Assistant Registrar of Companies if the common affidavit in reply filed by RoC

in both these appeals is perused, the document at Annexure B which was

filed with RoC shows that it was digitally signed by Suresh Chandra Gupta,

Appellant No.4 who was authorized by the Board of Directors vide Resolution

No.4 dated 31.03.2011 to submit the concerned form regarding increase of

share capital which would attract Section 383A of old Act and Section 203 of

new Act requiring appointment of whole-time Secretary. She also referred to

Annexure C Form 23 AC for filing XBRL, document in respect of balance sheet

and other documents, which was digitally signed by Ms. Priyanka Gupta, the

Appellant No.5 who had been authorized by the Board of Directors vide

Resolution No.5 dated 03.09.2014. She submitted that there was yet another

document (Annexure D) which shows that for financial statement for the

Financial Year 2014-2015 being filed by Appellant No.5. She has referred to

notice at page - 19 with the affidavit in reply to show that the Directors whose

DIN has been mentioned in the letter sent the notice regarding the Annual

General Meeting. She stated that the DIN: 01036462 relates to Appellant No.4

- Suresh Chandra Gupta. The learned Assistant Registrar of Companies

submitted that these documents on facts clearly show that even if Appellant

No.2 is referred by them as Managing Director all these Appellants were

participating in the day to day affairs of the Company and they were in-charge

of the affairs of the Company and cannot avoid liability merely by pointing

out the copy of complaint filed in Tis Hazari Court. It is stated that if the

relevant Sections of the Companies Acts are seen, the Appellants are

responsible and there was nothing to show that the Board had charged any

Company Appeal (AT) No.411 & 412 of 2017 8

particular Director/s with responsibilities as no document to that effect is

filed on record. She submitted that the Directors took part in the meetings,

they knew the compliances required and for default they would be liable.

11. In reply the learned counsel for the Appellant submitted that even if the

argument of the learned Assistant Registrar for RoC was to be seen, there

was no material shown at least against Appellant No.3. It is then stated that

when Annexure B was filed relating to increase of share capital, which would

attract necessity to appoint full-time Company Secretary, in view of Annexure

- B at the most liability can be shown against Appellant No.4 but that cannot

be attributed to other Directors. On a query from the Bench, the learned

counsel for the Appellant initially accepted that there was no Resolution to

the effect of appointing Appellant No.2 as Managing Director or making any

particular Director responsible for complying with the provisions of the Acts.

Subsequently, of course the learned counsel, in the course of arguments

started saying that he may be given time and he will file copy of Resolution

assigning responsibilities. We have, however, not accepted that request as it

may not be difficult to now come up with such document.

12. We agree with the learned counsel for Appellant that even if before

NCLT, the question of liability of the different Directors was not taken up, the

question can be raised even in the appeal, being a question of law. We also

have no quarrel with the submission that the penal provisions are to be

construed strictly.

Company Appeal (AT) No.411 & 412 of 2017 9

13. In CA 411 of 2017, the Sections considered by the learned NCLT are

Sections 383A(1A) of the old Act. Section 383A deals with requirement of

certain companies to have a whole-time Secretary. Sub-Section 1A deals with

the default. It reads as under:

"(1A) If a company fail to comply with the provisions of

sub-section (1), the company and every officer of the company

who is in default, shall be punishable with fine which may

extent to [five hundred rupees] for every day during which the

default continues:

Provided that in any proceedings against a person in

respect of an offence under this sub-section, it shall be a

defence to prove that all reasonable efforts to comply with the

provisions of sub-section (1) were taken or that the financial

position of the company was such that it was beyond its

capacity to engage a whole-time secretary."

14. The proviso is not applicable in the present set of facts. In view of its

provision, the Company and "every officer of the company who is in default"

is liable. The meaning of "officer who is in default" is to be traced in Section

5 of the old Act which reads as under:

5. Meaning of "officer who is in default"-- For the

purpose of any provision in this Act which enacts that an

officer of the company who is in default shall be liable to any

Company Appeal (AT) No.411 & 412 of 2017 10

punishment or penalty, whether by way of imprisonment, fine

or otherwise, the expression "officer who is in default" means

all the following officers of the company, namely:-

(a) the managing director or managing directors;

(b) the whole-time director or whole-time directors;

(c) the manager;

(d) the secretary;

(e) any person in accordance with whose directions or

instructions the Board of directors of the company

is accustomed to act;

(f) any person charged by the Board with the

responsibility of complying with that provision;

Provided that the person so charged has

given his consent in this behalf to the Board;

(g) where any company does not have any of the

officers specified in clauses (a) to (c), any director

or directors who may be specified by the Board in

this behalf or where no director is so specified, all

the directors:

Provided that where the Board exercises any

power under clause (f) or clause (g), it shall, within

thirty days of the exercise of such powers, file with

the Registrar a return in the prescribed form."

Company Appeal (AT) No.411 & 412 of 2017 11

15. The new Section is 203(5) of the new Act. Section 203 of the new Act

deals with appointment of key managerial personnel. The relevant Sub-

Section (5) reads as under:

"203(5) If a company contravenes the provisions of this

section, the company shall be punishable with fine which shall

not be less than one lakh rupees but which may extend to five

lakh rupees and every director and key managerial personnel

of the company who is in default shall be punishable with fine

which may extend to fifty thousand rupees and where the

contravention is a continuing one, with a further fine which

may extend to one thousand rupees for every day after the first

during which the contravention continues."

16. Referring to Section 5 of the old Act, learned counsel for Appellants

submitted that if Clause - "g" is seen, as the Company had a Managing

Director, the other Directors could not have been held responsible. Although

these submissions are being made, the Appellants did not show before the

NCLT and did not file before us copy of any Return as per the Proviso which

relates to Clauses - "f" and "g". No document is shown of the Board taking

Resolutions make any particular person responsible for complying with

specific provisions. Merely referring to any person as Managing Director does

not make the person Managing Director unless there is a Board Resolution

appointing a person as Managing Director. In the absence of any pleadings

to this effect before the NCLT and in the absence of any document brought

Company Appeal (AT) No.411 & 412 of 2017 12

on record of any such Resolution passed or Return filed as per Proviso below

Section 5 of the old Act, we find it difficult to give the benefit being sought by

the learned counsel for the Appellant. The Appellants are clinging to straws.

When the learned counsel for RoC pointed out the documents of the filings

by Appellant Nos.4 and 5, the learned counsel submitted that at least relating

Appellant No.3 nothing is shown. We do not find that in such manner the

responsibilities under the Companies Acts could be avoided.

17. Even with regard to Section 203 of the new Act, the learned counsel for

Appellant wanted to refer to Section 2(60) for definition of "officer who is in

default" but we find that Sub-Section 5 itself does not refer to "officer who is

in default". Sub-Section 5 reproduced above makes it clear that "every

director and key managerial personnel of the company who is in default shall

be punishable".

18. Sub-section (1) of Section 203 itself specifies 3 categories who would be

referred as whole-time "key managerial personnel". Relevant part of Sub-

Section (1) reads as under:

"203(1) Every company belonging to such class or

classes of companies as may be prescribed shall have the

following whole-time key managerial personnel,--

(i) managing director, or Chief Executive Officer or

manager and in their absence, a whole-time director;

(ii) company secretary; and

Company Appeal (AT) No.411 & 412 of 2017 13

(iii) Chief Financial Officer:"

19. Section 203 deals with appointments of these key managerial personnel

and contravention has been dealt with in Sub-Section 5. The learned counsel

for the Appellant wanted to read the words "every director and key managerial

personnel of the company who is in default". In conjunction. He wanted to

read them in conjunction to go to the definition clause of "officer who is in

default". We are also reading the word in conjunction but we are not reading

the definition of "officer in default" in this Sub-Section as Sub-Section 5 of

Section 203 has not used the said wording. The wording used is "key

managerial personnel" and not officer who is in default. The Sub-Section

makes "every director" and "key managerial personnel of the company who is

in default" as liable.

20. For such reasons we discard the arguments made by the learned

counsel for the Appellant to interfere with the order impugned in CA 411 of

2017.

21. Coming to CA 412 of 2017, the NCLT imposed fine under Section 162

of the old Act for a part of the period and under Section 137(3) of the new Act

for the relevant part.

22. Section 162 of the old Act reads as under:

"162. Penalty and interpretation. - (1) If a company fails

to comply with any of the provisions contained in sections 159,

Company Appeal (AT) No.411 & 412 of 2017 14

160 or 161, the company, and every officer of the company

who is in default, shall be punishable with fine which may,

extend to [five hundred rupees] for every day during which the

default continues.

(2) For the purposes of this section and sections 159,

160, and 161, the expressions "officer" and "director" shall

include any person in accordance with whose directions or

instructions the Board of directors of the company is

accustomed to act."

23. Section 137 of the new Act deals with filing of copy of financial

statement with Registrar in specific time. Sub-Section (3) which is relevant

reads as under:

"(3) If a company fails to file the copy of the financial

statements under sub-section (1) or sub-section (2), as the

case may be, before the expiry of the period specified in section

403, the company shall be punishable with fine of one

thousand rupees for every day during which the failure

continues but which shall not be more than ten lakh rupees,

and the managing director and the Chief Financial Officer of

the company, if any, and, in the absence of the managing

director and the Chief Financial Officer, any other director who

is charged by the Board with the responsibility of complying

with the provisions of this section, and, in the absence of any

Company Appeal (AT) No.411 & 412 of 2017 15

such director, all the directors of the company, shall be

punishable with imprisonment for a term which may extend to

six months or with fine which shall not be less than one lakh

rupees but which may extend to five lakh rupees, or with

both."

24. We have already referred to Section 5 of the old Act which deals with

"officer who is in default". Section 137(3) does not refer to "officer who is in

default". As already observed, no Resolution passed or Return filed has been

brought to our notice charging or fixing responsibilities. In the absence of

bringing on record such Resolutions and Return filed, and in absence of

specific pleadings in the petitions for compounding (which rather accepted

liability) benefit under Section 137(3) of the new Act also, as sought, cannot

be given. There are no pleadings and no documents filed charging or fixing

responsibilities. Rather the learned counsel for RoC, on facts rightly pointed

out documents to show that not merely Appellant No.2 but other Directors

also were taking part in the day to day affairs and were responsible for

compliance under the Companies Act. Applying law to the facts of the

matters, we find no reason to interfere.

25. For such reasons, even in CA 412 of 2017 we find no reason to interfere.

Company Appeal (AT) No.411 & 412 of 2017 16

26. CA 411 of 2017 as well as CA 412 of 2017 are both dismissed. No order

as to costs.

[Justice A.I.S. Cheema] Member (Judicial)

[Balvinder Singh] Member (Technical)

New Delhi

9th March, 2018

/rs/nn

Company Appeal (AT) No.411 & 412 of 2017