Neurosynaptic Communications Private ... vs The Registrar Of Companies Bangalore

NATIONAL COMPANY LAW APPELLATE TRIBUNAL AT CHENNAI (APPELLATE JURISDICTION) TRANSFER APPEAL (AT) NO. 27 OF 2022 IN COMPANY APPEAL (AT) NO. 46 OF 2019 In the matter of Neurosynaptic Communications Pvt Ltd Represented by Mr. Sameer Subhash Sawarkar, Director No. 10, Khata No. 19, 29th Main, BTM Layout II Stage, Bengaluru - 560076 ....Appellant No. 1

Mr. Rajeev Kumar, Director No. 813/B1, 2nd Floor, 4th Cross, 27th Main, BTM Layout, 2nd Stage, Bengaluru, Karnataka - 560076 ....Appellant No. 2

Mr. Sameer Subhash Sawarkar PL-304, Purva Panorama Apartments, Bannerghatta Road Near Meenakshi Temple, Kalena Agrahara Bengaluru, Karnataka - 560076 ....Appellant No. 3

Vs

The Registrar of Companies, Bengaluru 'E' Wing, 2nd Floor, Kendriya Sadana, Kormangala, Bengaluru-560034 ....Respondent

TRANSFER APPEAL (AT) NO. 27 OF 2022 Page 1 of 15 Present : For Appellant : Mr. CS. Gurminder Dhami, PCS For Respondent : Mr. PS. Singh, Advocate / Central Govt. Standing Counsel for RoC, Bangalore

JUDGMENT

(Hybrid Mode) [Per: Jatindranath Swain, Member (Technical)]

1. This instant company appeal TA NO. 27 of 2022 in CA (AT) No. 46 of

2019, has been filed by the Appellant against the impugned order passed

in C.P. NO. 611/BB/2018 dated 31/12/2018 by the learned NCLT,

Bengaluru Bench for compounding of offences under Section 441 of the

Companies Act, 2013 for the offences made under Section 217 read with

Section 220 of the Companies Act,1956 for which the penal provision is

prescribed in Section 162 of the Companies Act, 1956.

2.Brief facts of the case

a. The Appellant, M/S Neurosynaptic Communications Private

Limited a private limited company, was incorporated on 20.09.2002, under

the Companies Act, 1956 with Registrar of Companies, Karnataka. It is

represented by Mr. Sameer Subhash Sawarkar, Director along with Mr.

Rajeev Kumar, Director.

b. The main business of the company is, among other things,

developing, designing, manufacturing, processing, assembling, and

TRANSFER APPEAL (AT) NO. 27 OF 2022 Page 2 of 15 manipulating the technology relating to neuron impulses of living bodies

for understanding and controlling the functions of the nervous system with

the application of electronic and engineering methods. The company has

business operations in India as well as Abroad.

c. The relevant date for issue and adoption of the Board's Report along

with financial statements for the financial year ending on 31.03.2011 & on

31.03.2014.

Financial Year Financial Year 2010-2011 2013-2014 Date of issue of Board's Report 07.09.2011 05.09.2014 Date of adoption by AGM 29.09.2011 26.09.2014 Date of filing before ROC in e- 03.11.2011 26.11.2014 Form 23 AC/ACA

d. The Appellant No. 1 being the company, failed to attach the copy of

the Board's Report for the Financial Years ending 31/03/2011 and

31/03/2014 along with the balance sheet filed in respective e-form 23 AC

filed with the Registrar of Companies, Bengaluru, and hereby committed

an offence under Section 220 of the Companies Act, 1956.

e. Appellant No. 1 along with Appellant No. 2 & 3 filed a composite

compounding application on 26.04.2017 seeking composition of the

offence under Section 621 A of the Companies Act, 1956 for not filing the

Board's Report as above in violation of Section 220 of the Companies Act

1956.

TRANSFER APPEAL (AT) NO. 27 OF 2022 Page 3 of 15 f. The Registrar of Companies, Bengaluru prepared its report and

forwarded the same to the learned NCLT, Bengaluru Bench. The said

application came to be numbered as C.P No. 611/BB/2018 before the

learned NCLT, Bengaluru Bench. The learned NCLT, Bengaluru Bench

after hearing both sides passed the Impugned Order on 31.12.2018 in CP

No.611/BB/2018.

3. Appellant's submissions

a. The Learned counsel for the Appellant submits that he had moved

the compounding Application Suo-Moto and no show cause notice was

ever received by the Appellant from any statutory authority in regard to the

offences committed. Further, the said lapse was inadvertent as the Board

Report for the relevant financial years was duly prepared and placed before

the Annual General Meeting but could not be attached to the documents

filed before the Registrar of Companies (ROC), and that he had filed the

rest of the financial statements of the relevant financial years, within the

stipulated time.

b. He further states that in most cases, the proceedings before learned

NCLT have been drawn after the institution of Criminal Complaint by the

Registrar of Companies (ROC) and in those cases, the penalty imposed is

much less. Further, in those cases entire financial statements were not filed

till ROC pointed it out and issued notice whereas in his case, only the Board

TRANSFER APPEAL (AT) NO. 27 OF 2022 Page 4 of 15 Report was not filed, and that too, due to an inadvertent error on his part

which he discovered later on, rectified the same, and moved the

compounding application. Hence, he should be shown the same level of

leniency.

c. The Appellant submits that the gravity of the offences is non-serious

and technical in nature as it was not intentional and that in the other

financial years since the inception of the Company, the relevant documents

have been filed without fail.

d. The Appellant also contended that the Copy of Directors report was

duly sent to the shareholders as required under section 219 of the

Companies Act, 1956 and the only lapse was that of non-filing with ROC.

e. He has contended that the Registrar of Companies had made an error

in the computation of period of default, which he has corrected vide his

counter affidavit filed on 03.07.2019 in the appeal proceedings and had

agreed with the appellant's calculation of period of delay which is 2007

days for FY 2010-11 and 914 days for 2013-14. Therefore, the penalty

levied should be recalculated accordingly.

f. The Appellant has submitted that as per the circular of the Ministry

of Corporate Affairs 08/2014, dated 04/04/2014, it has been clarified that

the Provisions of Companies Act,1956, shall apply to the filing of the

TRANSFER APPEAL (AT) NO. 27 OF 2022 Page 5 of 15 financial statements for the financial years commencing before

01.04.2014. However, the learned ROC in its Report to the Learned NCLT,

Bengaluru had erred by applying penal provisions of the Companies Act,

2013, instead of the Companies Act, 1956. However, later the Learned

ROC vide its counter affidavit filed in the appeal proceedings has partially

changed its stand, stating that the provisions of the Companies Act, 1956

will apply in case of the financial year 2010-11 whereas the provision of

the Companies Act, 2013 will apply in case of the financial year 2013-14.

g. The learned PCS for the Appellant relied upon the judgment in the

matter of Surojit Kumar vs ROC Kolkata [Company Appeal (AT) 33 & 34

OF 2017] by the Hon'ble NCLAT, DELHI [Chairperson's court], where it

has been held that the penal provisions under the Companies Act, 2013

cannot be retrospectively made applicable to the offences committed and

punishable under the provisions of Companies Act, 1956.

h. He has further submitted that learned NCLT, Bengaluru has

compounded the offences at the rate of 20% and 30% of the maximum

penalty leviable in the case of the company and each Director respectively

for the period it deemed to be covered under the Companies Act, 1956.

Further, it has compounded the offences @ 50% on the company and

58.78% on each Director for the period it deemed to be covered under the

Companies Act, 2013. He has contended that the rate of penalty is

TRANSFER APPEAL (AT) NO. 27 OF 2022 Page 6 of 15 excessive & that applying provisions of the Companies Act, 2013, for the

instant case is erroneous and needs to be rectified.

i. The learned counsel for the Appellant has relied upon the Judgment,

Goyal Vegolis Limited & Ors. Vs ROC, Jaipur [Company Appeal (AT)

No.419 of 2018; Hon'ble NCLAT, Chairperson's Court], and has prayed

for a grant of relief on similar lines for compounding the offence in this

case.

4. Respondent's Submissions

a. The Respondent has contended that in the said application by the

Appellant, it has been admitted that the company failed to attach the Board

report to the balance sheet for the financial years 2010-11 and 2013-14

filed with the Registrar of Companies (ROC), Bengaluru and hence it is

defective and in violation of Section 220 of the Companies Act, 1956.

b. He has further submitted that as per Section 220(1) of the Companies

Act, 1956, the duly signed balance sheet and profit and loss account

together with all related documents of which the Board Report is a part, are

required to be filed within thirty days from the date on which the same have

been laid before the Annual General Meeting. Further as per Section 137(1)

of the Companies Act, 2013, the financial statement including consolidated

financial statement, if any, along with other documents which are required

TRANSFER APPEAL (AT) NO. 27 OF 2022 Page 7 of 15 to be attached to such financial statements under this act, duly adopted at

the AGM of the company shall be filed with Registrar within thirty days of

the date of AGM in such manner, with such fees or additional fees as may

be prescribed.

c. He has also submitted that as per Section 220(3) read with 162 of

the Companies Act, 1956, if a company fails to comply with provisions of

Section 220 of the Companies Act,1956, the company and every officer in

default shall be punishable with a fine which may extend to five hundred

rupees for every day during which the default continues. Further as per

Section 137(3) of the Companies Act, 2013, the company shall be

punishable with a fine and every officer in default shall be punishable with

imprisonment for a term which may extend to six months or a fine or with

both.

d. The Respondent contends that the appellant failed to attach the

Board Report to the balance sheet for the financial years ending on

31.03.2011 and 31.04.2014, that therefore the balance sheets filed are

defective and cannot be taken on record and hence those balance sheets are

deemed to be not filed, which is a violation of Section 220(1) of the

Companies Act, 1956.

e. The Respondent has submitted that the Appellant company did not

rectify the offence till the date of filing of compounding application

TRANSFER APPEAL (AT) NO. 27 OF 2022 Page 8 of 15 26.04.2017 and therefore, the leviable compounding fee has been

calculated till the date of filing of the compounding application which is

26.04.2017 since the said violation is a continuing offence.

f. The Respondent has submitted that the maximum penalty for the

offence committed for the financial year 2010-11 should be levied as

prescribed under Section 162 of the Companies Act, 1956, and for the

financial year 2013-2014 as per Section 137(3) of the Companies Act,

2013.

Analysis and Findings:

5. It is an admitted fact that the Appellants 1, 2 & 3 have failed to file

Board Report with the financial statement for the financial years 2010-11 and

2013-14 respectively within the stipulated time and hence the offences have been

committed. They have to be taken as a continuing offence. Penalty for Non-filing

of Board Report for financial year ending on 31.03.2011 will be determined as

per the provisions of Section 220 r/w Section 162 of the Companies Act, 1956

which is not disputed by either party.

6. Appellant claims that non-filing of the Board Report for the financial

year ending on 31.03.2014 should also attract provisions of Section 220 of the

Companies Act 1956 as this pertains to the financial year 2013-14 and as per the

General Circular 8/2014 of the Ministry of Corporate Affairs dated 04.04.2014.

TRANSFER APPEAL (AT) NO. 27 OF 2022 Page 9 of 15 The relevant portion of the said Circular No.1/19/2013-CL-V of Ministry of

Corporate Affairs, Government of India dated is extracted below:

"A number of provisions of the Companies Act, 2013 Including those relating to maintenance of books of account, preparation, adoption & filing of financial statements (and documents required to be attached thereto), Auditors reports and the Board of Directors report (Board's report) have been brought into force with effect from 1st April, 2014. Provisions of Schedule II (Useful lives to compute depreciation) and Schedule III (Format of financial statements) have also been brought into force from that date. The relevant Rules pertaining to these provisions have also been notified, placed on the website of the Ministry and have come into force from the same date.

The Ministry has received requests for clarification with regard to the relevant financial year with effect from which such provisions of the new Act relating to maintenance of books of account, preparation, adoption and filing of financial statements (and attachments thereto), auditors report and Board's report will be applicable.

Although the position in this behalf is quite clear, to make things absolutely clear it is hereby notified that the financial statements (and documents required to be attached thereto), auditors report and Board's report in respect of financial years that commenced earlier than 1st April, 2014 shall be governed by the relevant provisions/ Schedules/rules of the Companies Act, 1956 and that in respect of financial years commencing on or after 1 April, 2014, the provisions of the new Act shall apply."

The Appellant has also cited the judgment of the Principal Bench of this

Tribunal in the matter of Surojit Kumar Vs. ROC Kolkata (Company Appeal

(AT) 33 & 34 of 2017) dated 08.03.2017 to support his contention. The relevant

para 16 & 17 are extracted below:

TRANSFER APPEAL (AT) NO. 27 OF 2022 Page 10 of 15

"16. Sub-Section (6) of Section 217 of Act, 1956 stands replaced by Sub Section (8) of Section 134 of the Companies Act, 2013 w.e.f. 1st April, 2014, as quoted below:

"(8) If a company contravenes the provisions of this section, the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than fifty thousand rupees but which may extend to five lakhs rupees, or with both."

17. Admittedly, Sub-Section (8) of Section 134 came into force from 1.4.2014. Therefore, the said provision can not be made applicable for the offence committed during the financial year ending 31.3.2014. Learned NCLT failed to consider the aforesaid provision and compounded the offence in terms of Sub- Section (8) of Section 134 of Companies Act, 2013 which was not applicable for the financial year ending 31.3.2014. This also appears to have been committed because of wrong report given by the Registrar of Companies."

This contention of the Appellant is sought to be controverted by the

Respondent stating that Board Report for the financial year 2013-14 was due to

be filed by 26.10.2014 and therefore penalty for compounding the offence for not

filing the correct financial statement has to be calculated under Section 137(3) of

the Companies Act, 2013. However, this may not be acceptable in light of the

Circular dated 04.04.2014 of the Ministry of Corporate Affairs and the Judgment

of this Tribunal (Supra). It is to be held that filing of the said financial statement/

board report pertained to financial year 2013-14 only and hence non-filing of the

TRANSFER APPEAL (AT) NO. 27 OF 2022 Page 11 of 15 same will have to be dealt with under the relevant provisions of the Companies

Act, 1956.

7. Appellant submits that penalties have been determined by the

learned NCLT Bengaluru Bench @ 20% of the maximum leviable fine in the case

of the Company and @ 30% of the maximum leviable fine in the case of Directors

which is excessive. The appellant has cited many orders passed by Learned

NCLT, Bengaluru, Mumbai, and Delhi benches to demonstrate that a much more

lenient view has been taken in similar circumstances. Of particular interest will

be four such orders passed by Ld. NCLT, Bengaluru bench in C.P No.69/2017,

CP. No. 89/BB/2017, TP 131/2016 in CA 205/621A/CB/2014 and in TP

183/2016 in CA 234/621A/CB/2015. In the respective orders, the learned NCLT

Bengaluru Bench has compounded the offence of violation of Section 220 of the

Companies Act, 1956 @ Rs.50/day for the number of days of delay.

The Respondent on the other hand, has requested this Tribunal to impose

maximum penalty as prescribed under Section 162 of the Companies Act, 1956

for violation committed for the financial year 2010-11 and the maximum penalty

as prescribed under Section 137(3) of the Companies Act, 2013. He has not given

any reason as to why the penalty should be imposed at the maximum rate.

The Appellant has contended that the mistake is inadvertent, that he

himself has found out the mistake and has sought to rectify it by seeking

composition of the offence, that he has failed to file the Board Report with ROC

TRANSFER APPEAL (AT) NO. 27 OF 2022 Page 12 of 15 only, and that it has been circulated to shareholders within the due date, that the

omission is not prejudicial to the interest of members, creditors, regulators or

other stakeholders and that the content of the Board Reports was such that there

is nothing to hide.

In view of absence of any assertion to the contrary by the Respondent, the

above contention is acceptable.

8. The Appellant has also contended that the Companies Act has been

amended in 2018 and in 2020 to decriminalize many provisions and to reduce

penalties for technical and non-serious offences including those relating to filing

of financial statements and the Board Reports. He has stated that Section 137(3)

of the Companies Act, 2013 has been amended vide the Amendment Act 2020

with effect from 21.12.2020 where the penalty for the Company is Rs.10,000 and

Rs.100/day thereafter, subject to a maximum of Rs.2,00,000 and for the directors,

Rs.10,000 and Rs.100/day thereafter subject to a maximum of Rs.50000/-. He has

pleaded citing the judgment of Hon'ble Apex Court in the matter of T.Barai Vs.

Henry AH Hoe and Anr. (1983 AIR 150) that he may be granted the benefit of

the Rule of Beneficial Construction. It is to be noted that the said amendment in

the Companies Act came into effect on 21.12.2020 while Ld. NCLT passed orders

on 31.12.2018. Hence, this rule will not be applicable in the instant case.

9. Summarising it is to be held that offences were committed for the

financial year 2010-11 and financial year 2013-14 under Section 220 of the

TRANSFER APPEAL (AT) NO. 27 OF 2022 Page 13 of 15 Companies Act, 1956 only and that penalty levied for compounding appears

excessive in view of orders issued by the same Ld. Tribunal and other Tribunals

in similar cases and therefore penalty should be levied at the rate of Rs.50 per day

for every day during which the default continued, both for the company and for

the directors.

10. Accordingly, the compounding fees are to be levied will be as

under:

S.No. Offence / Days of Penalty / Compounding Fees

Particulars violations Appellant 1 Appellant 2 Appellant 3

1 Violation 2007 50 x 2007 50 x 2007 50 x 2007

of Section 1,00,350/- 1,00,350/- 1,00,350/-

220 for FY

2010-11

2 Violation 914 50 x 914 50 x 914 50 x 914

of Section 45,700 45,700 45,700

220 for FY

2013-14

1,46,050/- 1,46,050/- 1,46,050/-

TRANSFER APPEAL (AT) NO. 27 OF 2022 Page 14 of 15

11. Accordingly, the "Impugned Order" is "set aside" and the "appeals"

are "allowed" with the aforesaid terms.

12. Let a copy of the order be communicated to the Registrar of

Companies, Bengaluru to ensure its compliance.

[Justice Sharad Kumar Sharma] Member (Judicial)

[Jatindranath Swain] Member (Technical)

30.01.2025 GKJ/TM/MS

TRANSFER APPEAL (AT) NO. 27 OF 2022 Page 15 of 15