2020 (3) TMI 921 - Tri - Companies Law

Oppression and Mismanagement - Approval of voluntary revision of Financial Statements and Board reports - section 131 of the Companies Act, 2013 read with Rule 77 of the NCLT Rules, 2016 - HELD THAT - The 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 picture of the goings on in the Company, as required by section 129. We are, therefore, in agreement with the Petitioner, based on the Reports of the Auditors, that the financial statements and Board's reports for the Applicant Company need to be revised and recast. While dealing with proceedings under section 131, we are not concerned here with the dispute, allegations and counter allegations between different parties, but rather only with the accounts as prepared by the Applicant Company for the years 2012-13 to 2014-15, and which have been found to be not giving a true and fair picture of the actual events and transactions, and whether the same require to be revised and re-drafted. Whatever the disputes, the same have been taken up before other concerned authorities/courts, and the resolution of such disputes is not the issue in the present proceedings. The same are referred to only for examining the intent of legislature and the applicability of section 131. With regard to the wordings of section 131, which have been interpreted differently by the opposing sides, we have to assert that a provision of law cannot be applied in all circumstances or through ordinary principles of interpretation when the circumstances necessitating their interpretation are extraordinary, as is the case here. Any such interpretation must be in sync with the overall intent of the Act and unique facts of the case. Also, law has to be interpreted for righting a wrong and not for perpetuating a wrong. Grave financial misreporting/ misappropriation cannot be allowed to hide behind mere interpretation or minor technicalities. The words in respect of any of the three preceding financial years have to be read as any three previous years as that is the scheme of things in the Act for cases of this kind and which are not cases of mere inadvertence, and which accounting wise also cannot be ignored - in view of the totality of facts and circumstances, all three years, i.e. FYs 2012-13, 2013-14 and 2014-15, would be covered for revision, not only because of the accounting compulsion, since FY 2014-15 is in any case covered, and the earlier years' accounts have a bearing on the same, but also per the provision contained in section 131 of the Act. This is a fit case for granting approval under section 131 to prepare revised financial statements and/or revised reports in respect of the Financial Years 2012-13, 2013-14 and 2014-15 in the case of the Applicant Company - petition disposed off.

Issues Involved:
1. Voluntary revision of financial statements and board reports for the financial years 2012-13, 2013-14, and 2014-15 under Section 131 of the Companies Act, 2013.
2. Allegations of financial irregularities and misappropriation of funds.
3. Compliance with statutory provisions and procedural requirements.
4. Objections raised by Respondent No. 4 regarding the maintainability and scope of the petition.
5. Interpretation of the term "any of the three preceding financial years" under Section 131 of the Companies Act, 2013.

Detailed Analysis:

1. Voluntary Revision of Financial Statements and Board Reports:
The Petitioner sought relief under Section 131 of the Companies Act, 2013, for voluntary revision of financial statements and board reports for the financial years 2012-13, 2013-14, and 2014-15. The Tribunal noted that the Petitioner had appointed an independent auditor to conduct a forensic audit, which revealed financial irregularities and misappropriation of funds. The statutory auditor also suggested recasting the books of accounts to ensure compliance with Sections 129 and 134 of the Companies Act, 2013.

2. Allegations of Financial Irregularities and Misappropriation of Funds:
The independent auditor's report highlighted several financial irregularities, including unsupported transactions, misappropriation of funds, lack of internal controls, and statutory non-compliance. The Tribunal observed that these irregularities distorted the financial statements and did not provide a true and fair view of the company's affairs. The Tribunal also noted that various criminal proceedings had been initiated against the erstwhile management, and the High Court of Karnataka had observed a prima facie case of misappropriation.

3. Compliance with Statutory Provisions and Procedural Requirements:
The Tribunal addressed the objections raised by Respondent No. 4, who argued that the petition was not maintainable as it did not comply with Sections 129 and 134 of the Companies Act, 2013. The Tribunal clarified that Section 131 could be invoked if the financial statements did not comply with either Section 129 or Section 134. The Tribunal also noted that the statutory auditors had acknowledged errors in the books of accounts and suggested recasting the same.

4. Objections Raised by Respondent No. 4:
Respondent No. 4 contended that the petition was time-barred and did not specify the necessary corrections required. The Tribunal rejected these objections, stating that the errors and misreporting were far too many and specific, justifying the revision of accounts. The Tribunal also dismissed the argument that Section 131 could not be invoked for periods prior to 2013, noting that the section allowed for revisions of financial statements for any of the three preceding financial years.

5. Interpretation of "Any of the Three Preceding Financial Years":
The Tribunal addressed the interpretation of the term "any of the three preceding financial years" under Section 131. The Tribunal noted that the provision did not use the term "immediately preceding" and could be interpreted to include any three previous years. The Tribunal emphasized that the intent of the Act was to ensure a true and fair view of the company's affairs and that financial misreporting could not be allowed to hide behind mere technicalities. The Tribunal concluded that the revision of financial statements for the years 2012-13, 2013-14, and 2014-15 was justified and necessary to provide an accurate picture of the company's finances.

Conclusion:
The Tribunal granted approval under Section 131 of the Companies Act, 2013, for the voluntary revision of financial statements and board reports for the financial years 2012-13, 2013-14, and 2014-15. The Tribunal emphasized that the errors and misreporting in the accounts were significant and justified the revision to ensure compliance with statutory provisions and to provide a true and fair view of the company's affairs. The petition was disposed of accordingly.

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