2022 (4) TMI 1630 - HC - Companies Law

Failure to file the Cost Audit Report for the financial year 2013-14, even beyond the last date of submission - contravention of sub-section (6) of Section 148 of the Companies Act, 2013 - HELD THAT - The petitioner/A1 Company is a Public Sector Company and A2 to A10 are its nominee Directors and Officers of the A1 Company. Section 148 of the Companies Act, got notified on 01.04.2014, the Companies Cost Records and Audit Rules, 2014 was pursuant to Section 148 of the Companies Act - Admittedly, for any violation under Section 148 of the Companies Act, only fine can be imposed, hence, any prosecution ought to have been initiated within a period of six months. Admittedly, in this case complaint was filed and taken cognizance only in the year 2018, which is beyond the period of limitation. Further, as could be seen from the General Circular No.1/2020 instructions already issued to ensure that civil or criminal proceedings are not initiated against Independent Directors or Non- Executive Directors. This Court finds that no case made against the petitioners, warranting continuation of complaint and trial, further continuance of case would amount to abuse of process of law. The proceedings pending against the petitioners on the file of the Additional Chief Metropolitan Magistrate E.O.1 , Egmore at Allikulam Complex, Chennai-3 is hereby quashed - Accordingly, these Criminal Original Petitions are allowed.

Issues Involved:
1. Compliance with Section 148 of the Companies Act, 2013.
2. Applicability of the limitation period under Section 468 Cr.P.C.
3. Definition and applicability of "continuing offence."
4. Liability of nominee directors and officers under the Companies Act, 2013.
5. Adherence to General Circular No.1/2020 issued by the Ministry of Corporate Affairs.

Issue-wise Detailed Analysis:

1. Compliance with Section 148 of the Companies Act, 2013:
The petitioners faced trial for not filing the Cost Audit Report for the financial year 2013-14, which is a contravention of Section 148(6) of the Companies Act, 2013. The petitioners argued that the Companies Act, 2013, was enacted on 29.08.2013, and different provisions were notified on different dates. Section 148 was notified with effect from 01.04.2014. They contended that the necessary statutory declarations were made in October 2016, and the Cost Auditor was appointed as per the rules. Despite this, the respondent issued a show cause notice and subsequently filed a complaint.

2. Applicability of the limitation period under Section 468 Cr.P.C.:
The petitioners argued that the violation under Section 148(8) of the Companies Act attracts only a fine, and as per Section 468 Cr.P.C., the limitation period is six months. The complaint was filed and taken on file only in 2018, which is beyond the period of limitation. The court agreed with this argument, noting that the requisite statutory documents were filed, and fees paid as early as 28.09.2016, thus the offence cannot be construed as continuing.

3. Definition and applicability of "continuing offence":
The court referred to the Apex Court's judgment in Gokak Patel Volkart Ltd. vs. Dundayaa Gurushiddaiah Hiremath and others, which defined a "continuing offence" as one that is susceptible to continuance and arises out of a failure to obey a rule. The court noted that the petitioners had complied with the statutory requirements by 28.09.2016, and thus, it cannot be considered a continuing offence. The complaint was filed beyond the limitation period, making it invalid.

4. Liability of nominee directors and officers under the Companies Act, 2013:
The court considered the argument that there were no requisite averments in the complaint that all the directors and officers had knowingly and actively taken part in the affairs of the company and committed the offence without taking proper care. The court noted that the accused A2 to A10 are nominee directors and officials of a government company, and the General Circular No.1/2020 instructs that civil or criminal proceedings should not be initiated against independent or non-executive directors unless there is sufficient evidence of their involvement.

5. Adherence to General Circular No.1/2020 issued by the Ministry of Corporate Affairs:
The court highlighted the General Circular No.1/2020, which clarifies that independent directors and non-executive directors should not be arrayed in any criminal or civil proceedings unless the criteria mentioned in Section 149(12) of the Companies Act are met. The court observed that the Registrar of Companies had taken up the matter with the appropriate authorities in view of this circular and noted that the petitioners, being nominee directors and officials, should not have been prosecuted.

Conclusion:
The court found that no case was made against the petitioners warranting the continuation of the complaint and trial. The proceedings in EOCC.No.68/2018 pending against the petitioners were quashed, and the criminal original petitions were allowed. Consequently, the connected miscellaneous petitions were closed.

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