2023 (6) TMI 853 - HC - Companies Law

Violation of Section 148(6) of the Companies Act punishable under Section 148(8) of the Companies Act - failure to appoint cost auditor within the time limit prescribed under Section 148(3) and Rule 6(2) of Companies (Cost Records and Audit) Rules, 2014 - HELD THAT - This Court finds that admittedly, the petitioner was the Chief Financial Officer of the Company from 02.05.2016 to 01.08.2016. The company ought to have appointed the cost auditor for the financial year 2015-2016 within 180 days from 01.04.2015 i.e. on or before 01.10.2015. The case of the respondent, therefore, is that the company committed the offence on 01.10.2015. The offence under Section 148(8) of the Companies Act may be a continuing offence. However, it cannot be said that the petitioner, who was not in the company when the offence was first committed, is liable merely because he did not rectify the alleged violation during the period when he held the office. The company and the officers, who are in default at the time when the offence was committed, could only be made liable. The persons/accused of an offence cannot be based on the date on which the complaint is filed. The accused would and should remain the same whenever the complaint is filed since the offence is committed on a particular date. Persons who came to know of the offence subsequently cannot be made liable merely because the offence is continuing. Any interpretation to the contrary as submitted by the respondent, would lead to an illogical and absurd situation. Whether an offence is continuing or not is relevant only for the purpose of determining as to whether the complaint is barred by limitation. In this case, the company had already committed the offence and the persons who ceased to be the Directors before the alleged offence or had joined the company after the alleged offence cannot be held liable for the said offence. In view of the admitted fact that the petitioner joined on 02.05.2016 and resigned on 01.08.2016, and the offence was committed on 01.10.2015, he cannot be held liable for the alleged violation. Hence, the impugned complaint against the petitioner is liable to be quashed. Petition allowed.

Summary

Issues involved:
The petition to quash a complaint under Section 148(8) of the Companies Act, 2013, read with Rule 6(1) of Companies (Cost Records and Audit) Rules, 2014.

Details of the Judgment:

Issue 1: Alleged violation of appointing a cost auditor within the prescribed time limit
The complaint alleged that a public limited company did not appoint a cost auditor within the specified time limit, thereby violating the Companies Act. The petitioner, who was the Chief Financial Officer for a limited period, argued that he should not be held liable as he was not in the company when the violation occurred. The respondent contended that since the offence is continuing, all officers during the period of violation are liable.

Issue 2: Liability of officers for continuing offences
The respondent argued that as the petitioner was an officer during the period of the offence, he should be held accountable for not rectifying the violation. However, the Court held that the petitioner cannot be prosecuted for a violation that occurred before his tenure, emphasizing that liability should be based on the time of the offence, not when the complaint is filed.

Judgment Summary:
The Court acknowledged that the petitioner was the Chief Financial Officer within a specific period, but the offence occurred before his tenure. It was clarified that liability for a continuing offence should not extend to officers who were not present when the violation initially took place. Relying on legal precedents, the Court emphasized that individuals cannot be held accountable for offences committed before their involvement. Consequently, the Court allowed the petition to quash the complaint, highlighting the importance of establishing liability based on the timing of the offence, not subsequent events or filings.