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TMI Blog2007 (7) TMI 413X X X X Extracts X X X X X X X X Extracts X X X X ..... he petitioners had specifically mentioned such matters in Note 4 and Note 1(d) of Schedule 17 to the accounts for the relevant year. The petitioners have acted reasonably not only in complying with the accepted norms but in specifically drawing the attention of whoever cared to read the accounts to such matters. Even if there were any violation on the part of the petitioners, and of which there is serious doubt, the petitioners ought fairly to be excused. The petitioners are relieved of all liabilities in respect of the 12 show-cause notices being the subject-matter of these proceedings. - C.P. NO. 428 OF 2006 AND C.A. NO. 651 OF 2006 - - - Dated:- 13-7-2007 - SANJIB BANERJEE, J. Ranjan Deb, Mrs. Manju Bhuteria, Rohitendra Chandra Deb and Ravi Asopa for the Petitioner. L.K. Chatterjee and Mrs. Aparna Banerjee for the Respondent. JUDGMENT 1. Of the 12 show-cause notices in respect of which the present proceedings have been instituted, four have been pressed with more vigour than the others, though the Registrar has made no concession in respect of the others. 2. The first, second, third and sixth show-cause notices appearing at pages 80, 84, 88 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has acted honestly and reasonably, and that having regard to all the circumstances of the case, including those connected with his appointment, he ought fairly to be excused, the court may relieve him, either wholly or partly, from his liability on such terms as it may think fit : Provided that in a criminal proceeding under this sub-section the Court shall have no power to grant relief from any civil liability which may attach to an officer in respect of such negligence, default, breach of duty, misfeasance or breach of trust. (2) Where any such officer has reason to apprehend that any proceeding will or might be brought against him in respect of any negligence, default, breach of duty, misfeasance or breach of trust, he may apply to the High Court for relief and the High Court on such application shall have the same power to relieve him as it would have had if it had been a Court before which a proceeding, against that officer for negligence, default, breach of duty, misfeasance or breach of trust had been brought under sub-section (1). (3) No court shall grant any relief to any officer under sub-section (1) or sub-section (2) unless it has, by notice served in the manne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. In such event, when the criminal proceedings are instituted by the Registrar, not only can such officer no longer be relieved by the criminal court under sub-section (1) (as the High Court has refused it), the default stands proven on admission. There is nothing so harsh as suggested by the Registrar that appears in sub-section (2). If an officer of a company petitions the High Court under sub-section (2) to be relieved as there was no default committed by him as suggested by the Registrar, merely because he refutes the charge that may ultimately be brought against him, would not disentitle him to invoke sub-section (2) or force him to await the rigours of criminal proceedings before he can plead not guilty. 7. In any event, the various charges levelled against the petitioners and in respect whereof they apprehend; criminal proceedings being launched, are all matters of subjective assessment as to whether the provisions of, primarily, the Accounting Standards were complied with. The Registrar asserts that the Accounting Standards had been breached by the petitioners. The petitioners submit that in their considered view, they had complied with the requirements of the Account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd of Directors) Rules, 1988, in that energy consumption figures relating to production had not been disclosed. But the eleventh show-cause notice complained of a discrepancy in the energy consumption figures forming part of the directors report and the power and fuel cost appearing in the profit and loss account of the company. The assertion in the eighth notice by the Registrar is belied by the complaint in the eleventh notice. Implicit in the eleventh notice is the acceptance of the energy consumption figures having been included in the directors report. As to the discrepancy between the figures in the directors report and the profit and loss account, there is a simple explanation. The directors report requires energy consumption figures given for the process of production of a company. The energy consumed by a company at its registered office is not for the purpose of the manufacturing activity or the production process of the company. The difference between the power and fuel cost appearing in the profit and loss account and the energy consumption figure for production appearing in the directors report, is on account of the energy cost on accounts other than the productio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to window-dress the accounts so that the diminution in value would not detract from the profit and loss figures of the company for the relevant financial year. Accounting Standard 13 (AS-13) is referred to and it is suggested on behalf of the Registrar that the company could not have ignored the great fall in the value of Madhuting shares. 14. The relevant Accounting Standards permit long-term investments to be stated at cost provided the diminution in value thereof is temporary in nature. The petitioners seek to justify their conduct by referring to the subsequent improvement in the financial position of Madhuting. This, the petitioners cannot do. If the value of Madhuting shares had further dipped, though it is an unquoted share, the petitioners would not urge such a ground. The issue is whether it was possible to take a view that the fall in value was of temporary nature. As to what is temporary and what is permanent or long-term is not defined in AS-13. Accounting Standard No. 13 leaves latitude, as all guidelines on accounts must, for a company and its officers in the treatment of accounts. The vicissitudes in the tea industry over the last decade are all too well known a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than 10 per cent of the total actual cost of plant and machinery, rates of depreciation applicable to such items shall be the rates as specified in Item II of the Schedule." 18. The Registrar had sought an explanation from the company s auditors on diverse counts including on the depreciation claimed as aforesaid. M/s. Lovelock and Lewes had this to say in response to the Registrar s query: "5. Note 8 to Schedule XIV of the Companies Act, 1956, states that notwithstanding anything mentioned in this Schedule, depreciation on assets, whose actual cost does not exceed five thousand rupees, shall be provided depreciation at the rate of hundred per cent. Further, Note 1( d ) on Schedule 17 to the financial statement of the company for the year ended 31-3-2005, sets out the depreciation policy with regards to assets costing below Rs. 5,000. Accordingly, there is no non-compliance of Schedule XIV, read with section 205 of the Companies Act, 1956 (the Act)." 19. Matters relating to accounts are specialised business and the Registrar has not been able to demonstrate why reliance on Note 8 of Schedule XIV to the Act was misplaced. It is not necessary for the petitioners in proc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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