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TMI Blog2020 (2) TMI 819X X X X Extracts X X X X X X X X Extracts X X X X ..... have also found that the respondent company has not filed any statements before the ROC since its incorporation. However, the ROC has not taken any action against the company and its directors. We have also seen that the directors have siphoned the money between 1996 to 2004. However, the inspection was ordered on 20th March, 2017 and the report submitted on 10.5.2018 and supplementary report on 13.8.2018 and the Inspecting Officer is unable to trace out real culprits i.e. the then directors. NCLT has passed the order against the appellant under 2nd proviso to sub- Section (5) of 140 of the Act which came into force on 1.6.2016. However, the appellant issued report for the FY 2014-15 and 2015-16 i.e. prior to the provision came into force. Therefore, NCLT cannot invoke jurisdiction retrospectively - The appellant was appointed on 12.3.2014 as statutory auditor of the Respondent No.2 company. The appellant issued audit report for the Financial Year 2014-15 and 2015-16 on 5.9.2015 and 05.09.2016 respectively. The appellant has issued the audit report for the FY 2015-16 on 5.9.2016 before that the 2nd proviso to sub-section (5) of Section 140 of the Act came into force with effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th a direction to take action under Section 140(5) of the Companies Act, 2013 (hereinafter referred to as the Act ). On the basis of the inspection report, Asstt. Registrar of Companies, Maharashtra, Mumbai filed a Special Company Case No.34 of 2018 before the City Civil Sessions Court under Section 447 of the Act against the appellant for providing clean audit reports to Respondent No.2 company for the financial year 2014-15 and 2015-16. On 26.11.2018 Respondent No.1 through the office of Regional Director, Western Region, filed Company Petition No.4365/140(5)/MB/2018 before the National Company Law Tribunal, Mumbai Bench (hereinafter referred to as NCLT) under Section 140(5) of the Act. On 3.1.2019 NCLT passed ad interim order whereby it was directed that the appellant shall cease to act as statutory auditor of Respondent No.2 company and further permitted Respondent No.1 to appoint an independent auditor for Respondent No.2 company. 4. After hearing the parties NCLT vide order dated 6.2.2019 directed that appellant shall not be eligible to be appointed as an Auditor of any company for a period of five years and also directed to refund the remuneration received by him durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nspecting Officer cannot be used against the appellant. 9. Learned counsel for the appellant submits that Respondent No.1 except filing the inspection report has not placed on record any evidence to prove that the appellant directly or indirectly acted in a fraudulent manner or colluded in any fraud by or in relation to the company or its directors or its officers. The funds collected through initial public offer by the promoters/directors have already been siphoned off by them and in the financial year 2014-15 and 2015-16 Respondent No.2 has not carried out any business. The NCLT without giving any finding in this regard punished the appellant which is a major punishment without evidence. 10. Learned counsel for the appellant further submits that NCLT before passing the order that the appellant would be ineligible to be appointed as an auditor of the company has not given reasonable opportunity to put up his defence and solely gives his findings on the report of Inspecting Officer. The appellant has not committed any act, omission or concealed any fact in any manner with intent to deceive or gain undue advantage from Respondent No.2 and its stakeholders. 11. Learned couns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specting Officer, hence firstly we would like to refer the allegations raised in the complaint by Mr. Jagdip H. Vaishnav and findings of Inspecting Officer in his report which are as under:- i) shares are not listed at Pune Stock Exchange. ii) Siphoning of investors money. iii) Company has not issued financial statement after 1995. iv) Company changes registered office frequently. v) No company representatives attends calls given by ROC Mumbai. vi) Investors are complaining about serious irregularities but do not get any response from regulators, investigating agency. 17. Pursuant to inspection, the Inspecting Officer has submitted an inspection report dated 10.5.2018 and supplementary inspection report dated 13.8.2018 wherein it is stated that: 1. Many of the allegations raised by the complainant, Mr. Jagdip H. Vaishhav, are true due to the sheer fact that no registered office fo the Respondent No.2 company, existed. 2. No books of accounts of the Respondent No.2 company were produced to the Inspecting Officer despite notices and summons being issued to the R2 company, its directors and statutory auditors. 3. The Director/Managing Director at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctus and registration fee/expenses etc. 19. It is clear that the directors of Respondent No.2 company have not spent public issue money for the purpose for which the public issue was made, have not met the promise made in the prospectus, have diverted the funds and thus the prospectus dated 10.10.1996 issued by the Respondent company contains false and misleading promises. In the report, it is also found that the earning per share basic/diluted for 31.3.2014, 31.3.2015 and 31.3.2016 is ₹ 0.00055, company has enjoyed all the benefits given by the government for 12 years from the date of public issue and there is clear cut indication that the respondent company is heading for salvation. 20. It is clear that in the terms of provisions of Section 62(1) of the Companies Act, 1956 the persons who are authorised to issue or prospectus of the public/persons to subscribe for shares in/or debentures of the company shall be liable to pay compensation to every person who subscribes any shares in/or debentures of the company on the faith of prospectus for any loss or damage. It is also found that the company came out with Initial Public Offer and issued prospectus to raise public fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have also seen that the directors have siphoned the money between 1996 to 2004. However, the inspection was ordered on 20th March, 2017 and the report submitted on 10.5.2018 and supplementary report on 13.8.2018 and the Inspecting Officer is unable to trace out real culprits i.e. the then directors. 23. Now we have considered the legal issue raised in this appeal is that NCLT has passed the order against the appellant under 2nd proviso to sub- Section (5) of 140 of the Act which came into force on 1.6.2016. However, the appellant issued report for the FY 2014-15 and 2015-16 i.e. prior to the provision came into force. Therefore, NCLT cannot invoke jurisdiction retrospectively. 24. The appellant was appointed on 12.3.2014 as statutory auditor of the Respondent No.2 company. The appellant issued audit report for the Financial Year 2014-15 and 2015-16 on 5.9.2015 and 05.09.2016 respectively. The appellant has issued the audit report for the FY 2015-16 on 5.9.2016 before that the 2nd proviso to sub-section (5) of Section 140 of the Act came into force with effect from 1.6.2016. Hence NCLT can exercise the powers in above referred provision. 25. We are of the view that the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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