9911796707
TMI Blog2004 (12) TMI 722X X X X Extracts X X X X X X X X Extracts X X X X ..... mited (GAIL). They have impugned the show cause notice dated 20th October 1994 issued by the ROC, NCT of Delhi and Mariana. In this notice, it is alleged that the petitioner contravened provisions of Section 211/Schedule-VI, Sections 292 and 370 of the Act. The contraventions which are alleged are as under: 1. Contravention of Section 211/Schedule-VI of the Act. The company has deposited ₹ 10 crores with Citi Bank under the Investment Management Account Scheme on 22.7.91 for a period of one year at an assured yield of 18.7% per annum on quarterly basis. This Deposit was extended for a further period of 6 month. There was some delay in recovery of this amount. However, the principal amount along with the assured yield till date of the payment was realised by the company on 19.3.93. This transaction is in the nature of PMS Transaction and RBI guidelines in this behalf have not been complied with, has been disclosed under the head `Investment' as `Under Portfolio Management Scheme with Bank' (unquoted). However, nature of securities in which investments were made by the Bank on behalf of the company have not been disclosed in the annual accounts in terms of Schedule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 370 of the Act. 3. The petitioners were accordingly called upon to show cause, within 15 days from the receipt of the aforesaid letter, as to why penal action as may be deemed, be not initiated against the company and its directors. Since this notice was addressed to the company, it sent reply dated 10th January, 1995 after seeking few extensions. In the reply, the very basis for issuing such a show cause notice is questioned. Adverting to the first contravention mentioned in the show cause notice, it is stated that the impugned notice proceeds on the basis that deposit of ₹ 10 crores with Citibank under the Investment Management Account is in the nature of PMS transaction and, therefore, alleges that the RBI guidelines in this behalf have not been complied with according to the petitioners, this deposit does not amount to Portfolio Management Scheme (PMS) and therefore there was no question of application of RBI guidelines or violation thereof. It is stated that by the very nature, PMS was evolved by the RBI for the scheduled banks and, therefore, it is the banks who are required to adhere to such guidelines. It was not applicable to other non-banking companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0th meeting held on 9th January, 1995 had passed the Resolution enhancing this limit to ₹ 1,500 crores with effect from 12th November, 1997 for investment of surplus funds under Section 292 of the Act, for employment of these funds as Inter-corporate Deposits (ICDs) with other public sector undertakings or in various scheduled banks under different schemes, on mutual fund scheme of LIC, UTI, CANBANK tc., and Government securities, public sector bonds, units of UTI. 5. In respect of third contravention relating to provision of Section 370 of the Act as stated in the show cause notice, the contention raised in the reply was that it was based on the ground that the Administrative Ministry had not yet given its approval in terms of GSR No. 309 dated 20th February, 1978 but the same was no longer relevant as the Ministry of Petroleum and Natural gas vide its order No.1-11015/2/90-GF dated 7th January, 1995 had exempted the company from the provisions of Section 370 of the act readwith Notification No.GSF 309 dated 20th January, 1990. 6. As, inspite of this reply, the show case notice was not withdrawn, apprehending that the ROC may file criminal proceedings before the Metrop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 372 of the Act. Section 372 deals with purchase by company of shares, etc., of other companies. Sub-section (10) states that every investing company shall annexe in each balance sheet statement showing the bodies corporate in the shares of which investments have been made and it is stated that pursuant to this provisions Schedule-VI was annexed. It is also submitted that Section 211 of the Act mandates that every balance sheet of a company shall give a true and fair view of the state of affairs of the company as at the end of the financial year and therefore it cannot be said today that nature of transaction as reflected in the balance sheet i.e. investment under PMS was not actually PMS transaction as that would amount to violation of Section 211 of the Act. Learned counsel for the ROC also referred to page 2086 of the Act by A. Ramaiya. 8. Referring to second charge, it is stated that violation of Section 292 of the Act is made out as admittedly there was no delegation of the power to the officers at the time of making the investment. If steps were taken by the petitioners as alleged by them, then why the Board approval was taken on 13th August, 1993 is queried by the ROC. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -section (2) unless it has, by notice served in the manner specified by it, required the Registrar and such other person, if any, as it thinks necessary, to show-cause why suchrelief should not be granted. 11. Reading of this section, in no uncertain terms, demonstrate that the petition can be filed by any such officer who apprehends that any proceedings will or might be brought against him in respect of any negligence/default/beach of trust. He can apply to this court for relief and this Court, while considering such an application, has the same power to relieve him as it would have had it been a Court before which a proceeding against such officer for negligence, default etc. had been brought under sub section (1). Therefore this Court has the power to examine the proceedings as a Court before whom such proceedings would have been brought. In other words, this Court has same powers as that of a CMM while dealing with the proceedings filed by the registrar of Companies. 12. Sub-section (1) of Section 633 provides that if such an officer against whom these proceedings may be brought or has been brought has acted honestly and reasonable and having regard to all the circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not been filed by the ROC with the Metropolitan Magistrate which came to be filed only subsequently. It may be mentioned that the ROC has not disclosed as to on which date the criminal complaint was filed but at the time of arguments, it was conceded that such a complaint was filed later. 19. Let me now revert to the charges levelled in the show cause notice. It is clear from the aforesaid discussion, that the first charge is based on the foundation that deposit of ₹ 10 crores by the petitioners with the Citibank was investment under PMS. No doubt, in the balance sheet of the petitioners also it is described a such. But if it was an error in describing the transaction and the real transaction turns out to be other than investment under PMS, mere statement to this effect in the Balance Sheet would not be a factor to still hold it against the petitioners or to record a finding of contravening Section 211 of the Act read with Schedule-VI. It is trite law that what is to be seen is the real nature of the transaction and not the nomenclature which may be an erroneous description. Moreover, we are dealing with a case where the ROC has alleged violation of certain provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices to its clients of the nature or kind, which does not qualify as PMS in terms of the RBI guidelines, it would not constitute PMS transaction. Further for non-observance of RBI guidelines by a bank which offers PMS services to its clients, it is the bank alone who would be answerable or accountable to the RBI and not the company which makes a deposit with the bank. We may note at this stage the essential features of the aforesaid RBI guidelines on PMS. These are as under: (a) PMS should be in the nature of investment consultancy/management, for a fee, entirely at the customer's risk and without guaranteeing, either directly or indirectly a pre-determined return. The bank should charge a definite fee for such services, independent of the return to the client. (b) The bank providing service under PMS should maintain client-wise account of amounts received or funds accepted and the investments made there against. All credits (including realised dividend, interest etc.) and debits relating to the Portfolio account should be put through such account. The tax deduction at source in respect of interest or dividend on securities held by the Bank for the client in the Portfo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the alleged violation of Section 372(4) read with Section 374 of the Act. On a petition under Article 226 of the Constitution for quashing the order of the Company Law Board, it was held as under: (i) as the word previous has not been used in Section 372(4) of the Companies Act, 1956, whereas that word or a similar word has been used in Sections 295, 309, 310, 329 and 370 of the Act, where the legislature has clearly indicated that previous approval of the company in its annual general meeting or of the Central Government is necessary, the previous approval of the company in its annual general meeting or of the Central Government was not necessary under Section 372(4) of the Act and the contrary direction given by the Ministry of Finance was violative of Section 372(4) of the Act and it had no legal effect. The Company Law Board had also misdirected itself in law in rejecting the application of the petitioners by relying on the notification and also by pre-judge in the issue; (ii) Since no previous approval of the company in its annual general meeting or of the Central Government was necessary under Section 372(4) of the Act, the petitioners did not commit any default un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the investment in PMS has been shown by the company as deposits and income there from has been treated as interest income deposits in the books of accounts although the same should have been recorded under the head `investment' during the years 1990-91 and 1991-92 which according to the ROC, is contravention of Section 211/Schedule-VI of the Act. Some other violations are also alleged. Detailed reply to this show cause notice was given on 30th November, 1994. Nothing was heard for quite some time but identical show cause notice was issued bythe ROC again on 31st October, 1995 which was also replied on 14th November, 1995 and immediately thereafter this petition was filed on 15th November, 1995 in which interim stay against prosecution was granted on 2nd February, 1996. 30. The same reasons which have been given above while quashing show cause notice in CP No. 19/1995, shall apply in this case also as legal issues are identical. It may be mentioned that the petitioners here have stated that the company had earned interest of ₹ 33.50 crores by keeping its surplus funds as ICDs with public sector undertakings, public sector banks and their subsidiaries for a maximum per ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
