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2007 DIGILAW 456 (GAU)

Assam Syntex Ltd. v. Registrar of Companies

2007-06-29

TINLIANTHANG VAIPHEI

body2007
JUDGMENT Tinlianthang Vaiphei, J. 1. The validity of the second part of the order dated 24.1.2006 passed by the learned Judicial Magistrate, Shillong in Criminal Case No. 580-587 (S) of 2005 requiring the petitioners under Section 614A of the Companies Act, 1956 to file three copies of the balance sheets and profit and loss accounts for financial years commencing from 31.3.1997 to 31.3.2004 with the Registrar of Companies, Assam, Meghalaya, Tripura, Manipur, Nagaland, Arunachal Pradesh and Mizoram within one month from the date of order, failing which the provision of Section 614A(2) of the Companies Act, 1956 would be attracted, is called into question this criminal petition. 2. Both Mr. B.D. Das, the learned Counsel for the petitioners and Mr. R. Deb Nath, the learned Central Government Counsel, were heard at length. 3. The facts, shorn of necessary details but are relevant for this case, are that the petitioner No. 1 is a subsidiary of the Assam Industrial Development Corporation Ltd., a Government of Assam undertaking, while the petitioner No. 2 is the Managing Director of the petitioner No. 1 and that the respondent No. 1, who is the Registrar of Companies for the North Eastern States, initiated Criminal Case No. 580-587(S)/2005 Under Section 220(3) read with Section 162(1) of the Companies Act, 1956 (the Act for short) against the petitioners for their failure to furnish three copies of Balance Sheets and Profit and Loss Accounts for the financial years commencing from 31.3.1997 and ending on 31.3.2004 i.e. for 7 (seven) financial years. It would appear that the criminal proceeding in question was stated to have been initiated by the respondent No. 1 when the show cause/default notice did not evoke positive response from the petitioner. The learned Magistrate ultimately found the petitioners guilty-of the provisions of Section 162(1) of the Act and sentenced the petitioner No. 2 to pay fine at the rate of Rs. 2/- per each defaulting day, the total whereof come to Rs. 51,564/-. The petitioners have duly paid the fine so imposed. The learned Magistrate ultimately found the petitioners guilty-of the provisions of Section 162(1) of the Act and sentenced the petitioner No. 2 to pay fine at the rate of Rs. 2/- per each defaulting day, the total whereof come to Rs. 51,564/-. The petitioners have duly paid the fine so imposed. The contention of the petitioners that the balance sheets as well as the profit and loss accounts could not be filed with the Registrar of Companies as no statutory auditor was appointed by the Comptroller and Auditor General as required by Section 619(2) of the Act, which was the requirement in the case of Government Companies, apparently did not find favour with the learned Magistrate. This prompted the learned Judicial Magistrate to pass the impugned direction. 4. It is contended by Mr. B.D. Das, the learned Counsel for the petitioners, that when the Auditor Comptroller and Auditor General did not admittedly appoint the statutory auditor, no audited balance sheets and profit and loss accounts for the period in question were available and, as such it was impossible to file copies of such documents with the respondents No. 1. According to the learned Counsel, such direction passed by the learned Judicial Magistrate amounts to a demand to do an impossible act. He, therefore, submits that the impugned direction suffers from the vice of non-application of mind and is bad in law and is liable to be quashed. On the other hand, Mr. R. Deb Nath, the learned CGC, appearing for the respondents, supports the impugned direction and contends that the fact that no statutory auditor was not appointed by the Comptroller and Auditor General, is no defence to the charge inasmuch as it is the statutory duty imposed by Section 220(1) of Act upon the petitioners to file such documents, which admits of no exception and the petitioners charged of grave omission to fulfill their statutory duty could not rely on their own default as an answer to such charge. He further submits that once the petitioners have been convicted of the offence Under Section 162(1) of the Act and were sentenced to pay fine, and have already paid the fine so imposed, it does not lie in their mouth to contend that the impugned direction is illegal; such direction is the natural and inevitable consequence of their conviction and sentence. It is thus contended by the learned CGC that the criminal petition has no leg to stand, and is liable to be dismissed. 5. There is no dispute at the bar that no statutory auditor was ever appointed by the Comptroller and Auditor General for the relevant financial years and that the petitioner-company is a government company. The question which then falls for consideration is whether the non-appointment of statutory auditor could exempt the petitioner from filing the documents namely, three copies of the balance sheets and profit and loss accounts for the financial years in question? Section 220(1) of the Act provides for the filing of these documents, which are in the following terms: 220 Three copies of balance-sheet etc., to be filed with Registrar-(1) After the balance-sheet and the profit and loss account have been laid before a company at an annual general meeting as aforesaid, there shall be filed with the Registrar within thirty days from the date on which the balance-sheet and the profit and loss account were so laid or where the annual general meeting of a company for any year has not been held, there shall be filed with the Registrar within thirty days from the latest day on or before which that meeting should have been held in accordance with the. provisions of this Act. 6. Thus, simply put, a company is required to file with the Registrar of Companies three copies of the balance sheet and the profit and loss account signed by the person specified therein together with three copies of all documents which are required by the act to be annexed or attached to such balance sheet or profit and loss account. When? After the balance sheet and profit and loss account have been laid before the company at an annual general meeting, but it must be within thirty days from the date on which the balance sheet and profit and loss account were so laid or where the annual general meeting for the company has not been held for any year, they should be filed within thirty days from the latest day on or before which that meeting should have been held in accordance with the provisions of the Act. What are the three other copies of the documents which are to be annexed or attached to the balance sheet or profit and loss account? What are the three other copies of the documents which are to be annexed or attached to the balance sheet or profit and loss account? These documents obviously refer to such as the ones mentioned in Section 216 of the Act, namely, auditor's report (including the auditor's separate, special or supplementary report, (if any). Section 215(3) requires the approval by the Board of Director of the balance sheet and profit and loss account before they are submitted to the auditors for their reports thereon. Section 210(1) says that at every annual general meeting of the company held in pursuance of Section 166, the Board of Directors of the company shall lay before the company (a) a balance sheet at the end of the period specified in Sub-section (3); (b) a profit and loss account for that period. Section 166 requires that every company shall in each year hold in addition to any other meetings a general meeting as its annual general meeting and shall specify the meeting as such in the notice calling it; and not more than fifteen months shall elapse between the date of one annual general meeting of a company and that of the next. A combined reading of Sections 210(1) and Section 215(3) and Section 216 makes it abundantly clear that the auditor's report is a part and parcel of the balance sheet and profit and loss account of the company being submitted in its annual general meeting. It is only after they are laid before the annual general meeting of the company that the three copies of the balance sheet and profit and loss account duly signed by the specified authority together with the auditor's report (including the auditor's separate, special of supplementary report, if any) shall have to be filed with the Registrar of Companies in terms of Section 220(1). Section 220(3) deals with the penalty for such default, which reads thus: 220 (3) – If default is made in complying with the requirements of Sub-sections (1) and (2), the company every officer of the company who is default, shall be liable to the like punishment as is provided by Section 162 for a default in complying with the provisions of Sections 159, 160 or 161. 6.1 Section 619 of the Act engrafts special provisions for Government Companies, which are in the following terms: (1) In the case of a Government Company, the following provisions shall apply, notwithstanding anything contained in Sections 224 to 233. (2) The auditor of a Government company shall be appointed or reappointed by the Central Government on the advice of the Comptroller and Auditor-General of India. Provided that limits specified in Sub-sections (1-B) and (1-C) of Section 224shall apply in relation to the appointment or re-appointment of an auditor under this sub-section. (3) The comptroller and Auditor-General of India shall have power- (a) To direct the manner in which the company's accounts shall be audited by the auditor appointed in pursuance of Sub-section (2) and to give such auditor instructions in regard to any matter relating to the performance of his functions as such. (b) To conduct a supplementary or test audit of the company's accounts by such person or persons as he may authorize in this behalf; and for the purpose of such audit, to require information or additional information to be furnished to any person or persons so authorized, on such matters, by such person or persons, and in such form, as the Comptroller and Auditor-General may, by general or special order, direct. (4) The auditor aforesaid shall submit a copy of his audit report to the Comptroller and Auditor-General of India who shall have the right to comment upon or supplement, the audit report in such manner as he may think fit. (5) Any such comments upon, or supplement to, the audit report shall be placed before the annual general meeting of the company at the same time and in the same manner as the audit report. Sections 224 to 233 are concerned with the appointment of auditors for companies other than Government companies and the same provides that such appointments are to be made by the companies at each annual general meeting. However, in the case of Government companies, the appointments of auditors are to be made by the Comptroller and Auditor General of India as indicated in Section 619(2). It is the contention of Mr. However, in the case of Government companies, the appointments of auditors are to be made by the Comptroller and Auditor General of India as indicated in Section 619(2). It is the contention of Mr. B.D. Das, the learned Counsel for the petitioners, that when the Comptroller and Auditor-General of India failed to appoint the auditor in the petitioner-company, no balance sheet or profit and loss account could be prepared and when the statutory auditor appointed by the CAG for the financial years 1998-99 and 1999-2000 vide the letter at Annexure-8 did not submit the audit reports and when the statutory auditor for the subsequent financial years are not even appointed by the CAG, it is impossible for the petitioners to comply with the impugned direction of the learned Judicial Magistrate. He thus submits that the impugned order dated 24.1.2006 suffers from non-application of mind, and is liable to be set aside. 7. At this stage, it is worthy to note that the petitioner-company apparently did not lay the balance sheet and profit and loss account in the annual general meeting for the financial years commending from 1997 onwards. This inference is inevitable when no statutory auditor was admittedly appointed by the CAG for the period in question. Another noticeable feature in the conduct of the petitioners is that till the letter dated 24.3.2003 (Annexure-6) written by its parent company i.e. Assam Industrial Development Corporation Ltd. (AIDC Ltd.) to the CAG, no request was ever made by the petitioner-company or its, parent concern for appointment of statutory auditor. Anyway, coming now to the contention of the learned Counsel for the petitioners, I cannot but observe that it is the requirement of Section 220(1) that three copies of the balance sheet and profit and loss account together with three copies of other documents indicated earlier shall have to be filed with the Registrar of Companies. The question to be determine is whether the filing of these documents with the Registrar of Companies is mandatory or not. Section 220(1) uses the word shall, which necessary raises the presumption that the provision is mandatory or imperative. Nonetheless, this prima facie inference may be rebutted by other consideration such as the object and scope of the enactment and the consequences flowing from such construction. There are numerous cases where the word shall has been construed as merely directory. Section 220(1) uses the word shall, which necessary raises the presumption that the provision is mandatory or imperative. Nonetheless, this prima facie inference may be rebutted by other consideration such as the object and scope of the enactment and the consequences flowing from such construction. There are numerous cases where the word shall has been construed as merely directory. For ascertaining the real intention of the Legislature, according to the eminent jurist, Subbarao, J. State of U.P. vs. Baburam Upadhaya, 1961 Cri LJ 773. The court may consider, inter alia, the nature and design of the statute, and the consequences which would follow from construing if one way or the other; the impact of other provisions whereby the necessity of complying with the provisions in question is avoided; the circumstances, namely, that the statute provided for a contingency of the non-compliance with the provisions; the fact that the non-compliance with the provisions is or is not visited by some penalty; the serious or trivial consequences, that flow therefrom, and above all, whether the object of the legislation will be defeated or furthered. The issue has now been well-settled in the case of Sarifuddin vs. Abdul Gani, (1980) 1 SCR 1177 where the Apex Court held that whenever a statute requires a particular act to be done in a particular manner and also lays down that failure to comply with the said requirement leads to a specific consequence, it would be difficult to accept the argument that the failure to comply with the said requirement should lead to any other consequence. 8. In the instant case, as noticed earlier, Section 220(1) mandates a company to file with the Registrar of Companies three copies of the balance sheet and profit and loss account together with similar number of copies of all documents when are required to be annexed or attached to such documents within thirty days from the date on which such documents were so laid at its annual general meeting, or when such meeting for any year has not been laid within thirty days from the latest day on or before which the meeting should have been held in accordance with the provisions of the Act. Sub-section (3) then lays down in no uncertain terms the penalty for non-compliance with the requirement of Section 220(1). Sub-section (3) then lays down in no uncertain terms the penalty for non-compliance with the requirement of Section 220(1). Thus, the consequence, nay, the penalty, for not following Section 220(1) is specifically provided for in the Act itself. In this view of the matter, there is no difficulty in holding that the requirement to file the aforesaid documents with the registrar is mandatory and not directory. True, the CAG did not appoint the statutory auditor as required by Section 619(2). But it is also equally true that till 24.3.2003, when the petitioner sent the letter at Annexure-6 to the CAG, no request was ever made by them for appointment of the statutory auditor. Therefore, the petitioner-company is equally at fault. Secondly, which is more important, Section 637B(b) of the Act expressly lays down that notwithstanding anything contained in the Act, where any document required to be filed with the Registrar under the provision of the Act is not filed within the time specified herein, the Central Government may, for reasons to be recorded in writing, condone the delay. Section 220(1) does not make any exception for meeting the situation where a statutory auditor is not appointed by the CAG. In my opinion, if for any reason, no statutory auditor is appointed by the CAG which disables a Government company from filing the aforesaid documents with the Registrar, such as the one confronting the petitioner-company, such company can very well approach the Central Government under Section 637B(b) for necessary condonation. The petitioner-company, in the instant case, has never approached the Central Government for condonation even though it is required by law to file the balance sheet and profit and loss account, etc. with the Registrar within the period so stipulated. In the view that I have taken, I do not find any jurisdictional error in the impugned order of the learned Judicial Magistrate by directing the petitioners to rectify the situation as contemplated by Section 614A of the Act. It must be remembered that the learned Magistrate was exercising his discretionary jurisdiction in issuing the impugned order. 9. The net result of the foregoing discussion is that this revision has no merit and is accordingly dismissed. However, on the peculiar facts and circumstances of the case, the parties are directed to bear their own costs. Petition dismissed.