Violation of the statutory provision of the Section 141(3)(d) of the Companies Act, 2013


IN THE NATIONAL COMPANY LAW TRIBUNAL MUMBAI BENCH
CP No. 4365/140(5)/MB/2018

Under section 140(5) of Companies Act, 2013

In the matter of

Union of India, Ministry of Corporate Affairs, Through Regional Director (Western Region), 100, Everest, 5th Floor, Marine Drive,

Mumbai- 400002

…Petitioner

V/s
i) Mr. Mukesh Maneklal Choksi Membership No. 031751
Proprietor of Mukesh M Choksi & Company, Firm’s Registration No. 131513 W
101, Micky Heritage, Above HDFC Branch, 7th Road Santacruz (East),
Mumbai- 400055

ii) Zen Shaving Limited
Registered Office: Anmol CHS-C Wing, Flat No 1602,
S.V. Road, Goregaon (West), Mumbai-400062

…Respondents

Order delivered on : 03.01.2019

Coram:

Hon’ble Shri V.P. Singh, Member (Judicial)

Hon’ble Shri Ravikumar Duraisamy, Member (Technical)

For the Petitioner: Mr. Vinod Sharma RoC, Joint Director R.K. Dalmia, Mr. R.K. Gholap Dy. Roc

For the Respondents: R1- Mr. Mukesh Maneklal Choksi - party in person.

R2- Mr. Eshwar, PCS

Per Shri V.P. Singh, Member

ORDER

1. This Petitioner has filed this Petition Under Section 140(5) of the Companies Act,2013 for following reliefs in terms of Section 140(5):-

(a) Direct that the Respondent No. 1 shall immediately cease to function as statutory auditor of Respondent No. 2 Company.

(b) Permit the Petitioner to appoint an independent auditor for the Respondent No 2 Company to replace Respondent No 1, in terms of the first proviso to Section 140(5) of the Companies Act, 2013 read with Explanation I thereto.

(c) Direct that the Respondent No 1 and his proprietorship firm shall not be eligible to be appointed as an auditor of any company for a period of 5 years from the date of passing of order, it terms of second proviso to section 140 (5) of the Companies Act, 2013, read with Explanation I thereto.

2. Facts of the case that the allegation raised in the complaints by Mr. Jagdip H Vaishhav were:

(i) Shares are not listed on 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 representative attends calls given by ROC Mumbai

(vi) Investors are complaining about serious irregularities but do not get any response from Regulators, Investigating Agencies.

3. The relevant extract of the statement under oath from the Inspection Report dated 10.05.2018 and Supplementary Inspection Report dated 13.08.2018, recorded by the Respondent No 1 under Section 207 (3)(b) of the Companies Act, 2013, following statement was recorded:-

Question No- 9: - Where is the factory/manufacturing facility of the Company is Located?

Answer No 9:- I Don’t know.

Question No- 10: Who are the persons, capable of giving information about public issue, its utilization and day to day affairs of the company, also mention about their address etc.,?

Answer No 10:- According to the best of my knowledge Shri Arvind Goyal Director,

Shri Jayesh Sampat, director, and Shri Vithal Das Anannat Prabhu the director of the

company are capable of giving information about public issue and day to day affairs/financial affairs of the company.

Question No- 11:- When was the last AGM of the Company was held, its agenda and

where it is held?

Answer No 11:- I don’t Know.

Question No- 12:- Have you attended the AGMs of the company during you tenure as a Statutory Auditor of the Company?

Answer No 12:- I never attended the any AGM of the Company.

Question No- 13:- Whether any Income Tax raised is conducted and the documents seized by the IT Departments?

Answer No 13:- I don’t know.

Question No- 14:- Do you know an order has been issued to carry out the Inspection u/s 206 read with section 207 of the Companies Act, 2013?

Answer No 14:- Yes, this aspect came to my knowledge on receipt of summon dated 09.03.2018.

Question No- 19:- Shri Vithaldas Anant Prabhu, Director of the Company, at the time of recording his statement on 03.01.2018 has stated that he “ was working as ordinary Clerk with Mr. Mukesh Choksi the former CA of the company, using my innocence he

induced me to join the company as director and he has promised me to take care of any consequences arising out of activates of the company “ In this regard what you want to say?

Answer No 19:- They have seen the situation and in the pretext of receiving monetary

gain they become directors of the company. I have not induced them.

Question No- 20:- Who is the company secretary of the company their addresses, membership/Registration No./Mobile/Tel. No?

Answer No 20:- I don’t know.

Question No- 21:- Do you know S M Bhat & Associates, Membership No 030696.3, Sweet Home, 9th Road Extension, JPVD Scheme, Mumbai- 40009 the statutory auditor of the company for the Financial Year 2013-14.?

Answer No 21:- I know him as a Chartered Accountant. I will Submit the relevant

information latest by 20.03.2018.

Question No- 22:- when you are appointed as statutory auditor of the Company?

Answer No 22:- for the Financial year 2014-15.

Question No- 23:- How long you are a statutory auditor of the company?

Answer No 23:- I was appointed as the statutory auditor, for the financial year 2014-15 & 2015-16.

Question No- 24:- Do you have the copy of the consent letter given to the company for appointment as Statutory auditor of the Company and the copy of appointment letter issued by the company?

Answer No 24:- consent letter given to the company is annexed to my letter dated

12.03.2014.

Question No- 25:- Whether an Internal Audit System was in place?

Answer No 25:- No.

Question No- 26:- Where are Books, of Accounts, records, papers etc., are kept? Answer No 26:- The records are with Shri Arvind Goyal, Director of the Company, I am not aware where he is keeping them.

Question No- 27:- Have you called for any Books of Accounts and Statutory Registers from the Company?

Answer No 27:- I have not called for any Books of Accounts and Statutory Registers from the Company.

Question No- 28:- Who has submitted and coordinated the audit of Books of Accounts, Statutory Registers, other papers etc., of the Company?

Answer No 28:- Shri Arvind Goyal, Director of the Company has coordinating the audit work.

Question No- 29:- Where you have audited the Books of Accounts and Statutory Registers, Papers etc., of the Company?

Answer No 29:- I have not audited the books of accounts of the company. However, I have signed the auditor report of the company for the relevant period.

Question No- 30:- What is/was your role as an auditor, mention in brief your duties and responsibilities in the company under inspection?

Answer No 30:- I have to check the Accounts, Statutory Registers, Papers etc., but the records essential for audit purpose was not produced before me. I have been informed that there is no activity carried out by the company he simply produced before me profit

and loss account and the balance sheet. I have certified the Balance Sheet and Profit and Loss Account for the financial year 2014-15 & 2015-16. I have been informed that the company has not done any activity.

3. On perusal of the Application, it appears that the Respondent No 2 Company is not listed on any stock exchange despite the assurances given in the Prospectus dated 10.10.1996 and the present directors of the R2 company are apparently dummy/shadow directors of Mr. Arvind Goyak Babulal, the Chairman of the R2 Company, who dodged his responsibilities to assist in the inspection and all the commonly known attributes of a shell company are existing in the case of R2 Company under inspection.

4. It is contended that pursuant to the Inspection, Inspecting Officer has submitted an inspection Report dated 10.05.2018 and a Supplementary Inspection Report date 13.08.2018 are annexed herewith as Annexure P-3.

5. It is further stated that as per provision Under Section 207 (3) of the Companies Act, 2013, the Investigating Officer vested with the powers of Civil Court for directing production of Books of Account of the company under inspection and further to summon, enforce attendance of the person and examination under oath. Inspecting officer issued summons to all the Directors of the R2 Company in addition to summons to R1, who were the Statuary Auditors of the R2 company for the Financial Years 2014-15 and 2015-16.

6. Ld RoC, has emphasized on the statement of Statuary Auditor wherein he has stated that he has not Audited Books of Account of the company however he has signed Auditor Report of the company for the relevant period.

7. Ld. Roc, has further emphasized on the Statuary Provision under section 141(3)(b) which provides that following person shall not be eligible for appointment as an Auditor of the company namely.

(d) a person who, or his relative or partner-

(i) is holding any security of or interest in the company or its subsidiary, or of its holding or associate company or a subsidiary of such holding company:

Provided that the relative may hold security or interest in the company of face value not exceeding one thousand rupees or such sum as may be prescribed;

9. It is further contended that R1 acted as Statuary Auditor and issued following Auditors Report that is reproduced below:-

To,

The Members of ZEN Shaving Limited

Report on the Standalone Financial Statements

We have audited the accompanying Standalone Financial Statement Zen Shaving Limited (the “Company”) which comprises the Balance Sheet as at March 31, 2015, the statement of Profit Loss for the year then ended and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Financial Statements.

Management is responsible for the matters stated in Section 134 (5) of the Companies Act, 2013 (“the Act”) with respect to the preparation of these standalone financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the accounting standards specified under section 133 of the act, read with Rule 7 of the Companies (Accounts) Rules, 2014. The responsibility also includes maintenance of adequate accounting records in accordance with the provision of the Act for safeguarding of the assets of the Company and for preventing and detecting frauds and other irregularities: selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statement that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these standalone financial statements based on our audit.

11. Whereas he has admitted in his statement that he has not audited the Books of Account of the Company and has only signed Auditor Report of the Company for the relevant period. It shows that the statuary auditor has given

false certificate that he audited the Books of Account of the company for the relevant period. It is further found by the Inspecting Officer in his Inspection Report dated 10.05.2018 and Supplementary Inspection Report dated 13.08.2018, as detailed above for ready reference.

(a) Many of the allegations raised by the complainant, Mr. Jagdip H. Vaishhav, are true due to the sheer fact that no registered office of the Respondent No 2 Company, existed.

(b) 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.

(c) The Director/Managing Director at the helm affairs failed to respond to the notices issued by the Inspecting Officer.

(d) The R2 Company came out with Initial Public Officer (IPO) and issued prospectus to raised public funds on 10.10.1996. There after the team of directors has completely changed. The Initial Promoters of the Company are not involved in the affairs of the Company subsequent to 29.09.2005. the R2 company is not listed on any stock exchange despite the assurances given in the Prospectus dated 10.10.1996.

(e) The date of retirement of Shri Ketan A Gaglani, Managing Director who was involved in day to day affairs of the Respondent No 2 company since 18.12.19959 the company was incorporated on 07.03.1995) has retired on 29.09.2005.

(f) The present directors, who took over the affairs of the R2 Company since 04.10.2014, are not traceable.

(g) The present directors of the R2 Company are apparently dummy/shadow directors of Mr. Arvind Goyak Babulal, the Chairman of the R2 Company, who dodged his responsibilities to assist in the inspection.

(h) All the commonly known attributes of a shell company are existing in the case of R2 Company under inspection.

(i) Mr. Arvind Goyal Babulal, the Chairman of the R2 company, in terms of provisions of Section 2(60)(v) of the Companies Act, 2013, is the “officer in default”

(j) The actions of the company and its directors clearly prove that all the allegations raised are true and correct.

12. That the Petitioner submitted that it is clear from the findings of the Inspecting Officer in his Report dated 10.05.2018 that the Respondent No 1, being the statutory auditor of the Respondent No 2 Company has miserably failed to fulfill the duty entrusted to him as per the provisions of the Companies Act, 2013. The said fact is also made evident from the crux of admission made by the R1 in his statement recorded under section 207 (3)(b) of the Companies Act, 2013, which admissions have been summarized hereunder:

13. Relying on the statement on the oath R-1, it is clear that the R1 Mr. Mukesh M Choksi has failed to exercise his duty of Statutory Auditor and he has certified that he has issued Auditor Certificate even without examining any of the records/ Books of the Account of the R2 Company.

14. It is recorded that family members of R1 are share holders of the R2 Company whereas Section 141(3)(d) specifically prohibits a statutory auditor whose relative or partner is holding any security or interest of the company.

15. It is amply clear that family members of the statutory auditor of R1 are share holders of R2 company and R1 has issued audit certificate of the company even without examining any Books of Account of the R2 Company which is clear cut violation of the statutory provision of the Section 141(3)(d) of the Companies Act, 2013. In the circumstances we pass the following order which comes into force with immediate effect.

(a) that the Respondent No. 1 shall immediately cease to function as statutory auditor of Respondent No. 2 Company.

(b) Permit the Petitioner to appoint an independent auditor for the Respondent No 2 Company to replace Respondent No 1, in terms of the first proviso to Section 140(5) of the Companies Act, 2013 read with Explanation I thereto.

16 It is further directed that R1 & R2 are required to file Parawise Counter Affidavit/ Reply within 15 days from today and serve copy to the opposite party after that rejoinder, if any, may be filed within 15 days. The copy of the order may be immediately communicated to the Union of India, MCA, Petitioner and to R1 & R2 by mail and by speed post. Designated Registrar is directed to ensure compliance of order immediately.

List on 04.02.2019 for final argument.

Sd/- Sd/-

RAVIKUMAR DURAISAMY MEMBER (TECHNICAL)

V.P. SINGH

MEMBER (JUDICIAL)

download order here


Write a Comment