NCLT USES ITS AUTHORITY TO REMOVE THE MANAGEMENT OF CHURCH OF SOUTH INDIA TRUST ASSOCIATION FOR THE IRREGULARITIES BY waiving off all or any of the requirements specified under Clause (a) or Clause (b) of Section 244 (1) of the Companies Act, 2013

NCLT USES ITS AUTHORITY TO REMOVE THE MANAGEMENT OF CHURCH OF SOUTH INDIA TRUST ASSOCIATION FOR THE IRREGULARITIES BY waiving  off all or any of the requirements specified  under Clause (a) or Clause (b) of Section 244 (1) of the Companies Act, 2013

John S.Dorai Vimal Sukumar

Vs

M/s. Church of South India Trust Association (CSITA)

Decided by NATIONAL COMPANY LAW TRIBUNAL, CHENNAI

Facts of the case

Interlocutory Application was raised mainly to look into the maintainability of the CP on the ground that the Respondent/Petitioner is neither a member of CSITA company nor 24 persons who had given consent to file the company petition are members of CSITA company.

It is stated in the IA that neither of them are entitled under provisions of Section 244 of the Act, 2013, to file the instant company petition invoking the provisions of Section 241 of the Act, 2013.

Based upon this fact, a prayer has been made to dismiss the company petition as not maintainable.

CSITA Company is a public religious and charitable trust known by the name and style “The Church of South India Trust Association” and it is registered as registered under Section 25 of the Companies Act.

It is observed that the main object of the company as set out  in Sub  Clause  'A ' of Clause III of the Memorandum of Association, is to promote the objects of the charity.

As per the Articles of Association,  the total number of members  who are directors  is restricted to  ten  and  total  number  of  office  bearers  is  four.

Members shall  be elected only by the Synod of the Church, and election shall be conducted every two years.  The tenure of the present Synod was expired in January2016. Thereafter, no such Synod is in its place.

It was mentioned in the petition that It has been stated that in W.P.No.21343/2011 the Hon’ble Madras High Court directed the Registrar of Companies, Tamilnadu, Chennai, to carry out a detailed inspection of the Company u/s 209A of the Companies Act, 1956 and the Registrar of Companies has pointed out 27 irregularities and issued show-cause notice to the Respondents mentioned in the company petition.

There are 43 criminal cases instituted against the respondents which are pending before the Economic Offences Court, Egmore and also before the Regional Director, Ministry of Corporate Affairs, Chennai.

When explanation was called for by the ROC with respect to irregularities, the reply that was filed on behalf of the Company is as follows:

"The official members of CSITA  are of on honorary basis and they keep changing over two years and these committee members are religious heads and they are not conversant with the provisions of the Companies Act. "

The   Registrar   of   Companies   has   rejected   the   explanation   and recommended action against the company and its office bearers through Serious Frauds Investigation Office (SFIO).  

 Allegation against the Present Management of the Church

·       The reason for such action is stated that the office bearers without any authority borrowed heavily on the properties of the company by way of creating charges on its properties.

·       The present committee members stated to have been indulging in selling the property elsewhere in South India, for throw away prices.

·       The present management committee is said to have executed powers of attorney to non-members of the company to deal with company's properties without any authorization.

·       The present management committee members are said to be there for more than six years without any legal base. It is averred that  Income Tax Department has conducted a couple of special audits of the accounts of the company and found several irregularities, due to which the Income Tax Department has not  issued "Income Tax Exemption Certificate" to the company for more than three years.

Seeking Interim Prayers

In the  backdrop of the above stated  facts,   the   interim  prayers that are made for seeking interim directions are as follows :-

·       That the present Management Committee may be suspended

·       To direct the Company to appoint the newly elected persons as Management Committee

·       To permit the newly appointed Management Committee to carry out operations of the Company as per the provisions of the Companies Act, 2013

·       To appoint such other person whom the Tribunal deems fit to supervise the functions of the newly appointed Management Committee.

It was argued by the respondents that petitioners are not having any right to sue the company Section244 of the Companies Act, 2013 as they are qualified members as stated in the above section.

However  , NCLT Chennai bench observed that the  Tribunal suo moto can  waive  off all or any of the requirements specified  under Clause (a) or Clause (b) [as the case may be] of Section 244 (1) of the Act, so as to enable the member to apply under Section 241 of the Act.

NCLT, Chennai bench also observed that the petition, in essence, is a representative petition which falls within the purview of Order 1, Rule 8 of the Civil Procedure Code, 1908.

Once, it is established that R1 Company is a charitable institution which  caters the needs  of the beneficiaries/ stakeholders, the properties  of such religious and charitable  trust must be protected   jealously.    This  has  been  observed   by  the  Apex  Court  in Chenchu Rami Reddy & Anr. Vs Government of Andhra Pradesh & Ors, reported in 1986 SCR (1)989.    In view of the factual and legal position.

In view of the factual  and l legal  posit ion stated above, I am of the view that it is a fit case where all the requirements laid down u/s 244(1) (b) of the Companies Act, 2013 for filing company.

Decision of the NCLT Bench, Chennai

Since the Company Petition is held maintainable and in the given circumstances there is an urgent need to regulate the affairs of R1 Company.  Thus, NCLT, Chennai proceed to remove  all  the  directors  and managing committee including office bearers by appointing Hon'ble Justice Shri (Retd CT Selvam) as the Chairman who is authorised to nominate four suitable persons to be chosen from the sub­ units/Dioceses of Churches and three office bearers.

Now , it is mandatory to mention latitude and longitude of the assets charged with MCA through CH-4 or CH-9 Form.

Now , it is mandatory to mention latitude and longitude of the assets charged with MCA through CH-4 or CH-9 Form.

Corporate India will have to furnish the geo-location data of tangible assets appearing on the balance sheet with the government seeking to establish stringent norms for verifying the details of the properties as recorded with the Registrar of Companies as “Charges for the Company.”

Revising disclosure standards, the ministry of Corporate Affairs has told companies that supplying the latitude and longitude of their tangible assets is now mandatory.

Company Secretaries and asset managing teams might now be engaged with the Google Maps with MCA now revising the form CH 1 and 8 to include a column on the latitude and longitude of asset concerned.

Both forms pertain to application for the creation and modification of charges on a company and were modified through a gazette notification this month.

If the type of the charge is immovable property or any interest thereon , the location parameters  (Latitude and longitude ) shall be mandatory.

As per ICSI President , it is a unique move as there were instances wherein the property entered in the charge registration form is not identifiable and it takes years to take correct positions and location of the property. It will also helpful to the lending institutions and the data would be verifiable on the line with the latitude and longitude.

If the latitude and longitude is made part of the loan agreement itself , the verification process would be more accurate and help all categories of professionals.

The latest move follows the requirement to authenticate the Aadhaar on the  ministry’s e-governance platform. Mandatory geo-location data should ensure stricter documentation and verification of companies and their liabilities.

Highlighting the difficulties that arise when creditors want to review charges , ICSI President said that there are instances where the address details have been charged. Further , if a property is located in a remote area , it can only be identified by the revenue department records and it is very difficult to get the location of the property.

FAQ’s on Striking off the name of the Companies by ROC’s through Section 248 Notices

FAQ’s on Striking off the name of the Companies by ROC’s through Section 248 Notices.

For facilitating members and to make them understand the outcome of interactive meeting with ROC regarding striking out of companies we are here by providing the answers for FAQs.

Dear all the following FAQs were answered by ROC, AP and Telangana regarding 248 notices.

Section 248 Notice

Q1. What is next course of action In case company which is not doing any business and having received the notice under 248?

A. If the company is not intended to carry on any business, then company need not reply to ROC notice. The company will be automatically striked out. 

Or

 if the company having no objection for striking out it may reply to the notice stating that it has no intention to carry on any business and has no objection for striking out. It I'll expedite striking out process.

Personal Liability of Directors

Q2. What will happen in case company is having assets and liabilities on the date of notice?

A. Once the company is striked out, it loose the concept of perpetual entity and all the assets and liabilities will become personal assets and liabilities of shareholders and directors and they will be personally liable for liabilities in their personal capacity.

Failure to Respond to the Section 248 Notice by the Companies who are continuing its business ?

Q3. What will happen if the company doing business and do not respond to the notice and no file the returns 

Ans. The company will be in default of the provisions of CA 2013 and directors and company will be liable for prosecution and penal actions including vacation and disqualification of directors

Whether the Directors are Disqualified after striking out ?

Q4. In case company is strikes out as per notice whether directors of such company are liable for prosecution and whether they will be disqualified and vacated in all other companies in which they are directors.

Ans.

No. There is no impact in the position of directors of such companies after striking off. They will not be liable for any prosecution, they will not be disqualified or vacate office of directorships in other companies.

They may also incorporate new company again after striking out. There is no bar or limitation.

Only name of the company which was strikes out will be blocked for next 20 years. 

Dormant Companies

Q5. Whether  companies which are in dormant mode as per master data of MCA as defunct are also treated as dormant companies?

Ans. Under CA 2013 dormant companies means the companies which have specially filing application for making dormant status shall alone be treated as dormant companies. It means the companies though not functioning nor filing returns and whose status in master data merely shows defunct will not be acquire the status of dormant companies and will be liable for prosecutions and penalties if they are not strikes out in the process.

The companies which are in dormant status subsequent to filing of requisite forms under CA2013 need not file any returns except one yearly return as required under act and if received notice for striking out a suitable reply may be given to roc in this regard.

If the Company do not want to be strike out ?

Q6. If the company doing business desires not to be strikes out and require some more time to file pending returns what is the procedure.

Ans. The company may seek permission of ROC by making specific request and to based on genuinity may allow one or two months time for the same.

             If the Company wants to continue its business ?

Q7. In case company is not having assets and liabilities wants to start or continue the business, what is to be done.

Ans. A letter for seeking time for filing pending returns shall be submitted and after filing of returns it shall submit a reply with evidence of filings with roc.

Wants to Convert into to LLP

Q8. In case company which received notices wants to convert into LLP can it do so without filing pending returns?

And. No. The company unless files all pending returns it can't be converted into LLP or any other form

Q9. What is the status of companies which received notices and which  has obtained bank loans or having charges after striking out.

And. The company as soon as striked out will ceased to exist and all bank charges and other liabilities will become personal liabilities of directors and share holders..

Q10. What will be the position of companies under 560 striking out.

Ans. Such companies need not to take any action in case notice is received by them.

As per the request made  the list of default companies already made available by the MCA.

Disclaimer#

These points were raised by participants and the answers were the outcome of interactive meeting.

The ministry may come out with any other clarification for such kind of FAQs in writing.

The readers may use the FAQs for limited purpose and the views in answers may be varied if the Ministry provides any clarifications in writing.

We will not undertake any responsibility on the answers provided above   as there is no written clarifications or answers from MCA.

CAN THE AUDITORS OF THE COMPANY CAN BE REMOVED WITHOUT FOLLOWING THE PROCEDURES IN THE ACT?

CAN THE AUDITORS OF THE COMPANY CAN BE REMOVED WITHOUT FOLLOWING THE PROCEDURES IN THE ACT?

No Says NCLT, Hyderabad Bench.

SPC & Associates, Chartered Accountants & DVAK & Co vs NISC Export Services Pvt Ltd

This case involved SPC & Associates, Chartered Accountants & DVAK & Co. Hence, the question was ‘where (here after referred as “Company”) appointed petitioner-CA firm as its Statutory Auditor for period of five years but did not ratify their appointment in its subsequent AGM and appointed another CA firm as its statutory auditor, since company did not obtain prior approval of central Government, removal of petitioner was to be held illegal or not?’ Whether as Principle of natural justice auditor should be provided sufficient opportunity of being heard before his non-ratification or not. Here, after analyzing the provisions of the Companies Act, 2013, the NCLT held:

Principle of Natural Justice:

In The Constitution of India, nowhere the expression Natural Justice is used. However, golden thread of natural justice sagaciously passed through the body of Indian constitution. Preamble of the constitution includes the words, ‘Justice Social, Economic and political’ liberty of thought, belief, worship… And equality of status and of opportunity, which not only ensures  fairness in social and economical activities of the people but also acts as shield to individuals liberty against the arbitrary action which is the base for principles of Natural Justice.

In India, the principles of natural justice are firmly grounded in Article 14 & 21 of the Constitution. With the introduction of concept of substantive and procedural due process in Article 21, all that fairness which is included in the principles of natural justice can be read into Art. 21. The violation of principles of natural justice results in arbitrariness; therefore, violation of natural justice is a violation of Equality clause of Art. 14.

In broad-spectrum, The Principles of Natural Justice have come out from the need of man to protect himself from the excesses of organized power man has always appealed to someone beyond his own creation. Such someone is the God and His laws, divine law or natural law, to which all temporal laws and actions must confirm.

Natural Law

Natural Law is of the ‘higher law of nature’ or ‘natural law’. Exp: Natural Law does not mean the law of the nature or jungle where lion eats the lamb and tiger eats the antelope but a law in which the lion and lamb lie down together and the tiger frisks the antelope.

Natural Law is another name for common-sense justice. Natural Laws are not codified and are based on natural ideals and values which are universal. In the absence of any other law, the Principles of Natural Justice are followed.

Decision of the NCLT Bench:

Upon perusal of all the materials, submissions made by all the parties, The NCLT Bench has held that:

The Petitioner was not ratified in AGM held on 26.09.2016, as Principles of Natural Justice demands that he should have been provided with sufficient opportunity before his non-ratification. Auditor acts as a bridge between management and shareholders of the Company and is an important professional in the whole eco system of the corporate world. Therefore, removal/non-ratification of the Auditor without prior notice/seeking his comments would not be proper.

The NCLT Bench decide the case with following declarations/ directions:

i. The removal of petitioner firm as the auditor of Company and the appointment of new auditor of Company is improper.

ii. We direct the company to continue the Petitioner firm as the Auditor of Company till the next AGM and subsequently necessary course of action can be taken by Company regarding the continuation of Petitioner firm, in accordance with law

iii. We further direct that Company to take necessary steps to re-appoint the petitioners’ firm as Auditor of the Company.

iv. We direct the new auditors firm to submit all the records available in their possession, if any, and to cooperate with the Petitioner firm to conduct the audit of books of account of the   Company.

Courtesy: S K Jain 

How a Creditor or a Lender can initiate a corporate insolvency Resolution Process under section 8 &9 of the Insolvency and Bankruptcy Practice Code and under Rule 6 of Insolvency and Bankruptcy (Application to the Adjudicating Authority) Rules 2016 to get the amount advanced to a wilful defaulter?

How a Creditor or a Lender can initiate a corporate insolvency Resolution Process under section 8 &9 of the Insolvency and Bankruptcy Practice Code and under Rule 6 of Insolvency and Bankruptcy (Application to the Adjudicating Authority) Rules 2016 to get the amount advanced to a wilful defaulter?

Facts of the Case

In National Gas Agencies  vs Janata Chemicals Private Ltd , the NCLT Mumbai bench considered the petition for declaring Janata Chemicals Pvt Ltd as defaulted debtor as it had failed to repay a sum of Rs 23,14,240/= under the IBPC filed by the petitioner.

National Gas Agencies have claimed that various cheques issued by the Janata Chemicals P Ltd were dishonoured as the Janata Chemical’s bank returned those cheques with the remark “exceeds arrangements” which means that Janata Chemical’s bank account had insufficient funds to meet its cheques issued to National Gas Agencies.

Procedures to be Followed under I & B Code 2016

The operational Creditor also issued a statutory notice under Insolvency & Bankruptcy Code 2016 demanding the payment due thereby enclosing copies of invoices and the copies of returned cheques.

The creditor also filed an affidavit expressing that the corporate debtor has not raised any dispute on the existence of debt and it has not received any communications from the corporate debtor regarding the existence of debt.

The Corporate creditor has exposed that there is a debt as defined in Section 3 (11) of the I&B Code 2016.  The Creditor also served the debtor a notice under section 8 (1) I&B Code 2016.

Verdict of the NCLT, Mumbai Bench

On the basis of the above, the NCLT Mumbai bench accepted that the corporate debtor had defaulted in making payments to the creditor and the petition filed under section 8 & 9 is taken as complete and the Bench admitted the petition declaring Moratorium.

The NCLT Mumbai Bench has also made a public announcement of the Corporate Insolvency Resolution Process which shall be commenced immediately as explained under section 13 of the Code.

Conclusion

National Gas Agencies  vs Janata Chemicals Private Ltd case clearly demonstrates a creditor can approach the NCLT if his debtor fails to pay his dues or try to avoid the payment to the creditor by following the procedures prescribed under I & B Code 2016.

A Corporate Debtor who is unable to pay its debts can approach NCLT for a moratorium order to prevent any criminal action under Negotiable Instrument Act or any recovery process under SARFAESI

A Corporate Debtor who is unable to pay its debts can approach NCLT for a moratorium order to prevent any criminal action under Negotiable Instrument Act or any recovery process under SARFAESI

Ultratech Engineering Limited - made a petition to NCLT, Mumbai bench under section 10 of the Insolvency and Bankruptcy Code 2016 and under Rule 7 of the Insolvency and Bankruptcy Rules 2016 for initiation of Corporate Insolvency Resolution Process.

Ultratech Engineering alleged in its petition that one Sicom Investment and Finance Ltd , who is a financial creditor has warned the company through a letter that they will be initiating an action under section 138 &141 of the Negotiable instrument Act ,1881 demanding the Ultratech Engineering to pay Rs 5 Crores  failing which, a criminal complaint will be filed against the Ultratech and its directors.  Likewise, Canara bank who is also creditor also demanded the Ultratech to pay its dues at the earliest. Likewise, the Sales Tax department also issued an attachment order to one of its current account with a bank.

The following documents were submitted by the Corporate Debtor Ultratech Engineering as required Insolvency and Bankruptcy (Application adjudicating authority) Rule 2016.

·       Forms evidencing creation of charge by Ultratech Engineering in favour of its financial creditors and lenders.

• ·  Copies of the audited financial statements and provisional financial statements
• 
  
• ·       The details of its financial creditors and amounts owed to them
• 
  
• ·       List of company shareholders

On the basis of the above, the Mumbai NCLT issued a moratorium under section 10 of the I&B Code 2016.

How a Moratorium Order Helps an Ailing Corporate Debtor?

The moratorium order issued by the NCLT Mumbai  bench prohibits the institution of suits or continuation of pending suits or proceedings against the corporate debtor ( Ultratech Engineering) including execution of any judgment , decree , or order in any court of law , tribunal , arbitration panel or other authority; transferring , encumbering , alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein.

Any action to foreclose , recover or its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act ,2002,  (SARFAESI).

The operation of order of Moratorium issued by NCLT will have effect from the date of its issue till the completion of the corporate insolvency resolution process or until the NCLT bench approves the resolution plan under sub-section 31 or passes an order for liquidation of corporate sector under section 33 as the case may be.

It is to be noted that section 35 of SARFAESI Act, 2002 states that the Act overrides every other enactment. However , Insolvency and Bankruptcy Code 2016 overides all other acts , such as Negotiable Instrument Act , SARFASEI, any state Act. 

Section 14 (1) of IBC states the following :

Subject to provisions of sub-sections (2) & (3) on the insolvency commencement date , the Adjudicating Authority shall by order declare moratorium by prohibiting all of the following - namely

(a) the institution of suits or suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment decree or order in anhy court of law , tribunal , arbitral panel or other authority. 

This is an important direction by NCLT as per section 14(1) of IBC  in Ultratech Engineering case and in  ICICI Bank Ltd vs. Innoventive Industries Ltd.