(Prayer: Criminal Original Petition is filed under Section 482 of Cr.P.C., to call for the records and quash the complaint in C.C.No.156 of 2018, on the file of the Judicial Magistrate No.III, Coimbatore.)
1. The petition to quash the complaint filed by the Registrar of Companies against the petitioners herein alleging non-compliance of Section 148 of Companies Act, 2013 and thereby, liable for prosecution under Section 148(8) of Companies Act, 2013.
2. The 1st petitioner herein is the Private Company incorporated under the Companies Act. The 2nd petitioner is the Managing Director of the Company. The prosecution is launched on the premise that the 1st accused is incorporated under the Companies Act on 11.10.2006. Section 148 of the Companies Act, 2013 came into force from 01.04.2014. As per the provision of Section 148 of Companies Act and Rules framed thereunder in Companies (Cost records and Audit) Rules 2014, a company which has net worth of above Rs.500 Crores or annual turnover of above Rs.100 crores has to appoint cost auditor and maintain Cost Audit records in their books of account. Every Company which has to appoint Cost Auditor shall resolve to appoint Cost Auditor in their Board of Directors within 180 days of the commencement of every financial year and same has to be informed to the Government within 30 days which ever is earlier within 18 days. Alleging that, the 1st petitioner has not appointed Cost Auditor within time prescribed and in spite of show cause notice issued on 05.12.2016, they did not respond. Hence, being a continuous offence the petitioner Company is liable to be punished for contravention of Section 148 of the Act.
3. The said complaint is sought to be quashed on the ground that the petitioner Company vide its Board Resolution dated 02.12.2016 has appointed Cost Auditor and notice to the Government along with fees in Form CRA-2 was submitted on 29.12.2016. As mandate under the Rules, Form CRA-4 was submitted along with the fees on 13.07.2017. While so, the impugned complaint presented on 05.03.2018 and taken cognizance by the Magistrate is liable to be quashed on the following grounds:- (i). The complaint is barred by Limitation. (ii). The show cause notice not served to the petitioner Company and no opportunity was given to the Company to place the facts on record. (iii). The complainant without verifying the records had filed this complaint as if, the Company has committed a continuous offence, without taking note of the facts that the requirement under Section 148 of the Act been complied much before presentation of the complaint.
4. The complainant has filed counter through Registrar stating that the 1st petitioner company represented by its Managing Director, the 2nd petitioner has committed default in appointing a Cost Auditor and to submit its cost accounts audited by Cost Accountant. After causing show cause notice, the complaint was filed since the petitioners failed to reply. The show cause notice dated 05.12.2016 was sent to the mail address ([emailprotected]) of the petitioners have provided by them to the Registrar of Companies in MGT-7 (Annual Return) filed by the petitioners for the financial year 2014-2015 and 2015-2016.
5. The contention of the petitioners that the show cause notice was not sent to them is an afterthought and blatant lie. The claim of the petitioners that Cost Auditor was appointed is not correct. They never report the Board of Directors resolution in their financial year 2015-2016 and CRA-4 Form not filed in the Office. It is a matter for trial to ascertain for which year the Board appointed Cost Auditor and for which financial year, the Cost Auditor in CRA-4 was filed by the Company. As far as, the financial year 2015-2016 is concerned, from the records available, no Cost Audit available with the Cost Audit Branch and no Cost Audit report was submitted. Therefore, the claim of the petitioners that they have complied Section 148 of Companies Act for the year 2015-2016 is matter for trial to be proved. Till the month of August – 2017, the records maintained by the Cost Auditor Branch indicates the petitioner Company has not appointed the Cost Auditor and thereby had failed to comply the provisions of Section 148 of Companies Act. Therefore, there is no delay in filing the complaint dated 05.08.2018.
6. Before appreciating the grounds raised by the petitioner, it is pertinent to understand the provisions of Companies Act, 2013 and Companies (Cost Records and Audit) Rules, 2014, which are relevant to decide the issue hence they are extracted below:-
Section 148 of Companies Act, 2013:-
148. Central Government to specify audit of items of cost in respect of certain companies.— (1) Notwithstanding anything contained in this Chapter, the Central Government may, by order, in respect of such class of companies engaged in the production of such goods or providing such services as may be prescribed, direct that particulars relating to the utilisation of material or labour or to other items of cost as may be prescribed shall also be included in the books of account kept by that class of companies:
Provided that the Central Government shall, before issuing such order in respect of any class of companies regulated under a special Act, consult the regulatory body constituted or established under such special Act.
(5).... . .
(8). If any default is made in complying with the provisions of this section,—
(a) the company and every officer of the company who is in default shall be punishable in the manner as provided in sub-section (1) of section 147;
(b) the cost auditor of the company who is in default shall be punishable in the manner as provided in sub-sections (2) to (4) of section 147.
Companies (Cost Records and Audit) Rules, 2014:-
4. Applicability for Cost Audit.- (1) Every company specified in item (A) of rule 3 shall get its cost records audited in accordance with these rules if the overall annual turnover of the company from all its products and services during the immediately preceding financial year is rupees fifty crore or more and the aggregate turnover of the individual product or products or service or services for which cost records are required to be maintained under rule 3 is rupees twenty five crore or more.
(2) Every company specified in item (B) of rule 3 shall get its cost records audited in accordance with these rules if the overall annual turnover of the company from all its products and services during the immediately preceding financial year is rupees one hundred crore or more and the aggregate turnover of the individual product or products or service or services for which cost records are required to be maintained under rule 3 is rupees thirty five crore or more.
(3) The requirement for cost audit under these rules shall not apply to a company which is covered in rule 3; and
(i) whose revenue from exports, in foreign exchange, exceeds seventy five per cent of its total revenue; or
(ii) which is operating from a special economic zone;
(iii) which is engaged in generation of electricity for captive consumption through Captive Generating Plant. For this purpose, the term “Captive Generating Plant” shall have the same meaning as assigned in rule 3 of the Electricity Rules, 2005”
Companies (Cost Records and Audit) Rules, 2014:-
6. Cost Audit:- (1) The category of companies specified in rule 3 and the thresholds limits laid down in rule 4, shall within one hundred and eighty days of the commencement of every financial year, appoint a cost auditor.
Provided that before such appointment is made, the written consent of the cost auditor to such appointment, and a certificate from him or it,as provided in sub-rule (1A), shall be obtained
(1A) The cost auditor appointed under sub-rule (1) shall submit a certificate that-
(a) the individual or the firm, as the case may be, is eligible for appointment and is not disqualified for appointment under the Act, the Cost and Works Accountants Act, 1959(23 of 1959) and the rules or regulations made thereunder;
(b) the individual or the firm, as the case may be, satisfies the criteria provided in section 141 of the Act, so far as may be applicable;
(c) the proposed appointment is within the limits laid down by or under the authority of the Act; and
(d) the list of proceedings against the cost auditor or audit firm or any partner of the audit firm pending with respect to professional matters of conduct, as disclosed in the certificate, is true and correct.”
(2) Every company referred to in sub-rule(1) shall inform the cost auditor concerned of his or its appointment as such and file a notice of such appointment with the Central Government within a period of thirty days of the Board meeting in which such appointment is made or within a period of one hundred and eighty days of the commencement of the financial year, whichever is earlier, through electronic mode, in form CRA-2, along with the fee as specified in Companies (Registration Offices and Fees) Rules, 2014.
(4) Every cost auditor, who conducts an audit of the cost records of a company, shall submit the cost audit report along with his or its reservations or qualifications or observations or suggestions, if any, in form CRA-3.
(5) Every cost auditor shall forward his duly signed report to the Board of Directors of the company within a period of one hundred and eighty days from the closure of the financial year to which the report relates and the Board of Directors shall consider and examine such report, particularly any reservation or qualification contained therein.
(6) Every company covered under these rules shall, within a period of thirty days from the date of receipt of a copy of the cost audit report, furnish the Central Government with such report along with full information and explanation on every reservation or qualification contained therein, in Form CRA-4 in Extensible Business Reporting Language format in the manner as specified in the Companies (Filing of Documents and Forms in Extensible Business Reporting language) Rules, 2015 along with fees specified in the Companies (Registration Offices and Fees) Rules, 2014.”.
Section 147 of Companies Act, 2013:-
147. Punishment for contravention:-
(1) If any of the provisions of sections 139 to 146 (both inclusive) is contravened, the company shall be punishable with fine which shall not be less than twenty five thousand rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees, or with both.
(2) If an auditor of a company contravenes any of the provisions of section 139, section 143, section 144 or section 145, the auditor shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees [or four times the remuneration of the auditor, whichever is less]
7. From reading of the provisions, it is evident that the petitioner company which has turn over more than Rs.100 crores is liable to appoint Cost Auditor as per Rule 6(1) and the Registrar of Companies has to be informed about the Board resolution regarding appointment of Cost Auditor in the specific form with specific fees as per Rules 6(2). Any failure or omission to appoint Cost Auditor attracts prosecution under Section 147(1) of the Act.
8. In the instant case, admittedly the petitioner company has not appointed Cost Auditor within time prescribed. Through the documents in the typed set of papers annexed to the petition, it is seen that the Board has resolved to appoint Cost Auditor by name Mr.Venkateswar, Cost Accountant, for the financial year ending 31.03.2016 in their meeting held on 02.12.2016. Within 30 days of the Board resolution, under Rules 6(2) of the Companies (Cost Records and Audit), the Company ought to have submit Form CRA-2 along with required fee. The receipt issued by Ministry of Corporate Affairs towards fees for CRA-2 is dated 29.12.2016 and thereafter, on receipt of the Cost Audit Report, the petitioner Company along with its explanation, has submitted the Cost Audit Report in Form CRA-4 to the Ministry of Corporate Affairs on 13.07.2017. The petitioner company has paid sum of Rs.4,200/- under CRA-4 on 13.07.2017. In the complaint, it is specifically stated that, it is a case of continuing offence and therefore, the complaint is not barred by limitation as per Section 472 of Cr.P.C. “Section 472 of the Cr.P.C., says, in case of a continuing offence, a fresh period of limitation shall begin to run at every moment of the time during which the offence continues.”
9. Therefore, it is evident that the compliance of Section 148 of Companies Act, 2013, for the financial year 2015-2016 has been completed only on 13.07.2017 hence, the limitation has to be reconciled from that date. Thus, the process commenced from issuance of show cause notice dated 05.12.2016, for the contravention of Section 148(1) of the Companies Act, which commenced on 01.10.2015, after expiry of 180 days and ceased on 13.07.2017, the date on which the Cost Audit report under CRA-4 submitted along with the explanation and fees, the complaint filed on 12.03.2018.
10. Section 435 of the Companies Act deals with Establishment of Special Courts to deal cases offences under the Act and Section 438 of the Act say save as otherwise provided in the Companies Act, the provisions of Cr.P.C., will apply to the proceedings before the Special Court. The punishment prescribed for violation of the provision of Section 148 of Act, the Company is liable for fine of not less than Rs.25,000/- and may extend to Rs.1 lakhs. The Officer in charge of the defaulted Company shall be pu
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nished for a term of imprisonment which may extend upto one year or with fine which shall not be less than Rs.10,000/- but may extend upto Rs.1 lakh or both. Section 468 of Cr.P.C., prescribes one year period as limitation for prosecuting offences punishable upto one year. 11. In the present case, the petitioner Company was in existence company, when the Companies Act 2013 came to force. Therefore, it is mandatory on the part of the petitioner to appoint Cost Auditor and inform the same to the Ministry of Corporate Affairs with requisite forms and fees, within the period of 180 days. For the financial year 2015-2016, the 180 days limitation got expired on 30.09.2015. From 01.10.2015, the cause of action to prosecute commences and till the completion of the formalities of appointing Cost Auditor, informing the same to the Secretary of Corporate Affairs and submission of the Cost Audit Report, the offence is a continuing offence, which falls within the ambit of Section 472 of the Cr.P.C. The case in hand is concerned, the offence ceased on 13.07.2017, when Form CRA-4 filed. The complaint is filed within one year, i.e., 12.03.2018. Therefore, the complaint regarding contravention between 01.10.2015 to 13.07.2017 cannot be quashed on the ground limitation. Hence, this Criminal Original Petition is dismissed. The dismissal of the quash petition shall not stand in the way of the Company to compound the offence, if it is permissible under law. 12. Accordingly, this Criminal Original Petition is dismissed. Consequently, connected Miscellaneous Petition is closed.