The Delhi High Court held that the registrar may call for information, inspect books, conduct inquiries, but only after informing the company of the allegations and giving an opportunity of being heard.
The Petitioner, Axis Ispat Private Limited, has filed the petition seeking quashing of the 37 show cause notices, dated 28th January 2021, issued against the Petitioner, by the Ministry of Corporate Affairs, Union of India, under various sections of the Companies Act, 2013. A further prayer of the Petitioner is for the quashing of the letter dated 18th March 2019, vide which, an inspection of the books of accounts and other statutory records of the Petitioner company under section 206(5) of the Companies Act, 2013 was sought for by the Ministry of Corporate Affairs.
Mr. Dayan Krishnan, senior counsel appearing for the Petitioner, submitted that although under Section 206 of the Companies Act, the Registrar of Companies has the power to call for information, an inspection of books, and to conduct an inquiry, however, the Registrar would have to first call upon the Petitioner to give an explanation and also provide them a reasonable opportunity of being heard before the Registrar, before issuing show cause notices.
however, he submits that, though there was some delay initially by the Petitioner in filing the reply to the findings, a reply had been given. However, he submits that the said reply appears to have not been considered by the Registrar, as is clear from the text of the show cause notices that have been issued to the Petitioner on 28th January 2021.
Mr. Krishnan submits that the Petitioner be allowed to submit a comprehensive reply to the show cause notices and the same be considered before the Registrar of Companies proceeds further, inasmuch as once the prosecution is directed, the Petitioner would be required to face a full- fledged trial.
Ms. Nidhi Raman, Counsel for the respondent authority, on the other hand, submitted that when the preliminary findings/ report was issued on 2nd September 2019, sufficient time was given to the Petitioner to file the reply. However the Petitioner chose to file a belated reply only in June 2020, and the same was also considered by the authority and thereafter the show cause notices have been issued against the Petitioner. She further submits that despite the fact that the show cause notices were issued on 28th January 2021, and time was given to the Petitioner to reply to the same, to date no replies to the show cause notices have been received. Accordingly, she submits that the authorities ought to be permitted to continue to proceed in accordance with the law.
“There is no doubt that under Section 207 of the Companies Act, 2013, statements of the Directors of the company have been recorded. However, under these circumstances, the Petitioner ought to be given a reasonable opportunity of being heard. In the present case, preliminary findings were issued in September 2020, and owing to the belated reply, the authorities have proceeded further, to issue the said show cause notices and it is not clear if the reply submitted was considered or not,” the court said.
The single judge bench of Justice Pratibha M. Singh in order to ensure that the interest of the Petitioner is properly balanced, and adequate opportunity is afforded to the Petitioner, issued various directions.
Firstly, a copy of the report of the IO, which contains allegations against the Petitioner, if already not supplied, shall be supplied to the Petitioner within a week from today.
Secondly, in continuation of the reply submitted in June, 2020, a comprehensive detailed reply be filed by Petitioner, in response to all the show cause notices within a period of four weeks, i.e. on or before 5th May, 2021. No further opportunity shall be granted in this regard.
Lastly, the Registrar shall afford a hearing to the Petitioner in respect of the allegations raised in the preliminary findings and in the show cause notices, and after affording a hearing to the Petitioner, the Registrar may proceed further in accordance with the law. The entire process shall be concluded within a period of two months from May 2021.
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