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Smart Summary

Factual and Procedural Background

This opinion addresses a compounding petition filed by Alps Remedies Private Limited and its directors before the National Company Law Tribunal, Mumbai Bench, concerning a violation of Section 134(3)(o) of the Companies Act, 2013. The petition originated from notices issued by the Registrar of Companies (RoC) regarding the Company’s alleged failure to comply with Corporate Social Responsibility (CSR) disclosure requirements for the financial year 2014-2015. The Company initially claimed ineligibility for CSR provisions based on its interpretation of the MCA Circular but was subsequently held eligible by the RoC. Despite several show cause notices and requests for extensions, the Company admitted to the violation and filed the compounding application to regularize the offence.

Legal Issues Presented

  1. Whether the petitioner company and its directors violated the disclosure requirements under Section 134(3)(o) of the Companies Act, 2013 relating to CSR expenditure.
  2. Whether the offence committed under Section 134(3)(o) can be compounded under Section 441 of the Companies Act, 2013.
  3. The appropriate compounding fee and conditions for compounding the offence.

Arguments of the Parties

Petitioner’s Arguments

  • The petitioner company argued that it was not aware of the MCA Circular clarifying CSR eligibility over three preceding financial years and thus believed it was not required to spend on CSR for the relevant year.
  • The omission to disclose CSR details in the Directors’ Report was unintentional and without malafide intent, constituting an oversight devoid of mens rea.
  • The Company emphasized its genuine intention to comply with CSR provisions and highlighted its existing charitable activities.
  • The petitioner undertook to comply with CSR disclosure requirements going forward.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The Tribunal examined the facts including the RoC's report, the petitioner’s submissions, and relevant statutory provisions. It found that the petitioner company and its directors had indeed violated Section 134(3)(o) of the Companies Act, 2013, which mandates disclosure of reasons for non-spending of CSR amounts in the Board’s report. The court referred to the punishment provisions under Section 134(8) prescribing fines and imprisonment for contraventions. The Tribunal noted the absence of malafide intent and the petitioner’s subsequent compliance efforts. Considering the circumstances, the Tribunal deemed the application for compounding the offence appropriate and imposed a compounding fee as a deterrent. The detailed provisions of Section 135 relating to CSR obligations were also cited to contextualize the obligations breached.

Holding and Implications

The compounding petition was disposed of on payment of a compounding fee of Rs. 3,50,000/- in total (Rs. 2,00,000/- for the company and Rs. 50,000/- each for the three directors), subject to compliance reporting.

The direct consequence of this decision is that the offence under Section 134(3)(o) is formally compounded, thereby absolving the company and its directors from further prosecution for the violation. The order requires a compliance report to be placed on record before the RoC takes any consequential action. The opinion does not establish any new precedent but reinforces the procedure and conditions for compounding CSR-related disclosure offences under the Companies Act, 2013.

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    Alps Remedies Pvt Ltd. v. N/A

    BEFORE THE NATIONAL COMPANY LAW TRIBUNAL

    COURT NO. 5, MUMBAI BENCH

    CP No.: 85/441/NCLT/MB/MAH/2018 Under section 441 of the Companies Act, 2013 In the matter of

    1. Alps Remedies Private Limited, 12, Gunbow Street Fort, Mumbai-

    400001.

    2. Mr. Raman Parameswaran Athipotta- Director

    3. Kamil Mustafa Hamied- Director

    4. Farida Yusuf Hamied- Director …. Petitioners

    Vs.

    Registrar of Companies, Mumbai ..... Respondent

    Order delivered on: 03.01.2020 Coram:

    Hon'ble Suchitra Kanuparthi, Member (Judicial) Hon'ble V. Nallasenapathy, Member (Technical) For the Petitioners:

    Mr. Ketan S. Dand Practising Company Secretary. Defaulters Herein:

    1) Alps RemediesPrivate Limited, Company

    2) Mr. Raman Parameswaran Athipotta- Director

    3) Kamil Mustafa Hamied- Director

    4) Farida Yusuf Hamied- Director Section Violated:

    Section 134(3)(o) of the Companies Act, 2013 Punishment Provided Under:

    Section 134(8) Companies Act, 2013

    Per: Suchitra Kanuparthi, Member (Judicial)

    ORDER

    1. This Compounding Petition was filed before the Registrar of Companies, Mumbai on 15.01.2018 and the same has been forwarded along with the RoC Report to NCLT, Mumbai Bench. The Ld. Registrar of Companies intimated that the Petitioner Company has filed by the

    1

    aforementioned Compounding Petition Suo-moto for violation of Section 134(3)(o) of the Companies Act, 2013.

    2. The Petitioner Company received a Notice bearing No. RoC/CSR/81 dated 18.05.2016 (1stNotice) inter-alia calling for/ requesting the Company u/s Section 206(1) of Companies Act,2013 to furnish the details of CSR expenditure made by the Company for F.Y. 2014-2015, in prescribed format, within 7 days.

    3. The Petitioner Company vide letter dated 07.06.2016 replied to the 1st Notice stating that the Company is not eligible Company u/s 135(1) and therefore not required to spend Section 135(5), as Petitioner Company was not aware of MCA Circular dated 18thJune 2014 clarifying the term 'any financial year' for determining CSR eligibility as three preceding financial years instead of preceding financial year.

    4. The Petitioner Company received a Show cause Notice bearing No. RoC/CSR/81/134/2016/2444 on 20.09.2016(2ndNotice) referring to the Circular No. 21/2014 and Circular No. 01/2016 of MCA, stating, that the Petitioner Company is eligible U/s 135(1) of Companies Act, 2013. Hereby called to show cause why the legal action U/s 134(8) should not be taken against the Company and its Directors.

    5. The Petitioner Company, in reply, vide letter dated 28.09.2016 requested RoC to grant and extension of some time to comply with said requirements contained in the Letter No. RoC/CSR/81/134/2016/2444.

    6. The Petitioner Company vide letter dated 04.10.2016, in reply to the Show Cause Notice submitted that-

    A. The Company has studied various potential sources of income and applications thereof

    B. The Company wants to accumulate reasonable amount of money so that expenditure it incurs on CSR can be managed well for maximum benefit for the society.

    C. It is not that we do not believe in charity. It is not that we need law to induce charity. Our Group is engaged in substantial charitable activities in one or other form. Records can be submitted with concerned department

    D. The Company shall comply with disclosure for F.Y 2015-2016 and it did by disclosing the reasons for non-expenditure in Board Report for the F.Y. 2015-2016 and also made good the default by disclosing prescribed particulars in Director's Report for F.Y. 2015-2016

    2

    7. The Petitioner Company again received a Show cause Notice No. RoC/CSR/81/134/2017/8619 dated 03.10.2017 issued by RoC without considering the reply filed by the Petitioner Company dated 04.10.2016 The Petitioner Company requested RoC for a meeting to explain its facts and innocence on 16.10.2017.

    8. RoC issued a Show Cause Notice dated 11.12.2017 which was received by the Company on 14.12.2017 completely ignoring the request off the meeting and informing that the Company had agreed to the Compounding Offence u/s 441 of the Companies Act,2013 in its submissions dated 16.10.2017 with the RoC. The Company shall file Compounding Applications with this office as per procedure prescribed.

    9. The Petitioner Company filed request of extension of time for another 15 days to file the Compounding Applications, dated 15.12.2017. RoC via its email dated 22.12.2017 agreed to grant extend time of submitting the compounding application by 7 more days, i.e the application is to be filed on or before 31.12.2017

    Submissions:

    10. It is submitted that the Petitioner Company is a Private Limited Company, and as such, no outside stakeholders right is likely to be adversely affected. It is submitted that, even otherwise also, given the genuine intensions of the Company, backed by its actions towards compliance of CSR provisions, none were likely to be adversely affected. That the Petitioner company undertakes to comply with provisions of Section 134(3)(o) of the Companies Act, 2013, for the forth coming years.

    11. The Learned Representative for the Applicants/Defaulters herein, submitted that, there was no mal fide intent in not disclosing CSR details in its own Directors Report which was to be read by its own shareholders. The omission was purely due to oversight and devoid of mens rea.

    Findings:

    12. Accordingly, by going through the facts of the case and the submissions made by the Learned Representative for the Applicants/Defaulters herein, the conclusion can be drawn that, the Applicants/Defaulters herein had violated the Provision of Section 134(3)(o)of the Act. And for the said violation the punishment is provided under Section 134(8)of the Act, which is relevant in this Case, is as follows-

    3

    If a company contravenes the provisions of this section, the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to twenty-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 three years or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both.

    13. This Bench has gone through the Application of the Applicants/Defaulters herein and the Report submitted by the RoC and also the submissions made by the Learned Representative at the time of hearing and noted that Application made by the Applicants/Defaulters herein for compounding of offence committed under Section 135 of the Companies Act, 2013, merits consideration. Section 135 of the companies Act, 2013 reads as-

    "135. Corporate Social Responsibility

    (1) Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.

    (2) The Board's report under sub-section (3) of section 134 shall disclose the composition of the Corporate Social Responsibility Committee.

    (3) The Corporate Social Responsibility Committee shall,—

    (a) formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII;

    (b) recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and

    (c) monitor the Corporate Social Responsibility Policy of the company from time to time.

    (4) The Board of every company referred to in sub-section (1) shall,—

    (a) after taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company's website, if any, in such manner as may be prescribed; and

    (b) ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company.

    (5) The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made

    4

    during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy:

    Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities:

    Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section

    (3) of section 134, specify the reasons for not spending the amount."

    14. On examination of the circumstances as discussed above a Compounding Fee of Rs. 2,00,000/- for Company & Rs. 50,000/- each for 3 Directors (i.e. Rs. 1,50,000/-), which works out to Rs 3,50,000/- in total by applicant/defaulters herein, stated in the Defaulters list, shall be sufficient as a deterrent for not repeating the impugned default in future. Accordingly, the Company & its Directors paid the compounding fee to the "Ministry of Corporate Affairs" on 27.01.2020 and they also have produced the receipt for Rs.3,50,000/-

    15. This Compounding Application CP No.: 85/441/NCLT/MB/MAH/2018 is, therefore, disposed of on the terms directed above. Needless to mention, the offence shall stand compounded subject to the remittance of the Compounding Fee imposed. A compliance report, therefore, shall be placed on record. Only thereafter the Ld. RoC shall take the consequential action.

    16. Ordered accordingly. Sd/- Sd/-

    V. Nallasenapathy Suchitra Kanuparthi Member (T) Member(J)

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    Comments

    Alps Remedies Pvt Ltd. v. N/A
    (Jan 3, 2020)