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ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO. 3442 OF 2018
HDFC Bank Limited )
A Company incorporated under the ) provisions of the Companies Act, 1956 and ) having its registered office address at HDFC)
Bank House, Senapati Bapat Road, Lower )
Parel (West), Mumbai 400 013 ) ...Petitioner
JUDGMENT
1 Registrar Of Companies Mumbai ) having its office at 100, ‘Everest’, Marine ) Drive, Mumbai 400 002 )
2 Union of India ) Through Ministry of Corporate Affairs, ) 100, ‘Everest’, Marine Drive Mumbai-02 )..Respondents ---- Mr. Virag Tulzapurkar, Senior Advocate, Ms Bindi Dave, Mr. Jeshan Sinha, Mr. Aayesh Gandhi and Mr. Gaurang Samel for Petitioner. Mr. Himanshu P. Singh i/b Ms Ashish Mehta for Respondents. ---- CORAM: K. R. SHRIRAM & JITENDRA JAIN, JJ. DATED: 20th JUNE 2024 (ORAL JUDGMENT PER K..R. SHRIRAM J.):
1 Since the pleadings are completed, we decided to dispose the petition at the admission stage itself. Therefore, Rule. Rule made returnable forthwith and heard.
2 At the outset, Mr. Singh is seeking an adjournment, which we are not inclined to grant. This petition has been pending since 2018.
3 Petition has been filed impugning an order dated 4th October 2018 Meera Jadhav passed under Section 206(4) of the Companies Act 2013 (the Act). By the said order, petitioner has been called upon to furnish various details, documents and information.
4 It is petitioner’s case that before order under Section 206(4) of the Act is passed, respondent no.1 has to first comply with the proceedings under sub-sections (1) and (3) of Section 206 of the Act. It is also petitioner’s case that even to pass an order under Section 206(4) of the Act, respondent no.1 could only issue the impugned order once he is satisfied based on the information available with or furnished to him or on representation made to him by any person that petitioner’s business is being carried on for a fraudulent or unlawful purpose or not in compliance with the provisions of the Act or if the grievance of investors are not being addressed. Mr. Tulzapurkar submitted that the impugned order is bereft of any such determination and does not even record respondent no.1’s satisfaction, much less the basis thereof.
5 It was also submitted by Mr. Tulzapurkar that Section 206(4) of the Act makes it evident that information on explanation which is sought, has to be matters specified in the said order. The impugned order is bereft of any allegations.
6 In the affidavit in reply, it is not denied that respondent no.1 has not complied with the procedure under sub-sections (1) and (3) of Section 206 of the Act, that is to say respondent no.1 admits in the affidavit in reply filed through one Anil Yadav and affirmed on 28th August 2019 that preconditions prescribed in Section 206 (1) and (3) of the Act have not been made but according to respondent no.1, an order under Section 206(4) of the Act can be issued directly. An attempt to justify the action is also made by submitting that in the impugned notice respondent no.1 is not alleging or establishing any fraud against petitioner but it is issued for gathering information and it is also an opportunity of being heard.
7 Section 206 of the Act reads as under:
206. Power to call for information, inspect books and conduct inquiries- (1) Where on a scrutiny of any document filed by a company or on any information received by him, the Registrar is of the opinion that any further information or explanation or any further documents relating to the company is necessary, he may by a written notice require the company— (a) to furnish in writing such information or explanation; or (b) to produce such documents, within such reasonable time, as may be specified in the notice. (2) On the receipt of a notice under sub-section (1), it shall be the duty of the company and of its officers concerned to furnish such information or explanation to the best of their knowledge and power and to produce the documents to the Registrar within the time specified or extended by the Registrar. Provided that where such information or explanation relates to any past period, the officers who had been in the employment of the company for such period, if so called upon by the Registrar through a notice served on them in writing, shall also furnish such information or explanation to the best of their knowledge. (3) If no information or explanation is furnished to the Registrar within the time specified under sub-section (1) or if the Registrar on an examination of the documents furnished is of the opinion that the information or explanation furnished is inadequate or if the Registrar is satisfied on a scrutiny of the documents furnished that an unsatisfactory state of affairs exists in the company and does not disclose a full and fair statement of the information required, he may, by another written notice, call on the company to produce for his inspection such further books of account, books, papers and explanations as he may require at such place and at such time as he may specify in the notice: Provided that before any notice is served under this sub-section, the (4) If the Registrar is satisfied on the basis of information available with or furnished to him or on a representation made to him by any person that the business of a company is being carried on for a fraudulent or unlawful purpose or not in compliance with the provisions of this Act or if the grievances of investors are not being addressed, the Registrar may, after informing the company of the allegations made against it by a written order, call on the company to furnish in writing any information or explanation on matters specified in the order within such time as he may specify therein and carry out such inquiry as he deems fit after providing the company a reasonable opportunity of being heard: Provided that the Central Government may, if it is satisfied that the circumstances so warrant, direct the Registrar or an inspector appointed by it for the purpose to carry out the inquiry under this subsection: Provided further that where business of a company has been or is being carried on for a fraudulent or unlawful purpose, every officer of the company who is in default shall be punishable for fraud in the manner as provided in section 447. (5) Without prejudice to the foregoing provisions of this section, the Central Government may, if it is satisfied that the circumstances so warrant, direct inspection of books and papers of a company by an inspector appointed by it for the purpose. (6) The Central Government may, having regard to the circumstances by general or special order, authorise any statutory authority to carry out the inspection of books of account of a company or class of companies. (7) If a company fails to furnish any information or explanation or produce any document required under this section, the company and every officer of the company, who is in default shall be punishable with a fine which may extend to one lakh rupees and in the case of a continuing failure, with an additional fine which may extend to five hundred rupees for every day after the first during which the failure continues.
8 Sub-section (1) of Section 206 of the Act states where on a scrutiny of any document filed by a company or on any information received by him, the Registrar is of the opinion that any further information or explanation or any further documents relating to the company is necessary, he may, by a written notice require the company, (a) to furnish in writing such information or explanation; or (b) to produce such documents, within such reasonable time, as may be specified in the notice. Therefore, the Registrar has to form, after the scrutiny of any document filed by petitioner or on any information received by the Registrar, that any information or explanation or further documents relating to the companies is necessary, he may by a written notice require the company to furnish in writing such information or explanation or to produce such documents. There is nothing to indicate from the impugned order that the Registrar receiving any information or that he had scrutinized any document filed by petitioner and had formed an opinion that he needs further explanation or information or documents from petitioner.
9 Sub-section (2) of Section 206 of the Act states it is the duty of the company and of its officers concerned to furnish such information or explanation and produce documents on receipt of the notice under subs Section (1). Such information or explanation shall be to the best of their knowledge and power.
10 Sub-section (3) of Section 206 of the Act states if no information or explanation is furnished to the Registrar within the time specified under sub-section (1) or if the Registrar on an examination of the documents furnished is of the opinion that the information or explanation furnished is inadequate or if the Registrar is satisfied on a scrutiny of the documents furnished that an unsatisfactory state of affairs exists in the company and does not disclose a full and fair statement of the information required, he may, by another written notice, call on the company to produce for his inspection such further books of account, books, papers and explanations as he may require. Therefore, under sub-section (3) the Registrar has to form a further opinion that an unsatisfactory state of affairs exists in the company.
11 Sub-section (4) of Section 206 states if the Registrar is once again satisfied on the basis of information available with or furnished to him or on a representation made to him by any person that the business of a company is being carried on for a fraudulent or unlawful purpose or not in compliance with the provisions of this Act or if the grievances of investors have not being addressed, the Registrar may, after informing the company of the allegations made against it by a written order, call on the company to furnish in writing any information or explanation on matters specified in the order within such time as he may specify therein and carry out such inquiry as he deems fit.
12 Even if, the Registrar proceeded on the basis that sub-section (4) of Section 206 of the Act is independent of sub-sections 1 to 3 of Section 206 of the Act, still the impugned order does not satisfy the requirements of sub-section (4) of Section 206 of the Act. In the impugned order, there is a general statement “ In exercise of the powers conferred by sub-section (4) of Section 206 …………... from information available /received, complaints by Investors in respect of frauds and other serious complaints, the undersigned requests for information/clarification on the following points ………….” It does not specify what are the complaints, what part of the business of the company is being carried on for a fraudulent or unlawful purpose or what part of the business of the company is not in compliance with the provisions of the Act or which are the grievances of the investors that were not being addressed.
13 However, the impugned proceedings have been allegedly taken on the basis of an email dated 6th August 2018 addressed by one Mr. Devendra Sharma. The said email refers to an entity called HDFC AMC IPO. The impugned order under Section 206(4) of the Act has been passed against HDFC Bank Limited which is not the entity referred to in the said email. Therefore, the basis of initiating proceedings against petitioner is itself misconceived.
14 Respondent No.1 appears to have passed the impugned order on the basis of the newspaper report which relates to offence committed by petitioner’s former employee against whom the petitioner has initiated criminal proceedings and has submitted requisite report to the Reserve Bank of India. Petitioner is justified in contending that based on such a newspaper report, the proceedings under Section 206(4) of the Act de-hors application of mind or enquiry by respondent no.1 cannot be initiated. Therefore, even on this count the impugned order is exfacie bad in law and without application of mind.
15 The impugned order under Section 206(4) of the Act should make out a prima facie case as to the information called for, and how the same relates to the business of a Company being carried on for fraudulent and unlawful purpose. In the impugned order, the said linkage is totally absent. In the impugned order, there is no finding even prima facie of the petitioner’s business being conducted fraudulently or unlawful purpose or in defiance of the provisions of the Act, etc. On the contrary in the affidavit in reply it is stated in the impugned notice respondent no.1 is not alleging or establishing any fraud against petitioner, but is issued for gathering information and it is an opportunity of being heard. In such a case complying with the preconditions under Section 206(1) to (3) is mandatory. Therefore, even on this count, initiation of Section 206(4) of the Act being jurisdictional condition, is not satisfied, and therefore, the impugned order is wholly without jurisdiction.
16 Therefore, without satisfying these preconditions, in our view, an order of the nature issued and impugned in this petition cannot be sustained.
17 Therefore, Rule made absolute in terms of prayer clause (a), which reads as under: “a) that this Hon'ble Court be pleased to issue a Writ of Certiorari or any other writ in the nature of Certiorari or any other appropriate writ, order or direction under Article 226 of the Constitution of India calling for all the papers and proceedings in the matter and after going through the same, quash and/or set aside the Impugned Order, Exhibit 'A' hereto.”