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2024 Supreme(Cal) 532
IN THE HIGH COURT AT CALCUTTA
Shampa Dutt (Paul), J.
Brabourne Commerce Private Limited & Ors. – Petitioners
Versus
The State of West Bengal & Anr. – Respondents
CRR 1874 of 2019 With CRAN 6 of 2024
Decided On : 13-03-2024
Advocate Appeared:
For the Petitioner: Mr. Jishnu Saha, Sr. Adv. Mr. Kuldip Mullick, Mr. Tirthankar Dey, Ms. Somali Bhattacharjee, Ms. Shukla Maity.
The court emphasized that companies cannot use amalgamation reserves to evade CSR responsibility after the year of amalgamation, and such conduct is not to be encouraged.
Headnote:
Companies Act - Corporate Social Responsibility - Section 135, Section 134(3)(o)
Fact of the Case:
The petitioners, a company and its directors, sought to quash proceedings under Section 135 read with Section 134(3)(o) of the Companies Act, 1956, alleging non-compliance with Corporate Social Responsibility (CSR) provisions. The company claimed exemption based on amalgamation and reserves.
Finding of the Court:
The court found that the company continued to show amalgamation reserves to evade CSR responsibility, which was not permissible after the year of amalgamation. It held that there was sufficient evidence to proceed with the trial, dismissing the revisional application and directing the trial court to proceed expeditiously.
Issues: Alleged non-compliance with CSR provisions, validity of claiming exemption based on amalgamation and reserves.
Ratio Decidendi: The company's continued use of amalgamation reserves to avoid CSR responsibility after the year of amalgamation was impermissible, and there was sufficient evidence to proceed with the trial.
Final Decision: The revisional application was dismissed, and the trial court was directed to proceed with the trial expeditiously.
JUDGMENT :
Shampa Dutt (Paul), J.
1. The present revisional application has been preferred praying for quashing of the proceedings of Complaint Case No. (Comp.) 10 of 2019 under Section 135 read with Section 134(3)(o) of the Companies Act, 1956 pending before the Learned 2nd Special Court, Calcutta and all Orders passed in connection therewith.
2. In spite of due service, there is no representation on behalf of the opposite parties.
3. The petitioners’ case is that the petitioner no. 1 is a company incorporated under the provisions of the Companies Act, 1956 and is an existing company as defined under the Companies Act, 2013. The petitioner Nos. 2, 3 and 4 are the Directors of the Petitioner no. 1, company.
4. On or about May 3, 2019 the opposite party No.2 filed a complaint under Section 135 read with Section 134(3)(o) of the Companies Act, 1956 before the Learned 2nd Special Court, Calcutta (hereinafter referred to as the “Learned Special Court”) against the petitioners and the same was registered as Case No. Comp. 10 of 2019.
5. The allegations therein are as follow:-
i) That the Net-Worth of the Company for the year ended 31.03.2012, 31.03.2013. 31.03.2014 and 31.03.2015 stood at Rs. 5353814196/-, Rs. 5389258383/-, Rs 5316582568/- and Rs. 5321782630/-, which are above the limit of Rs. 500 Crore as prescribed under Section 135(1) of the Companies Act, 2013 and therefore the Company was required to comply with the provisions of the Section 135 read with Section 134(3)(o) of the Companies Act, 2013.
ii) That on scrutiny of the Board’s Report for the Financial year 2014-15 it is found that the Company has not complied with the provisions of Section 135 read with Section 134(3)(o) of the Companies Act, 2013 and in pursuant to that, show cause notices were issued to the company and the officers-in-default on 27.09.2016 by the office of the complainant quoting that – “the company neither spent any amount in regard to CSR despite having exceeded the prescribed limit of Net Worth laid down under the provisions of Section 135 of the Companies Act, 2013, in the Financial Years 2011-12 to 2013-14 nor stated the reasons for not spending the same in the Board’s Report for the F.Y. 2014-15. Therefore this leads to non-compliance of the provisions of Section 135(5) read with Section 134(3)(o) of the Companies Act, 2013.
iii) The Company replied vide its letter dated 03.10.2016 and taken the plea that the Net Worth of the Company is above the threshold because of amalgamation and the reserve created out of amalgamation is not included in the Net Worth as per the definition of Net-Worth given in Section 2(57) of the Companies Ac, 2013 and stated that – “none of the conditions specified in the clause is fulfilled by the Company as a result of which company is neither required to spend any amount not required to state the reasons for not spending the money in the Board’s Report.
6. The complainant considering the reply of the company, observed as follows:-
“In view of the above as the Company has not made any reasons in respect of not spending the amount in its Board report for the year ended 31.03.2015 as required under the provisions of Section 135 read with 134(3)(o) of the companies Act, 2013, violation exists.”
Thereafter, a report based on the above facts was forwarded to the Regional Director, Eastern Region vide letter No. ROC/CSR/S-135/(FY 14-15)/54375/282 dated 30.05.2017 seeking sanction of competent authority for filing of prosecution by the Complainant.
7. It is submitted by the petitioners that the Competent Authority of the Ministry of Corporate Affairs, Government of India has accorded sanction to launch prosecution against the subject company and its officers-in-default vide its letter F. No. 12/02/2019-CSR dated 29.03.2019, wherein following was observed:-
i) The Company was eligible to make CSR expenditure for FY 2014-15 under the provisions of Section 135 of the Companies Act, 2013 on the basis of net worth but failed to do so.
ii) The
