Companies Act: Observations Made In Order U/s 241/242 Relevant For Passing Order Of Reopening Of Accounts: SC [Read Judgment]

The bench comprising Justice Indu Malhotra and Justice MR Shah observed that the National Company Law Tribunal can pass an order of reopening of accounts under Section 130 of the Companies Act if either one of the two conditions precedent is satisfied.

In this case [Hari Sankaran vs, UoI], the Tribunal passed an order under Section 130 of the Companies Act for reopening of the books of accounts and re-casting the financial statements of the Infrastructure Leasing & Financial Services Limited; IL&FS Financial Services Limited and IL&FS Transportation Networks Limited for the last five years, viz. from Financial Year 2012-13 to the Financial Year 2017¬18. This order was affirmed by the Appellate Tribunal (NCLAT).

Satisfaction of One of the Conditions sufficient

The contention put forth in this case was that there is a specific finding/observation by the Tribunal in the order under Section 130 of the Companies Act itself that the accounts were not prepared in a fraudulent manner, and thus it could not be said that condition precedents to pass an order of reopening of accounts are satisfied. Rejecting the said submission the bench said:

Taking note of the word OR used, the bench observed that such an order can be passed when it is found that (i) the relevant earlier accounts were prepared in a fraudulent manner; OR (ii) the affairs of the company were mismanaged during the relevant period casting a doubt on the reliability of the financial statements. It said:

"Therefore, if either of the conditions precedent is satisfied, the Tribunal would be justified in passing the order under Section 130 of the Act. Considering the order passed by the Tribunal passed under Section 130 of the Companies Act, it appears that the learned Tribunal has passed the order on being satisfied with respect to the second part of Section 130 of the Companies Act. It is also required to be noted that the learned Tribunal has also taken note of the preliminary report submitted by the ICAI with respect to the earlier accounts were being prepared in a fraudulent manner. On a fair reading of Section 130 of the Companies Act, if the Tribunal is satisfied that either of the conditions precedent is satisfied, the Tribunal would be justified in passing the order under Section 130 of the Companies Act."

 All the three provisions are required to be considered conjointly

The bench also said that the observations made while passing order under Section 241/242 of the Companies Act can be said to be relevant observations for passing the order under Section 130 of the Companies Act. In the order passed by the Tribunal under Section 130 of the Companies Act, there is a specific observation made by the learned Tribunal with respect to mismanagement of the affairs of the company, and even with respect to the relevant earlier accounts prepared in a fraudulent manner, it noted.

The bench rejected the contention that all the three provisions, viz., Section 130, Sections 211/212 and Sections 241/242 operate in different fields and in different circumstances and they are in the different Chapters and therefore any observation made while passing the order/orders with respect to a particular provision may not be considered while passing the order under relevant provisions. The bench added:

"It is required to be noted that all the three provisions are required to be considered conjointly. While passing an order in a particular provision, the endeavour should be to see that the order/orders passed under other provisions of the Companies Act are given effect to, and/or in furtherance of the order/orders passed under other Sections. Therefore, the observations made while passing order under Section 241/242 of the Companies Act can be said to be relevant observations for passing the order under Section 130 of the Companies Act."

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