Prakash Budoor vs Registrar Of Companies Karnataka

Mr.Jayakumar S.Patil, learned Senior counsel for Mr. Shyam Sundar the petitioners.

Mr. S. Vijay Shankar, learned Senior Counsel for Mr. H.K. Srivasthava, learned counsel for respondent No.5.

Mr.M.N.Kumar, learned Central Government Counsel for Respondent Nos.1 to 4.

Mr.K.N.Phanindra, learned Senior Counsel for Ms.Annapoorna S, learned counsel for respondent No.6.

The writ petitions are admitted for hearing. With consent of the learned counsel for the parties, the same are heard finally.

In these petitions under Articles 226 & 227 of the Constitution of India the petitioners inter alia seek a writ of prohibition, prohibiting respondent

Nos.1 to 4 from taking any action on the basis of the complaint lodged by respondent Nos.5 & 6 with regard to filings and uploading of DIR-12, MGT-

7 or any other filing or uploading done by the petitioners or by the company viz., Alliance Business School with the approval of the present board,

against the petitioners. The petitioners also seek a writ of certiorari for quashment of show cause notice dated 28.03.2019, by which the petitioners

have been asked to show cause as to why an action under Rule 10(6) of the Companies (Registration Offices and Fees) Rules, 2014 for invalidating

DIR-12 forms filed by the petitioners and revised MGT-7 filed by the petitioners and mark them defective on the basis of the complaints made by

respondent Nos.5 and 6 be not taken. In order to appreciate the petitioners grievance, few relevant facts need mention, which are stated hereinafter.

FACTUAL MATRIX

Two sisters viz., Shaila Chebbi and Mala Gowda got a Private Limited Company incorporated viz., Alliance Business School in the year 2005.

Initially, there were only two shareholders and Directors and both the sisters held 50% share holding each of the company. The said company is

incorporated with an object to engage itself into educational activities by running various courses and management studies. It is averred in the writ

petition that the petitioners who were renowned educationist supported his sisters who had founded the company. It is also pleaded that elder brother

of the sisters viz., respondent No.5 used to stay in United States and was rendered jobless. Thereupon, he returned to India and was accommodated to

teach in the educational institutions of the company. The sisters under the supervision of the elders, transferred their share holding in favour of

respondent No.5 in the year 2008 under a promise that as and when the shares are demanded, he would return the same. It is also pleaded that by

virtue of share holding in his name, respondent No.5 became the Managing Director of the Company and co-opted four of his friends as fellow

Directors and nominal shareholders.

In the year 2010, the company approached the Government of Karnataka for establishment of a Private University. The State Government

thereupon directed the company to convert itself into a Non-Profit Trust Company. Accordingly, the Company was converted into a Non Profit Trust

Company. The State Government, thereupon enacted an Act viz., Alliance University Act, 2010 (hereinafter referred to as ‘the Act’ for short),

by which the Company being a sponsoring body was permitted to establish a University. Accordingly, Alliance University was established and

respondent No.5 became the first Chancellor of the University by virtue of the provision of the Act, which provided that Managing Director of the

Company, would be the Chancellor.

It is averred in the writ petition that the respondent No.5 thereafter got engaged into criminal activities and embezzled a sum of Rs.100 Crores.

Thereupon the sisters who had founded the University demanded the return of shares. The respondent No.5 with great difficulty returned the share

holdings on 04.03.2015 and 05.03.2015 and tendered his resignation. Thus, the constitution of the Management of the company as well as the Board of

Directors was changed and the same was duly uploaded with records of Registrar of Companies. On 07.04.2016, respondent No.5 was removed from

the post of Chancellor of the University as respondent No.5 was involved in a criminal case. Thereafter, the petitioners became the Managing

Director of the Company as well as the Chancellor of the University.

Thereafter, the suit viz., O.S.No.5148/2017 was filed against respondent No.5 and his associates from interfering with the orders of injunction, in

which order of injunctions were passed against respondent No.5 and his associates. The aforesaid order was upheld by this court in Miscellaneous

First Appeal viz., MFA No.8545/2017. The respondent No.5 also filed a case before the National Company Law Tribunal and made complaints to the

Ministry of Corporate Affairs and Registrar of Companies alleging fraud. It is the case of respondent No.5 that certain documents relating to company

and his resignation have been forged by the petitioners. Thereupon a notice dated 28.03.2019 issued under Rule 10(6) of the Companies (Registration,

Offices and Fees) Rules, 2014 (hereinafter referred to as ‘the Rules’ for short) has been issued by the Registrar of Companies, by which the

petitioners have been called upon to explain as to why the proposed action under Rule 10(6) of the Rules being not taken to invalidate five DIR-12 and

MGT-7 and mark them as defective. In the aforesaid factual background, the petitioners have approached this Court.

SUBMISSIONS:

Learned Senior Counsel for the petitioners submitted that in the impugned show cause notice, ingredients of Rule 10(6) are conspicuously absent

and therefore, initiation of proceeding under Rule 10(6) of the Rules is per se without jurisdiction. It is further submitted that the show cause notice is

wholly without jurisdiction and the same has been issued with premeditation. It is also submitted that impugned show cause notice, in the instant case,

is a mere empty formality and the Registrar of Companies who is acting on the dictates of higher officers, has already prejudged the issues. It is also

urged that when a statute confers a power on authority to do a certain thing in a certain way, the same should be done in that way or not at all and a

writ of prohibition would lie when an inferior tribunal or an executive authority exercising quasi judicial powers exceeds its jurisdiction. In support of

aforesaid submissions, reliance has been placed on decisions of Supreme Court in the case of ‘COMMISSIONER OF POLICE, BOMBAY VS.

GORDHANDAS BHANJI’, AIR 1952 SC, 1â6€˜M/S EAST INDIA COMMERCIAL COMPANY LTD. CALCUTTA AND ANOTHER

VS. COLLECTOR OF CUSTOM’, AIR 1962 SC 18, 9â3€˜WHIRLPOOL CORPORATION VS. REGISTRAR OF TRADEMARKS

MUMBAI & OTHERS’, (1998) 8 SCC, â1€˜BABU VERGHESE AND OTHERS VS. BAR COUNCIL OF KERALA AND OTHERS’,

(1999) 3 SCC 422, ‘M/S MOTHER CARE (INDIA) LIMITED (IN LIQUIDATION) REP. BY THE OFFICIAL LIQUIDATOR,

BANGALORE VS. PROF P.RAMASWAMY P.AIYAR’, ILR 2004 KAR 10â8€1˜S, IEMENS LTD. VS. STATE OF MAHARASHTRA

AND OTHERS’, (2006) 12 SCC 3, 3‘ORYX FISHERIES PRIVATE LIMITED VS. UNION OF INDIA AND OTHERS, (2010) 13 SCC

427, and ‘STATE OF MADHYA PRADESH AND OTHERS VS. SANJAY NAGAYACH AND OTHERS’, (2013) 7 SCC 25.

Learned Senior counsel for respondent No.5 pointed out that by a communication dated 13.03.2019, no direction has been issued to the Registrar of

Companies and the impugned show cause notice dated 28.03.2019 has been issued in utter disregard to the instructions issued by the Ministry of

Corporate Affairs. It is further submitted that the impugned show cause notice does not suffer from any infirmity and Registrar alone under the

provisions of the Companies Act, 2013 has the authority to issue the impugned notice. Therefore, the Registrar has jurisdiction to issue the impugned

notice. In support of aforesaid submission, decision of Supreme Court in ‘SMT.UJJAM BAI VS. STATE OF U.P. AND ANOTHER’, AIR

1962 SC 1621, ‘HARPAL SINGH VS. STATE OF PUNJAB’, (2007) 13 SCC 3a8n7d the decision of the Supreme Court in ‘STATE OF

UTTAR PRADESH VS. SHRI BRAHM DATT SHARMA AND ANOTHER’, AIR 1987 S.C I t9 i4s3 further pointed out that in the reply,

which was submitted by the petitioners to the earlier show cause notice, no objection with regard to jurisdiction was taken. It is further submitted that

show cause notice issued by Registrar of Companies was challenged in civil suit, which was withdrawn on 05.05.2017.

It is also submitted that the powers given to the Registrar under Rule 10(6) of the Rules are statutory in nature and the show cause notices neither

suffer from any inherent lack of jurisdiction nor the same are premeditated. It is also argued that the show cause notices have not been issued acting

on the dictates of the Ministry of Corporate Affairs. It is also submitted that the petitioners have an alternate and efficacious remedy under Sections

58, 59, 241 and 242 of the Companies Act, 2013. It is also pointed out that the petitioners had filed a writ petition viz., W.P.No.52446/2017 for

quashment of the proceedings before the National Company Law Tribunal, which was initiated by respondent No.5 . However, the aforesaid writ

petition was withdrawn by the petitioner on 20.11.2017. Lastly, it is urged that the jurisdiction of the civil courts with regard to the disputes under the

Companies Act, 2013 is barred. In support of aforesaid submissions, reliance has been placed on decisions of the Supreme Court in the case of

‘STANDARD CHARTERED BANK AND OTHERS VS. DIRECTORATE OF ENFORCEMENT AND OTHERS’, (2006) 4 ,SCC 278

‘NIVEDITA SHARMA VS. CELLULAR OPERATORS ASSOCIATION OF INDIA AND OTHERS’, (2011) 14 SCC 337 and decisions of

this Court in ‘SHASHI PRAKASH KEMKA (DEAD) THROUGH LRS AND ANOTHER VS. NEPC MICON (NOW CALLED NEPC

INDIA LTD.) AND OTHERS, CIVIL APPEAL NOS.1965-66/2014’, and ‘SUDHIR ANGUR AND OTHERS VS. REGISTRAR OF

COMPANIES AND OTHERS’, W.P.NO.52446/2017 AND CONNECTED CASES.

Learned Senior Counsel for respondent No.6 while adopting the submissions made by Learned Senior Counsel for respondent No.5 submitted that

respondent No.5 was in judicial custody for a period from 05.02.2016 till 03.03.2016. The petitioners filed O.S.No.1094/2016, in which an ad-interim

order of injunction was granted on 06.02.2016 and thereafter, a meeting of the Board was convened on 11.02.2016, in which resolution was passed. It

is further pointed out that after passing of the resolution; the aforesaid civil suit was withdrawn. Learned Senior Counsel has also invited the attention

of this court to Section 168(1) of the Companies Act, 2013 and Rule 16 of the Companies Appointment and Qualification of Directors Rules, 2014. It

is further submitted that as required by the aforesaid provision resignation in Form viz., DIR-11 was never submitted and the petitioners did not

respond to the show cause notice dated 05.05.2017. Mr.A.S.Ponanna, Learned Senior Counsel has adopted the submissions made by Learned Senior

Counsel for respondent Nos.5 and 6 and has submitted that the Registrar alone can decide the dispute.

Learned counsel for Registrar of Companies submitted that no writ of prohibition can be issued for discharging the statutory function and no case

is made out for quashment of show cause notice. It is further submitted that statutory functions have been cast upon the Registrar and they are not

adjudicatory in nature. It is also submitted that the Ministry of Corporate Affairs has asked the petitioners to perform the statutory duties only and no

directions have been issued to the Registrar of Companies. Learned counsel has also invited the attention of this Court to para 31 of statement of

objections filed on behalf of Registrar of Companies.

By way of rejoinder reply, Learned Senior Counsel for the petitioners submitted that the contents of the impugned notice do not call upon the

petitioners to rectify any defect, therefore, do not fall within the purview of Rule 10(6) of the Rules. It is argued that allegations of fraud and forgery

cannot be examined by Registrar of Companies and he should take an action in the matter as per the order of injunction passed by the Trial Court or

stay his hands off. It is also pointed out that the dispute between the parties is being adjudicated before the civil court. Learned Senior Counsel has

also produced copy of Form DIR-12 and has submitted that if documents mentioned therein are not annexed, then only it can be said to be incomplete.

It is also submitted that the decision relied upon by the learned counsel for the petitioner in SHASHI PRAKASH KEMKA supra has no application to

the fact situation of the case and the civil suit is maintainable. It is also urged that the civil suit filed by the petitioner is maintainable.

LEGAL PRINCIPLES:

Before proceeding further, it is apposite to take note of certain well settled legal principles. The expression ‘jurisdiction’ has a well settled

legal connotation. It means authority to bear or determine the controversy. The concept of jurisdiction is the power to hear and determine the cause.

The Supreme Court in ‘ANOWER HUSSAIN VS. AJOY KUMAR’, AIR 1965 SC 1 h6a5s1 held that the expression ‘jurisdiction’ does

not mean power to do or order the act impugned, but generally the authority of Judicial Officer to act in the matter. It has been held that expression

‘jurisdiction’ means the entitlement to enter upon the enquiry in question [See:‘M.L.SETHI VS. R.P.KAPUR’, AIR 1972 SC 237. 9T]he

Supreme Court while dealing with the expression ‘jurisdiction’ in celebrated case of ‘A.R.ANTULAY VS. R.S.NAYAK’, AIR 1988 SC

1531 held that jurisdiction is the authority or power of the court to deal with the matter and make an order carrying the binding force.

The scope of interference with regard to show cause notices is well settled by catena of decisions of the Supreme Court. If a show cause notice is

issued under a statutory provision, the courts should be reluctant to interfere with the notice at that stage unless the notice is shown to have been

issued palpably without any authority of law. [See: ‘STATE OF UTTAR PRADESH VS. BRAHMA DUTTA SHARMA AND ANOTHER’,

AIR 1987 SC 943]. It has further been held that unless show cause notice is ex facie a nullity or is totally without jurisdiction i.e., where the

commencement of the proceeding itself is unauthorized, at that stage, it should be shown that authority had no power or jurisdiction to enter upon

enquiry and in all other cases, the party must respond to the show cause notice. [See:’EXEUCTIVE ENGINEER, BIHAR HOUSING BOARD

VS. RAMESH KUMAR SINGH’, (1996) 1 SCC 32 7In]. ‘UNION OF INDIA VS. HINDUSTAN DEVELOPMENT CORPORATION

LTD.,’, (1998) 9 SCC 576, it has been that where the show cause notice requires investigation of facts, the Court should not interfere and the

matter should be decided by the authorities. It has been held where the authority lacks jurisdiction, show cause notice can be quashed. [See:'UNION

OF INDIA VS. HINDALCO INDUSTRIES’, (2003) 5 SCC .1 S94im]ilar view has been taken in ‘DIVISIONAL FOREST OFFICER VS.

M.RAMLINGA REDDY’, (2007) 9 SCC 2 8a6nd ‘UNION OF INDIA VS. VICO LABORATORIES’, (2007) 13 SCC. 2I7t 0has

further been held that High Court should be extremely circumspect while dealing with a writ petition, in which a challenge is made to the show cause

notice. [See:’COMMISSIONER OF CUSTOMS VS. COVAI RAJA AND METALS (INDIA) (P) LTD.,’, (2018) 2 SCC 398].

RELEVANT STATUTORY PROVISIONS :

At this stage, certain relevant statutory provisions, which have a material bearing on the controversy involved in this petition may be noticed.

Section 58 of the Companies Act, 2013 provides that if a Private Limited Company by shares refuses, to register the transfer of or transmission by

operation of law or right to any securities or interest of the members in a company, it shall send notice of the refusal to the transferor and the

transferee, and the transferee may appeal to the Tribunal against the refusal. Section 59 of the Act deals with rectification of registration of members.

Chapter XVI of the Act deals with prevention of oppression and mismanagement. Section 241 provides for an application to the tribunal in cases of

relief to the oppression etc., whereas, Section 242 of the Act deals with powers of the Tribunal. In exercise of powers conferred under Sections 396,

398, 399, 403 and 404 read with Section 469 of the Act, the Central Government has framed the Rules, which have come into force with effect from

01.04.2014 viz., the Companies (Registration Offices and Fees) Rules, 2014.

Rule 2(l) defines the expression ‘straight through process’ to mean the process, in which e-form is approved through system without manual

interruption.

Rule 5 of the Rules deals with powers and duties of the Registrar, whereas, Rule 8 of the Rules deals with authentication of the documents. Rule

10(6) of the Rules, which is relevant for the purposes of the controversy involved in the petition reads as under:

In case the Registrar finds any e-form or document filed under Straight Through Process as defective or incomplete in any respect, at any time suo

motu or on receipt of information or complaint from any source at any time, he shall treat the e-form or document as defective in the electronic

registry and shall also issue a notice pointing out the defects or incompleteness in thee-Form or document at the last intimated e- mail address of the

person or the company which has filed the document, calling upon the person or company to file the e-form or document afresh along with fee and

additional fee, as applicable at the time of actual re-filing, after rectifying the defects or incompleteness within a period of thirty days from the date of

the notice.

ANALYSIS:

After having noticed the well settled legal propositions and the relevant statutory provisions, the facts of the case in hand may be examined. It is

pertinent to note that Registrar of Companies had issued a show cause notice on 07.05.2015 inter alia on the ground that the office of the Registrar of

Companies has received the credible information that certain persons have fraudulently obtained Digital Signature Certificate in the name of

Madhukar G Angur by submitting forged documents and have used the same for appointing Mr.Abhay Govind Chebby and Mr.Prakash Siddappa as

Directors of Alliance Business School with effect from 04.03.2015. The petitioners were therefore; advised to submit the explanation as to why the

three DIR-12 Forms referred to in the show cause notice should not be marked invalid. The petitioners on receipt of the aforesaid notice submitted a

reply on 02.06.2015, the relevant extract of which reads as under:

“We understand that there are certain technical issues with respect to the following three e-form No.DIR-12s filed on MCA PORTAL ON

13.04.2015.

SRN No.C49752926 in respect of e-form No.DIR-12 filed on 13.04.2015.

SRN No.C49762115 in respect of e-form No.DIR-12 filed on 13.04.2015.

SRN No.C49762644 in respect of e-form No.DIR-12 filed on 13.04.2015.

Therefore, in the larger interest of all, we hereby give our consent for marking the above referred three SRN Nos. as “INVALIDâ€​.â€​

On the basis of the aforesaid reply, the aforesaid DIR-12 forms were invalidated by the Registrar on 08.06.2015 and 09.06.2015. Thereafter, another

notice was sent by the Registrar of Companies on 05.05.2017, which was based on the complaint made by respondent No.5. By the aforesaid show

cause notice, the petitioners were informed that the office of the Registrar of Companies has received two complaints dated 25.4.2016 and 26.04.2016

from respondent No.5 for invalidating DIR-12 forms and to mark them as defective. The petitioners were asked to offer an explanation within 15

days, failing which suitable action shall be taken. However, the petitioners did not respond to the aforesaid notice and instead filed O.S.No.4202/2016.

The respondent No.5 thereafter again made complaints on 25.03.2015, 20.04.2015, 28.04.2015, 08.02.2016, 14.03.2016, 25.04.2016, 26.04.2016,

24.05.2016, 20.07.2016, 18.08.2016, 02.11.2016, 26.10.2017, 23.08.2018 and 08.09.2018 to Registrar of Companies. Thereafter show cause notice

was issued on 28.03.2019 inter alia on the ground that the petitioners have fraudulently changed the Directorship of the company by using fabricated

and forged documents including fraudulently obtaining forged Digital Signature and have used the same to include their names as Directors of

Companies. The petitioners were called upon to explain within 15 days as to why the action under Rule 10(6) of the Rules being not taken to invalidate

five DIR-12 and MGT-7 and mark them as defective. It is pertinent to note that the petitioners did not challenge the earlier show cause notices dated

07.05.2015 and 05.05.2017. In fact, the show cause notice dated 05.05.2017 has not been challenged by the petitioners even till today.

The Registrar of Companies is vested with power under Rule 10 of the Rules to issue the impugned show cause notice. The show cause notice

cannot be said to be per se without jurisdiction as Registrar of Companies has the power to determine the questions raised in the show cause notice.

The show cause notice also does not appear to have been issued with any premeditation as Ministry of Corporate Affairs has directed the Registrar of

Companies to perform his statutory duties. It is pertinent to note that since, 2015 the respondent No.5 has been making complaints. However, no

effective action in the matter has been taken by the Registrar of Companies nearly for a period of four years. In other words, he has failed to perform

his statutory duties. In any case, the Registrar of Companies is vested with the authority to issue the notice and has to administer the provisions of the

Act and the Rules. The Registrar of Companies is entitled to enter upon the enquiry in question initiated under Rule 10 of the Rules. He cannot be

restrained from discharging his statutory functions. The impugned show cause notice cannot be said to be ex facie nullity or totally without jurisdiction

and the commencement of the proceeding by the Registrar cannot be said to be unauthorized. The Supreme Court in the case of COMMISSIONER

OF CUSTOMS supra has held that High Court should be extremely circumspect while dealing with a writ petition, in which challenge is made to a

show cause notice. The petitioners in the fact situation of the case are required to respond to the show cause notice issued to them and after

adjudication are at liberty to take recourse to such remedy as may be available to them in law.

So far as submission made by Learned Senior Counsel for the petitioners that impugned show cause notice is per se without jurisdiction does not

deserve acceptance, as the issue whether the forms in question are defective or incomplete can be adjudicated by the Registrar of Companies. The

petitioners are well within their rights to raise an objection before the Registrar that ingredients of Rule 10(6) of the Rules are absent and the Registrar

is even competent to decide the issue with regard to jurisdiction as well. Therefore, the submission that show cause notice is per se without jurisdiction

is sans substance. The impugned show cause notice though makes a reference to the Ministry and the Regional Director and refers to the

communication dated 13.03.2019. Therefore, it is necessary to quote the relevant extract of the communication dated 13.03.2019:

“Accordingly, as directed by the Ministry, you are advised to take appropriate action to mark the e-forms DIR-12 (5 Nos.) and MGT-7 filed during

February 2016 to April 2016 as defective and to rectify the irregular filing made in the MCA portal as per the case.â€​

Thus, it is evident that the Registrar of Companies has merely been asked to perform his statutory duties as per the case and to take appropriate

action. Therefore, it cannot be said that the impugned show cause notice has been issued at the dictates of the Ministry of Corporate Affairs. It is

pertinent to mention, that on previous occasion also the Registrar of Companies had issued two notices dated 07.05.2015 and 05.05.2017 without any

reference to the instructions of the Ministry of Corporate Affairs. Therefore, the contention of the petitioners that the action has been taken on the

dictates of Ministry of Corporate Affairs does not deserve acceptance.

So far as submission made by learned counsel for the respondents that the civil suit filed by the petitioners is not maintainable is concerned, the

same need not be gone into in this proceeding, which deals essentially with the validity of the show cause notice issued to the petitioners under Rule 10

of the Rules and it will be open to the respondents to raise the aforesaid issue in the civil suits, if so advised.

In view of preceding analysis, no case for interference is made out at this stage. In case, the petitioners have not already filed reply to the show

cause notice, they shall do so positively within a period of two weeks from the date of receipt of certified copy of the order passed today and

thereupon the Registrar of Companies after affording an opportunity of hearing to all necessary parties shall decide the objections, which may be

preferred by the petitioners including the issue with regard to the jurisdiction by a speaking order within two months from the date of receipt of

objections, which may be filed by the petitioners bearing in mind the interim orders of injunction granted by the Civil Courts. It is made clear that this

court has not expressed any opinion on the merits of the case.

Accordingly, the petitions are disposed of.