Gujarat High Court Quashes Criminal Complaint Against Company For Alleged Default Of CSR Obligations
The Gujarat High Court recently quashed a criminal complaint registered against a company claiming default of its Corporate Social Responsibility (CSR) obligations, after noting that the offence alleged–including the penalty–had been decriminalized by Companies (Amendment) Act 2020.
Justice JC Doshi in his order referred to Supreme Court's decision in T. Barai v. Henry Ah Hoe and Anr. (1983) wherein it was held that that in case the punishment prescribed is reduced by an Amendment Act, then the benefit is to be given to the accused.
The court thereafter said:
"Thus, the position of law stands crystal clear from the aforesaid judgment. Evidently, the benefit of decriminalization of the offence ought to enure to the benefit of the petitioner, inasmuch as the Amendment Act passed by the Central Government has decriminalized the punishment in cases pertaining to Corporate Social Responsibility (CSR) violations and reduced the consequences to imposition of fine only. There appears to be no justifiable reason to deny the retrospective benefit of such decriminalization to the petitioner–accused. In view of the above, this Court is of the considered opinion that the complaint pending before the learned Trial Court cannot legally sustained and the matter deserves to be referred to the concerned Adjudicating Authority, as contemplated under the relevant provisions of the Companies Act, for adjudication of penalty in accordance with law".
The court was hearing a plea by the petitioner company KHS Machinery Private Limited seeking quashing of a complaint and process issued by Principal District and Sessions Judge. A complaint was filed by the Registrar of Companies alleging the contravention of Section 134(3)(o) and Section 135, Companies Act 2013 for being in default of its CSR obligations for financial year 2014-15.
Section 134(3)(o) pertains to details on the policy developed and implemented by the company on CSR initiatives taken during the year which is to form part of the Board of Director's report which is to be attached to the financial statement.
The company argued that it had framed its CSR Policy as per statutory mandate. It said that all relevant disclosures, including the constitution of the CSR Committee, CSR Policy, details of expenditure, were duly made in the Board of Directors' Report.
The petitioner's counsel argued that the case pertains to Section 134(8) of the Companies Act wherein this offence has been decriminalized vide Companies (Amendment) Act, 2020 by the Parliament and the punishment in the provision has been reduced to fine.
For context, Section 134(8) stated that if a company contravenes the provisions of Section 134, it shall be punished with fine not be less than Rs. 50,000 which may extend to Rs. 25 Lakh and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 3 years or with fine which shall not be less than Rs. 50,000 but which may extend to Rs. 5 Lakh, or with both.
The counsel said that benefit of ex-post facto reduction in punishment should be given to the petitioners. The ROC's counsel submitted that the position of law has changed after the Amendment Act, inasmuch as the offence in question has been decriminalized, and the benefit of ex-post facto can be granted to the petitioners.
"The learned counsel appearing for both the parties concede that the complaint pending before the concerned Court can be quashed and the matter can be sent to the Adjudicating Authority," the order notes.
After noting the contentions the court thereafter quashed the complaint and order issuing process against the petitioners.
"It is further directed that the impugned complaint shall stand transferred to the competent Adjudicating Authority. All parties shall be at liberty to raise all issues and contentions before the said authority in accordance with law," the high court said.
It clarified that the court has not examined the matter on merits.
Case title: KHS Machinery Private Ltd through Manisha Vrajlal Thakkar authorised signatory & Anr. v/s Registrar of Companies & Anr.