Regulating the Regulator; Here’s what the RoC needs to follow while regulating the compliant entities
National Company Law Appellate Tribunal (“NCLAT”) on September 25, 2019, in the case of Registrar of Companies, Maharashtra v. Acadia Hotels and Resorts LLP and others, held that the Registrar of Companies (“RoC”) should take a considerate view towards entities which comply with the legislations applicable to them.
Facts
In the present case, Acadia Hotels and Resorts LLP (“Acadia”), Agility Steel and Developers LLP (“Agility”), Brickstone Construction LLP (“Brickstone”), Grishmak Travels and Transport LLP (“Grishmak”) and Rakshak Properties LLP (“Rakshak”) (collectively “Respondents”) were initially private limited companies incorporated under the Companies Act, 1956 and subsequently converted into LLPs in the year 2012 in accordance with Section 56 of the Limited Liability Partnership Act, 2008 (“LLP Act”).
After being incorporated as LLPs the Respondents filed the requisite forms under the LLP Act, Form-3 (Information with regard to LLP Agreement) with the Ministry of Corporate Affairs (“MCA”) in the year 2012, and have been filing Form-8 (Statement of Account and Solvency) and Form-11 (Annual Returns) with the Registrar of Companies, Maharashtra (“Appellant”) regularly for 3 financial years from 2012 to 2015, which was accepted by the Appellant without any objection.
However, Form-8 for the financial year 2015-2016 was not accepted by the Appellant on the ground that the Respondents had not filed Form-3. It is to be noted that Form-8 can only be accepted if the Form-3 is duly filed. The Respondents filed an RTI application to the MCA and were informed that there were some objections in their Form-3 which needed to be removed, in order to be accepted and hence, the application was declared as invalid. The Appellant directed the Respondents to file Form-3 in a fresh manner along with penalty of INR 10,86,000 for the removal of objections as regards each of the Respondents.
The Respondents filed a petition before National Company Law Tribunal, Mumbai Bench (“NCLT”) praying that they would be allowed to remove the objections in their respective Form-3 without any penalties and, file Form-8 and Form-11 subsequently.
Observations of NCLT
The NCLT noted that there was no wilful negligence on the Respondents’ part and they were filing Form-8 and Form-11 till the year 2015-2016, which was accepted by the Appellant without any objection. The objection was raised for the year 2015-2016 after the computerised system was introduced by the MCA in 2013.
The NCLT noted that the LLPs which filed defective Form-3 after the introduction of computerised system, were given a chance to rectify their errors without any fine or penalty. Since, the Respondents submitted their form prior to 2013, the same was not covered in the computerised system. Therefore, the NCLT allowed the Respondents to rectify the errors within 1 (one) month and directed the Appellant to accept it without any additional fee.
Aggrieved by this order of the NCLT, the Appellants filed an appeal before the NCLAT.
Observations of NCLAT
The NCLAT firstly examined the admissibility of the appeal filed by Appellants. The NCLAT noted that under Section 421 of the Companies Act, 2013, the appeal must be filed within 45 (forty-five) days from the date of receiving a copy of the order of the NCLT. The order of NCLT was passed on September 06, 2018 and the appeal was preferred on January 04, 2019.
The NCLAT can condone the delay beyond 45 days if sufficient cause is shown for it. Hence, the Appellant sought condonation of delay on the ground that the impugned order was brought to their notice through a letter by the Respondents on September 28, 2018 and they received the copy of the order only on October 15, 2018. Therefore, the appeal could not be preferred within the prescribed period of limitation.
The NCLAT rejected this argument and stated that even if October 15, 2018 is considered as the date when the aggrieved party received the order, the appeal is still beyond the limitation period and hence it is time-barred.
Furthermore, the NCLAT stated that even if it accepts that the appeal is maintainable, the Respondents complied with all the procedures and there was no willful negligence on their part. The NCLAT criticised the RoC for this appeal and stated that “Adopting a blood thirsty approach and that too against compliant entities is unwarranted moreso when such entities complied with the legal requirements and made compliances in accordance with the then prevailing system.”
The NCLAT, dismissed the appeal on both grounds i.e., limitation and merit.
Quick View
If the entities fail to comply with the legislations, the action taken by the regulatory authority i.e., RoC is completely justified. However, as the NCLAT noted, there was no negligence on the part of the respondent LLPs and they had been filing the required forms as mandated under the LLP Act, regularly without any objection from the RoC.
In the present case, the imposition of penalty on the respondent LLPs was unwarranted as other LLPs were also allowed to rectify the fault in their Form-3 after the computerised system was introduced by the MCA, without any fines or penalties. However, the Respondents were not given the same treatment. In addition to the arguments made for the merits of the case, the RoC itself did not follow the limitation period requirement for the appeal against the order of the NCLT.
The RoC i.e., the regulator needs to take uniform view and treat the entities with equality when it comes to regulation of the entities. Any dual approach taken by the regulator with regards to compliance of law will certainly raise concerns, if it treats the compliant entities any different than the non-compliant entities.
It would be interesting to see RoC’s approach going forward, as the NCLAT has directed it to be considerate towards the entities which follow the regulations.
Disclaimer: This post has been prepared for informational purposes only. The information/or observations contained in this post does not constitute legal advice and should not be acted upon in any specific situation without seeking proper legal advice from a practicing attorney.