CA guilty for certifying PAS-3 and SH-7 without verifying if EGM notice was sent to Existing Shareholders

The Institute of Chartered Accountants of India (ICAI) in the matter of Mr. Pradyumankumar Dwarkadas Patel Vs. CA. Minesh Rajnikant Mehta has held CA guilty for certifying PAS-3 and SH-7 without verifying if EGM notice was sent to Existing Shareholders.

The Committee noted that the present matter relates to the certification of form SH-7 and form PAS-3. The form SH-7 relates to notice to the Registrar for alteration of authorised share capital while Form PAS-3 relates to filling of Annual Return with ROC after allotment of Shares.

The Committee on perusal of documents noted that the Company, for the purpose of increase in authorized capital, called a meeting of the Board of Directors on 8th December 2017 [as per Prima Facie Opinion] and an Extra Ordinary General Meeting on the same day i.e. on 8th December 2017 [as per Prima Facie Opinion]. However, while filing form SH-7 with the Registrar, the EGM date is mentioned as 1st January 2018 [as per Prima Facie Opinion], whereas the meeting was in fact held on 8th December 2017.

On perusal of the provisions, the Committee noted that for holding a general meeting, the notice should be served upon the shareholders at/east 21 days before the meeting. Further, for a shorter period of notice, the consent of at least 95% of shareholders should be taken. However, in the present matter, the Committee noted that the notice for calling a general meeting for increasing the authorized share capital was served on 8th December 2017 and the meeting was also conducted on the same day, i.e. 8th December 2017.

The Committee noted that the Complainant group was holding more than 50% shares of the Company and had mentioned that the notice of the meeting was not served to them. The Respondent, to establish his bonafide, was required to submit documents evidencing the consent of 95% of shareholders for such a meeting as required under the Companies Act 2013. The Committee noted that the Respondent chose not to reply/appear before the Committee despite sufficient opportunities and he even failed to submit any defence at prima-facie stage also. Hence, his absence, in other words, is an admission of guilt on this charge.

The Committee noted that as per section 61 of the Companies Act, 2013 issue of shares which results in changes in the voting percentage of shareholders shall take effect unless it is approved by the Tribunal on an application made in the prescribed manner. However, in the present case, no such approval has been brought on record.

The Committee further noted that in Form SH-7 and Form PAS-3, the Respondent certified as under:

Form SH-7

It is hereby certified that I have verified the above particulars (including attachment(s)) from the records I declare that I have been duly engaged for the purpose of certification of this form. It is hereby certified that I have gone through the provisions of the Companies Act, 2013 and rules thereunder for the subject matter of this form and matters incidental thereto and I have verified the above particulars (including attachment(s)) from the original/ certified records maintained by the Company/applicant which is a subject matter of this form and found them to be true, correct and complete and no information material to this form has been suppressed. I further certify that:

i. The said records have been properly prepared, signed by the required officers of the Company and maintained as per the relevant provisions of the Companies Act, 2013 and were found to be in order;

ii. All the required attachments have been completely and legibly attached to this form

Form PAS-3

“that I have been duly engaged for the purpose of certification of this form. It is hereby certified that I have gone through the provisions of the Companies Act, 2013 and rules thereunder for the subject matter of this form and matters incidental thereto and I have verified the above particulars (including attachment(s)) from the original/certified records maintained by the Company/applicant which is the subject matter of this form and found them to be true, correct and complete and no information material to this form has been suppressed. I further certify that;

i. The said records have been properly prepared, signed by the required officers of the Company and maintained as per the relevant provisions of the Companies Act, 2013 and were found to be in order;

ii. All the required attachments have been completely and legibly attached to this form.

The Committee on perusal of records noted that the Company had issued the right issue of 5,44,940 equity shares of Rs.10 each on 22nd January 2018. The Complainant along with his family members was holding a 52.497% stake in the company before the issue of the right shares which was reduced to 33% after the right shares issue. The reason behind the same was that notice of EGM was not sent to existing shareholders who have got first right on the right issue of the company as per the requirement of Section 62 of the Companies Act, 2013. No consent of existing shareholders was obtained for the allotment of shares to other shareholders.

The Committee on perusal of above certification requirements noted that it was the duty of the Respondent to satisfy himself that whether the whole procedural part for the purpose of increasing the authorized share capital has been followed or not before certifying the forms however in the present matter the Respondent neither submitted his written statement when asked by the Director (Discipline) at PFO stage nor appeared before the Committee during the hearing stage despite giving him reasonable opportunities to do so which shows that the Respondent does not want to submit anything in the matter.

The Committee noted that the Complainant had also approached NCLT where the name of the Respondent had been mentioned as one of the Respondents. The Committee further noted that the NCLT had admitted the application of the Complainant under section 7 of the Code for Corporate Insolvency Resolution Process (CIRP) of Mis Polygold Pre-Cured Systems Limited (CD) vide Order dated 16th March 2020 and appointed /RP in the matter.

The Committee in the absence of any defence from the Respondent held that the Respondent failed to exercise due diligence and had failed to ensure the compliance of the provisions of the Companies Act while certifying form SH-7 and PAS-3.

Conclusion

In view of the above findings stated in the above para’s vis-a-vis material on record, the Committee, in its considered opinion, holds the Respondent is GUILTY of Professional Misconduct falling within the meaning of Item (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.

After careful consideration of the facts and circumstances, material on record and submissions of the Respondent before it as well as his submissions made on 09.1.2024, the Committee decided to reprimand the Respondent along with a fine of Rs.50,000 (Rupees Fifty Thousand Only) on the Respondent, to be paid within 90 days of receipt of the said Order.

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