Case BriefsCOVID 19High Courts

Andhra Pradesh High Court: A Division Bench of Jitendra Kumar Maheshwari, CJ and Lalitha Kanneganti, J., addressed certain PILs that were filed in regard to the LG Polymers poisonous gas leakage incident.

Petition was filed seeking direction or any appropriate writ calling for records relating to leakage of poisonous gas from LG Polymers factory at Visakhapatnam and further directing respondents to save lives of people in around the factory by providing necessary medical facilities.

Another petition was filed wherein direction was sought as respondents were not providing financial and medical facilities to people affected by incident also directing LG Polymers company management to give compensation fo Rs 2 crores as compensation to the deceased families and 50 lakhs to every injured person, 50,000 to deceased cattle as well as 5,00,000 to damaged standing crop of farmers.

Adding to the above, company be seized and directed to shift far off from Visakhapatnam.

Bench held that as asked by the Court in its 7th May Order with regard to the said incident, action report was to be filed by 20th May, 2020. State and centre filed their affidavits along with material to show the efforts made by them.

Court observed that the action reports were silent on the following issues:

  • LG Polymers has been operating without a valid Environmental Clearance from the MoEFCC.
  • Inhibitor concentration in the storage tank was not checked. Refrigeration system was not working properly.
  • Radius of the vulnerable zone extended upto 6.3km from the source.
  • There are several hospitals, education institutions, places of worship, railway stations and airport within the vulnerable zone.
  • Bystander population should have been informed of the risk they were at and trained in evacuation procedures in the vent of an accident as per Manufacture, Storage and Import of Hazardous Chemicals Rules, 1989. But, this has not been done.
  • Siren/Alarm system did not function.

Advocate General and Counsel on behalf of Assistant Solicitor General prayed for time to apprise the Court on the above-stated queries. Further reply was also asked for the following:

  • What is the net worth of LG Polymers as per the provisions of the Companies Act, not as per the book value.
  • After registration of crime, an appointment of investigation/inspection team and also when the Magisterial enquiry was required, why, without appointment of the said panel or permission of Court, Styrene Monomer has been permitted to be transported to South Korea and who is the person responsible for the same?

Hence, Court passed the following interim directions:

  • Premises to be completely seized and no one to be allowed including the Directors of the Company.
  • Committee, if any, appointed wants to inspect premises, they are at liberty but shall put a not on Register maintained at the gate of the Company regarding the said inspection and a note while returning regarding what act done in premises.
  • None of the assets movable or immovable, fixture, machinery and contents shall be allowed to be shifted without the leave of the Court.
  • As stated before, Directors have surrendered their passport and they are in India, however, Court directs that their passports shall not be released without the leave of the Court and they be not allowed to go outside India without leave.
  • It be also apprised whether, during the lockdown period, any permissions were obtained to restart the operations, if not, action taken report be filed.
  • Grievance regarding appointment of various committees by NGT, Centre and State, Centre and State are at liberty to apprise as to which Committee shall fulfil the purpose.

Respondents to file compliance report by 26th May, 2020. Matters to be listed on 28th may, 2020. [Taken UP, Poisonous gas leakage in Visakhapatnam v. State of A.P.; WP(PIL) No. 112 of 2020, decided on 22-05-2020]

Experts CornerGaurav Pingle and Associates

Section 184 of the Companies Act, 2013 (the Act) relates to “Disclosure of interest by directors”. The object of Section 184 of the Act is to bring to the notice of the directors the conflict of interest and duty of any of their colleagues on the Board. The provisions are founded on the principle that a director is precluded from dealing on behalf of the company with himself and from entering into engagements in which he has a personal interest conflicting, or which possibly may conflict, with the interest of those to whom he is bound by fiduciary duty to protect. Section 184 of the Act does not prohibit such engagements or contracts or arrangements, but it requires disclosure by the directors of their interests therein to their co-directors.

This article is a compilation and analysis of the relevant provisions relating to the disclosure of the interest of directors. There is also a reference to the exemptions to certain classes of companies.

  1. General Disclosure by Directors—Every director of the company shall disclose his concern or interest in any company or companies or bodies corporate, firms, or other association of individuals which shall include the shareholding, in a prescribed manner (i.e. Form MBP 1). Such disclosure of his concern or interest shall be made by the director of the company at all the 3 occasions:

(i) at the first meeting of the board of directors in which he participates as a director of the company;

(ii) at the first meeting of the Board in every financial year (generally in the month of April or May, if the financial year is April 1 to March 31, or generally in the month of January or February, if the financial year is January 1 to December 31); and

(iii) whenever there is any change in the disclosures already made, then at the first Board meeting held after such change.

  1. Specific Disclosure by Directors—This disclosure is a transaction-specific disclosure. The compliance checklist is as follows:

(i) Every director of a company who is in any way, whether directly or indirectly, concerned or interested in a contract or arrangement or proposed contract or arrangement entered into or to be entered into certain parties (discussed later) shall disclose the nature of his concern or interest at the meeting of the Board of Directors in which the contract or arrangement is discussed.

(ii) Such disclosure of concern or interest by the director in a contract or arrangement by the company shall be in relation to the given parties: (a) with a body corporate in which such director or such director in association with any other director, holds more than 2% shareholding of that body corporate, or is a promoter, manager, Chief Executive Officer of that body corporate; or (b) with a firm or other entity in which, such director is a partner, owner or member, as the case may be.

(iii) It shall be the duty of the director giving notice of interest to cause it to be disclosed at the meeting held immediately after the date of the notice. At this stage, it is desirable that this action is noted in the minutes of the meeting of the Board of Directors.

(iv) Such director shall not participate in such a meeting. At this stage, it is desirable that this action is noted in the minutes of the meeting of the Board of Directors.

(v) Where any director who is not so concerned or interested at the time of entering into such contract or arrangement, he shall, if he becomes concerned or interested after the contract or arrangement is entered into, disclose his concern or interest forthwith when he becomes concerned or interested or at the first meeting of the Board of Directors held after he becomes so concerned or interested. At this stage, it is desirable that the date of transaction and date of disclosure is noted in the minutes of the meeting of the Board of Directors.

(vi) Section 189 of the Act relates to “Register of contracts or arrangements in which directors are interested”. According to the provisions, every company shall keep one or more registers giving separately the particulars of all contracts or arrangements to which sub-section (2) of Section 184 or Section 188 applies, in such manner and containing such particulars as may be prescribed. After the necessary entry is made in the register(s), such register(s) shall be placed before the next meeting of the Board of Directors and signed by all the directors present at the meeting. In case of specific disclosure by directors (i.e. under Section 184(2) of the Act), the company shall comply with the provisions of Section 189 of the Act.

  1. Place of Maintenance of the Notices—All notices shall be kept at the registered office of the company.
  2. Record keeping and Safe Custody—Such notices shall be preserved for a period of 8 years from the end of the financial year to which it relates and shall be kept in the custody of the Company Secretary of the company or any other person authorised by the Board of Directors for the purpose. If there is any other person authorised by the Board of Directors for the said purpose then such resolution shall be passed by the directors of the company (either in Board meeting or by circular resolution).
  3. Limited Applicability of Section 184(2) of the Act (in Certain Cases)—The provisions of Section 184(2) of the Act shall have a limited application in certain cases. In case of private companies, Section 184(2) of the Act shall apply with the exception that the interested director may participate in such meeting after disclosure of his interest [MCA Notification No. G.S.R. 464(E) dated 5-6-2015]. In case of Section 8 companies (company registered under the Companies Act, 2013 for charitable or not-for-profit purposes), Section 184(2) of the Act shall apply only if the transaction with reference to Section 188 on the basis of terms and conditions of the contract or arrangement exceeds Rs 1 lakh [MCA Notification No. G.S.R. 466(E) dated 5-6-2015]. In case of an unlisted public company which is licensed to operate by Reserve Bank of India (RBI) or Securities and Exchange Board of India (SEBI) or Insurance Regulatory and Development Authority (IRDA) from the International Financial Services Centre located in an approved multi-services Special Economic Zones (SEZ) set-up under the Special Economic Zones Act, 2005 sub-section (2) of Section 184 of the Act shall apply with the exception that the interested director may participate in such meeting provided, the disclosure of his interest is made by the director concerned either prior or at the meeting. [Notification No. G.S.R. 8(E) dated 4-1-2017]. In all the cases, it is desirable that the limited applicability and necessary action taken is noted in the minutes of the meeting of the Board of Directors.
  4. Contract Entered into by the Company with Disclosure of Interest—Contract or arrangement entered into by the company without disclosure under sub-section (2) of Section 184 of the Act or with participation by a director who is concerned or interested in anyway, directly or indirectly, in the contract or arrangement, shall be voidable at the option of the company.

According to Section 167 of the Act, the office of the director shall become vacant if he acts in contravention of the provisions of Section 184 of the Act or if the director fails to disclose his interest in any contract or arrangement in which he is directly or indirectly interested, in contravention of the provisions of Section 184 of the Act. Therefore, the compliance of the said provisions is very important from the perspective of director’s fiduciary duties and the consequences if not complied with.

Further, by making the necessary disclosure of concern or interest, the directors not only comply with the provisions of Section 184 of the Act but also with Section 166 of the Act (relating to “duties of directors”). According to Section 166(4) of the Act, a director shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company.

*Gaurav N Pingle, Practising Company Secretary, Pune. He can be reached at

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Appellate Tribunal (NCLAT): A Bench of Justice S.J. Mukhopadhaya, Chairperson and Justice A.I.S. Cheema, Member (Judicial) held that the company and the directors have to be treated equally while imposing fine for delay in filing Cost Audit Report.

The appeal was filed against the order of National Company Law Tribunal (New Delhi). There was a delay in filing of Cost Audit Report by the defaulting Company for the years 2013-14, 2014-15 and 2015-16. The Registrar of Companies initiated prosecution under Section 233-B(11) of the Companies Act, 1956. The Company moved an application for compounding of offence. However, NCLT imposed fine on the Company as well as its directors.

Ankit Totuke, Advocate appearing for the appellants argued that NCLT imposed maximum fine of Rs 1 lakh on the directors as prescribed under Section 148(8) read with 147(1) of the Companies Act, 2013. However, in contrast, the fine imposed on the Company was only 20% of the maximum fine, i.e. only Rs 1 lakh out of a maximum of Rs 5 lakhs.

The Appellate Tribunal perused the relevant provision in this regard, viz. Section 147(1) of the Companies Act, 2013 and stated, “Considering the above provision and the fine as imposed we find substance in the argument of the learned counsel for the appellants that the Company and the Directors have not been treated equally.”

Therefore, the High Court modified the impugned order and reduced the fine imposed on the directors to 20% of the maximum fine. [Goyal Vegoils Ltd. v. Registrar of Companies, 2019 SCC OnLine NCLAT 149, decided on 19-03-2019]

Case BriefsSupreme Court

Supreme Court: The Bench comprising of Uday U. Lalit and Dr D.Y. Chandrachud, JJ., gave certain directions pertaining to its earlier order in the case of  “Amrapali Group of Companies Case” and stated that 7 premises have been sealed.

The Apex Court on hearing the submissions and progress stated that for all the sealed premises the keys shall be handed over to the Forensic Auditors. The Forensic Auditors have submitted that the documents in respect of 46 companies have not been kept in a proper manner and are lying in a completely scattered fashion and disorganized manner.

The first task while keeping the note in regard to the “disorganized manner” in which the documents have been kept, the Court stated that this task of organization and cataloguing of the documents correctly is the need at present and further the documents which are presently lying in the custody are not secreted away.

The Supreme Court has further laid down certain directions while keeping the submissions of the Forensic Auditors and others in mind:

  • All three applicants and such personnel from their companies must render complete assistance during the organization and cataloguing of the documents.
  • Applicants shall remain personally present for next 15 days for the time specified, every day.
  • Police officer concerned shall personally supervise and see to it that the seals are opened at the specified time every day and are again resealed after the completion of that day’s operation.
  • Forensic Auditors are requested to depute representatives who will personally supervise the operation of cataloguing.
  • At no given point more than one premise will be de-sealed.
  • Operation for the day will be brought to the notice of Forensic Auditors so that the next day’s operations shall be planned out accordingly.
  • Till the documents required are supplied to the satisfaction of Forensic Auditors, the operations shall go on.
  • Forensic Auditors shall consider the feasibility of transferring the record which stands sealed from Rajgir and Buxar to any of the sealed places in Noida or Greater Noida.

The Supreme Court while concluding its order requested the internal auditors, the external auditors and the CFO who had worked with 46 companies in question to render assistance during the time of operation. Also, the three applicants will every day be brought to Hotel Park Ascent where they won’t be allowed to access mobiles or telephones or facility of meeting anyone without authorization by police.

The proceedings before DRT, Delhi in pursuance to this Court’s order are fixed for 15-10-2018, for which the representatives of the applicants shall be sent for representation with all the relevant documents and information.

The matter has been further listed for 24-10-2018. [Bikram Chatterji v. Union of India,2018 SCC OnLine SC 1923, Order dated 11-10-2018]

Hot Off The PressNews

Supreme Court: The Bench comprising of Arun Mishra and UU Lalit, JJ., in an order to the real estate major Amrapali Group stated that the Supreme Court would sell “each and every property” of the firm in order to recover the cost of construction of all the pending projects.

The Supreme Court also sought within 15 days a valuation report of movable and immovable properties of groups managing directors and directors. Further, the Court asked for the submission of companies details that were engaged in looking after the maintenance of Amrapali projects along with the details of its serving directors and those who have left the Amrapali group since the year 2008.

In an earlier order by the Supreme Court had directed the Amrapali group to place the details of all the bank accounts since the year 2008 till present and ordered freezing the bank accounts of directors of its 40 firms.

[Source: PTI]