Limiting statutory authorities

In the recent past, various Registrars of Companies (RoCs) have issued orders to companies for alleged non-compliances wherein show cause/adjudication notices that precede such orders have been issued at least 18 months (in some cases even 5 years) after the default period.

Sample this: one registrar passed an order in January 2024 after issuing a show cause notice in December 2023 for a violation relating to non-disclosure of information in the auditor’s report for the financial year ending March 31, 2017. Another registrar issued a show cause notice in December 2023 for a non-filing of appropriate resolutions with the RoC for financial years ending March 31, 2019 and March 31, 2020.

This therefore begs the question: what is the upper time limit for a statutory body to pass orders? Is it time-barred?

Adjudicating powers of RoC

Adjudication officers are typically registrars who have various powers including determining quantum of penalties, the right to direct rectification of defaults, to summon and enforce attendance of a person acquainted with the case at hand, and to order for documents. But how are RoCs empowered with such powers?

Vide a notification dated March 24, 2015, the Central government through exercise of its power under Section 454(1) of the Companies Act, 2013 had appointed various RoCs as adjudicating authorities under the Act, covering several jurisdictions. As per Section 454 of the Act read with the Companies (Adjudication of Penalties) Rules, 2014, the ROCs therefore possess the power to impose penalties and direct companies or officers in default or any other person to rectify the default. However, there is no explicit timeline provided in the Act within which the adjudicating authority is to issue such show cause notices.

Law of Limitation

Indian laws under the Limitation Act, 1963, provide a time bar in relation to filing of suits, appeals or applications and is limited in its applicability to quasi-judicial authorities. Does the Act provide for any statute of limitations on authorities?

A few years ago, through various amendments, some provisions of the Act were decriminalised. Certain provisions that warranted fines were amended and substituted with penalties, which therefore meant that such non-compliances would fall under the purview of the RoC, as against ‘fines’ which fell under the purview of a court of competent jurisdiction.

For offences which involve a fine or imprisonment, reference may be made to Sections 468 and 469 of the Code of Criminal Procedure, 1973. For easy reference, the relevant portions of Section 468 CrPC are reproduced herein:

(1) Except as otherwise provided elsewhere in this Code, no Court shall take cognizance of an offence of the category specified in sub-section (2), after the expiry of the period of limitation.

(2) The period of limitation shall be---

(a) six months, if the offence is punishable with fine only;

(b) one year, if the offence is punishable with imprisonment for a term not exceeding one year;

(c) three years, if the offence is punishable with imprisonment for a term exceeding one year but not exceeding three years.

Per Section 454(8) of the Act, when a company fails to comply with an order under Section 454(3) or 454(7) of the Act within a certain timeline, it is punishable with a fine.

By reading together the language in Section 468(1) of CrPC with that of the Act, for certain offences, the CrPC may be considered to compute the period of limitation. Section 468(2) of the CrPC states the periods of limitation applicable on the basis of how the offence is punishable.

Jurisprudence on Limitation

It has often been argued that where balance sheets reveal non-compliances, Ro’s are deemed to have knowledge of the contents of the balance sheet as these are being filed each year. In fact, it has been held that the RoC is expected to scrutinize the accounts before it; thereby implying first-hand knowledge. But can it hold true in all circumstances?

Sub-section 2 of Section 469 CrPC states that the period of limitation would commence, in cases where the commission of the offence is not known to the person aggrieved by the offence, on the first day when such offence comes to the knowledge of such person.

The most authoritative judgment regarding applicable limitation period for offences is in the matter of Registrar of Companies v. Rajshree Sugar and Chemicals Limited and others, where the Supreme Court noted that the computation for a limitation period for offences would be calculated from the date of knowledge of the offence.

This principle was also followed by the High Court of Karnataka in RoC v. Fair Growth Agencies Limited, in a criminal revision petition filed before it. The High Court noted that the determination of the date of knowledge is subjective. In one instance, it could be the date when the inspection officer detects the contravention; in another when the report is prepared for the registrar by the inspecting officer, until when the registrar may not be aware.

The principle in Rajshree Sugar was also applied in the matter of Vikramjit Singh Oberoi and Others v. Registrar of Companies before the Madras High Court, which adjudged that the date of inspection should be taken as the date of knowledge in that instant case (which would bar the threatened prosecutions by limitation). In that case, the inspection was conducted on January 25, 2016 after a notice of inspection dated January 19 from the Deputy Registrar of Companies, Tamil Nadu. Subsequently, show cause notices were issued the following year on February 2, 2017, July 14, 2017 and October 31, 2017. These were held to be issued after the expiry of the six month period of limitation as per Section 468(2) of CrPC for the reason that the date of knowledge would be the date of inspection, namely, January 25, 2016.

Conclusion

Certain special laws specifically state the period of limitation for authorities. For example, the Income Tax Act, 1961, depending on the type of notice, provides for a 7-year timeline or a 4-year timeline for issuing notices. The Factories Act, 1948, in Section 106, specifies 3 months from the date of knowledge of the alleged commission as the period of limitation of prosecutions for offences therein. This was reinforced in Jayaprakash Babu Kodimi v. State of Tamil Nadu.

With respect to offences within the purview of the Securities and Exchange Board of India Act, 1992, while there is no explicit provision for a time limit for issuing show cause notices or for completing investigations. The Supreme Court has held that the aspect needs to be looked at on a case-to-case basis. The Securities Appellate Tribunal has also quashed some SEBI orders on the basis of excessive time lags.

Reportedly, in the pre-budget proposal for the Union Budget 2022-2023, the Association of National Exchanges Members of India had also made a representation asking that SEBI’s notices be brought under the law of limitation.

Perhaps such belated actions from RoCs work like an albatross around the neck for companies incorporated in India, and are contrary to the ease of doing business mantra. In the age of AI, however, where automatic violations can be easily and proactively detected within reasonable timelines, perhaps the power of adjudicating authorities can be used in areas that require skilled monitoring of non-compliances.

Harini Subramani is the Founder of HS Law & Associates.

Views expressed herein, if any, are personal. The information provided here is not to be construed as legal advice.