Gujarat high court quashes criminal complaint against company for defaulting on CSR responsibilities
Acknowledging the shift in legislative approach, the HC quashed the complaint and referred the issue to the adjudicating authority to fix the penalty on the company. This decision came after the central govt in 2020 amended the Companies Act, decriminalising the offence and reducing the punishment to a fine.
In this case, the ROC filed a complaint under the Companies Act in a city court in 2017 against KHS Machinery Pvt Ltd for defaulting on its CSR obligations for the financial year 2014-15.
The principal district judge initiated proceedings against the company.
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The company approached the HC in 2017, alleging that the ROC filed the complaint "with an ulterior motive and in abuse of the process of law". The company contended that it constituted a CSR committee and framed its own CSR policy in accordance with the statutory mandate. In line with its CSR obligations, the company began spending amounts towards social causes as stipulated in its CSR policy.
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All relevant disclosures were duly made in the Board of Directors' Report in compliance with Section 134(3)(o) of the Companies Act.
Still, the ROC filed the complaint.
The quashing petition was pending since 2017. When it came up for hearing, the company contended that the case pertained to Section 134(8) of the Companies Act and the said offence was decriminalised in 2020, with the punishment reduced to a fine. It prayed that the benefit of reduction in punishment should be given with retrospective effect.
It also cited a Supreme Court order in this regard.
After hearing the case, Justice J C Doshi quashed the complaint and ordered the issue to be sent to the authority concerned for fixing the penalty. The HC stated, "Evidently, the benefit of decriminalisation of the offence ought to ensure to the benefit of the petitioner, in as much as the Amendment Act passed by the central govt has decriminalised the punishment in cases pertaining to CSR violations and reduced the consequences to the imposition of a fine only.
There appears to be no justifiable reason to deny the retrospective benefit of such decriminalisation to the petitioner–accused."
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