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THE DISCIPLINARY COMMITTEE

THE INSTITUTE OF COMPANY SECRETARIES OF INDIA

IN THE MATTER OF COMPLAINT OF PROFESSIONAL OR OTHER MISCONDUCT

ICSI/DC: 20512013

Date of decision: 28th December, 2015

MIs. Prudential Sugar Corporation Ltd. & Another ....Complainant

Vs.

Mr. Chinavenkareddy Kotta, FCS-7976, CP No. 8998 .... Respondent

ORDER

1. A complaint dated 19th June, 2013 in Form 'I' was filed under Section 21 of the Company Secretaries Act, 1980 read with sub-rule (1) of Rule 3 of the Company Secretaries (Procedure of Investigations of Professional and other Misconduct and Conduct of Cases) Rules, 2007 (the Rules) by Mis. Prudential Sugar Corporation Ltd. (hereinafter referred to as the 'Complainant') against Mr. Chinavenkareddy Kotta, FCS-7976, CP No. 8998 (hereinafter referred to as the 'Respondent'). A letter dated 24th June, 2013 was sent to Shri KVLN Bhaswanth, Executive Vice­President & Compliance Officer, Mis. Prudential Sugar Corporation Ltd., asking him to submit a copy of the Board Resolution authorizing him to file the instant complaint on behalf of the company against the Respondent. A letter dated 2nd

July, 2013 received from Shri KVLN Bhaswanth, Ex~cutive Vice-President & Compliance Officer, Mis. Prudential Sugar Corporation Ltd., submitting the copy of the Board Resolution of the company.

2. The Complainant has inter-alia alleged that the Respondent has certified and filed Form 32 for the appointment of 6 Additional Directors in Mis. Prudential Sugar Corporation Ltd., without exercising due diligence as he has not verified the Board meeting notice, Board meeting minutes, Directors attendance Register etc., which is in gross negligence in the conduct of his professional duties. The Complainant further stated that in Mis. Prudential Sugar Corporation Ltd., there are 6 Directors, out of which five have denied to have received any notice of such alleged Board Meeting and non of them have attended the said Board Meeting. The Complainant further stated that entire Secretarial record including the attendance register, Minute Books and the Register of Directors are maintained at the Registered Office and under the custody of the Compliance Officer of the company i.e. Shri KVLN Bhaswanth, Executive Vice President & Compliance Officer, Mis. Prudential Sugar Corporation Ltd. The Complainant further stated that he has also filed a complaint with the ROC and with the Commissioner of Police, Hyderabad.

3. Pursuant to sub-rule (3) of Rule 8 of the Rules, a copy of the complaint was sent to the Respondent vide letter dated 5th July, 2013 calling upon him to submit the written statement. The Respondent submitted the written statement dated 15th

July, 2013. The Respondent has inter-alia stated that the alleged Form 32 was certified by him after undertaking due diligence as required under the

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Companies Act, 1956 and the Rules made there under. He further stated that on the date of pre-certification, records produced before him by the company are:

1. Original Certified copy of the Board Resolution. 2. Original Consent letters of the Additional directors.

The Respondent further stated that Mr. CH Krishna Murthy was the Managing Director on the material date and therefore documents signed by him were in order. It was falsely made out in the complaint that he was not the Managing Director as on the material date of pre-certification. The Respondent further stated that Mr. CH Krishna Murthy was subsequently removed as a Managing Director of the company as evidenced by the Form 32 filed for his cessation. The Respondent further stated that the intention of the Complainant behind filing the complaint against him is only to harass him.

4. Pursuant to sub-rule (4) of Rule 8 of the Rules, a copy of the written statement was sent to the Complainant vide letter dated 22nd July, 2013 asking him to submit the rejoinder followed by a reminder dated 19th August, 2013. The Complainant submitted the rejoinder dated 4th September, 2013 wherein the Complainant has inter-alia stated that the Respondent has not exercised due diligence in respect of pre-certification of the alleged Form 32 for the appointment of six Additional Directors as he has not verified the secretarial records including the Board meeting notice, Board meeting minutes, Directors' attendance register and other related records as being the Compliance Officer of the company all these records were under the custody of Shri KVLN Bhaswanth, Executive Vice President & Compliance Officer, Mis. Prudential Sugar Corporation Ltd., and the Respondent had not asked him to present the same for any verification. The Complainant further stated that there was no Board meeting of the company on 13th May, 2013 wherein the said Board resolution relating to the appointment of six Additional Directors was passed. Neither the directors of the company nor the Compliance Officer had the knowledge of the said Board Meeting.

The Complainant further stated that pre-certification of Form 32 was done by the Respondent on the basis of a copy of the fabricated board resolution and consent letters without verifying the records of the company which were kept under the custody of Shri KVLN Bhaswanth being the Compliance Officer of the company. Therefore, the Respondent has not exercised due diligence while pre-certifying Form 32 where he should have raised the doubt relating to the appointment of six additional directors at a time which is not normal in practice to appoint such a number of additional directors by a listed company at one point of time. In this regard, he should have called for the statutory records from the Compliance Officer of the company in order to exercise due diligence. The Complainant further stated that the Board resolution attached to Form 32 authorizing Mr. Ch. Krishna Murthy, the then Managing Director is signed by himself, which is not valid. Consequently Form 32 signed by him is also not valid. He further stated that Mr. Ch. Krishna Murthy, the then Managing Director without conducting any meeting, represented himself as Managing Director and fabricated the Board Resolution pertaining to the appointment of six additional directors on the Board of the company and subsequently fabricated the Board resolution authorizing himself to sign Form 32 and intimated to ROC as well which is pre-certified by the Respondent claiming to be in order and in good faith without verifying the statutory records of the company which were kept under his custody, being the Compliance Officer of the company.

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5. A letter dated 1st October, 2013 of the Dy. Director, MCA was received in the 25thInstitute on October, 2013 along with the enquiry report of RD(SER)

pertaining to certification of Form 32 by the Respondent for appointment of six Additional Directors in MIs. Prudential Sugar Corporation Ltd. Letters dated 31 st

October, 2013 were sent to the Complainant and the Respondent forwarding therewith a copy of the letter dated 1st October, 2013 received from the MCA.

6. Pursuant to rule 9 of the rules, the Director (Discipline) after examination of the complaint, written statement, rejoinder and other material on record, vide his prima-facie opinion dated 11 th November, 2014 observed that in the Enquiry report of the RD, it is stated that as per MCA 21 as on 13th May,2013 (before the alleged Board meeting dated 13th May, 2013) there were 6 directors including Mr. CH Krishna Murthy, Managing Director. The RD has also stated that the 5 directors excluding Mr. CH Krishna Murthy have stated that there was no Board meeting on 13th May, 2013. Further, the Respondent during the investigation has stated that he has not checked I verified­

1. The notices sent to all the existing directors for convening the Board meeting held on 13th May, 2013.

2. Dispatch proof of the notices. 3. Attendance Sheet of the Board meeting held on 13th May, 2013. 4. the agenda papers of the said meeting. 5. the Minute book. 6. Compliances in related to the Quorum of the Board meeting held on 13th

May, 2013.

In the profession of Company Secretaries, various certifications are in the areas of Company Law and laws relating to securities market, banking, insurance, foreign trade, taxation etc. The certifications are representations made by a Company Secretary and is documentation confirming that some fact or statement is true. The procedure of certification gives written assurance to a third party that the information conforms to certain specific facts, statements and requirements. It is the statutory duty of the Company Secretaries to point out any irregularities and issues that do not confirm to the law, policies and guidelines in his organization. The integrity of professionals is measured by their edifying conduct and it is by the observance of the highest standards of that they earn confidence and respect in the society. Members in practice are expected to exhibit a high degree of professional ethics by meticulously following the code of cC'':1.duct framed in this regard. Company Secretaries should exercise professional independence in relation to his work. He should scrupulously observe the criterion of objectivity in his work and should not detract himself from the independent and objective approach.

The Respondent in the instant case apparently failed to verify the material record of the company such as Board meeting notice, Board meeting Minutes, Directors' attendance register etc., for the alleged meeting of the Board of the company held

13thon May, 2013, more so, when the extract of the resolution mentions authorization of the same person who has signed the resolution for filing the said form 32.

In view of the foregoing, the Respondent is prima-facie 'Guilty' of Professional Misconduct under Clause (7) of Part I of the Second Schedule of the Company

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Secretaries Act, 1980, as the Respondent did not exercise due diligence while certifying the alleged Form 32 for the appointment of 6 additional directors in Mis. Prudential Sugar Corporation Ltd.

7. On 20th November, 2014, the Disciplinary Committee considered the prima-facie opinion dated 11 thNovember, 2014 of the Director (Discipline> and the material on record and agreed with the prima-facie opinion of the Director (Discipline) and decided to proceed further in the matter in accordance with the Company Secretaries Act, 1980 and the Company Secretaries (Procedure of Investigations of Professional and other Misconduct and Conduct of Cases) Rules, 2007.

8. Accordingly, a copy of the prima-facie opinion of the Director (Discipline) was sent to the parties vide letters dated 21 st November, 2014 asking them to submit their written statement and rejoinder, respectively. The Respondent vide letter dated 4th December, 2014 requested for extension of time to submit his written

8thstatement, which was granted vide letter dated December, 2014. The Respondent submitted his written statement which was received in the Institute on 24th December, 2014. The Complainant submitted his rejoinder which was received in the Institute on 12th January, 2015. A letter dated 9th June, 2015 was received from the Complainant.

9. The parties vide letter dated 22nd June, 2016 were called upon to appear before the Disciplinary Committee on 22nd July, 2015. The Respondent vide letter dated 2nd

July, 2016 inter-alia requested for an adjournment as he has to attend a religious 22ndceremony on July, 20l6.He further requested to accept his request on

humanitarian grounds.

10. On 22nd July, 2016, the Disciplinary Committee noted that the Respondent vide letter dated 2nd July, 2016 has inter-alia requested for an adjournment as he has to

22ndattend a religious ceremony on July, 2016. Mr. KVLN Bhaswant, the Complainant appeared in person and made oral submissi0ns. The Committee informed the Complainant that the Respondent has requested for adjournment. The Committee decided to adjourn the matter to which the Complainant agreed.

11. The Complainant vide letter dated 11th September, 2016 inter-alia requested to fix-up an early date for hearing to conclude the proceedings in the matter. The Complainant vide letter dated 17th September, 2016 was inter-alia informed that the next date of the hearing in the captioned matter will be communicated in due course. The parties vide letter dated 3rd December, 2016 were called upon to appear before the Disciplinary Committee on 28th December, 2016.

12. On 28th December, 2015 the Disciplinary Committee noted the request made by the Complainant. The Respondent along with Mr. S V Rama Krishna, Advocate appeared before it and while making oral submissions fileu. additional material documents. The advocate of the Respondent gave a brief back ground of the case and informed that there is a dispute in the management of the company and his client has been dragged into it. The Respondent admitted that he did not exercise due diligence while certifying the alleged Form 32 for the appointment of 6 additional directors in Mis. Prudential Sugar Corporation Ltd. He further informed that on a similar complaint he has already been penalised as his DSC was disabled by MCA for certain period and he has also been reprimanded by RD, MCA, Hyderabad letter dated 2nd December, 2013. The Respondent requested

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the Committee to take a lenient view in the matter and further assured the Committee that he will act diligently in future.

13. The Disciplinary Committee after considering the submissions made by the Respondent; the material on record and the nature of issues involved in this matter and in totality of the circumstances related to this, concluded that the Respondent is 'Guilty' of professional misconduct under Clause (7) of Part-I of the Second Schedule of the Company Secretaries Act, 1980 as he did not exercise due diligence in the conduct of his professional duties while certifying Form 32 for the appointment of 6 additional directors in Mis. Prudential Sugar Corporation Ltd.

14. The Disciplinary Committee decided to afford an opportunity of being heard to the Respondent in terms of sub-rule (1) of Rule 19 of the Company Secretaries (Procedure of Investigations of Professional and other misconduct and conduct of cases) Rules, 2007 before passing any order under Section 21B(3) of the Company Secretaries Act, 1980. The Respondent submitted that he has nothing to say further and again requested for a lenient view. Thereafter, the Committee in terms of sub-rule (1) of Rule 19 of the Company Secretaries (Procedure of Investigations of Professional and other misconduct and conduct of cases) Rules, 2007, gave an opportunity of being heard to the Respondent before passing any order under Section 21B(3) of the Company Secretaries Act, 1980. The Respondent again requested for a lenient view.

15. We after considering the material on record; and in the totality of the issues involved in the matter passed the following order against the Respondent:

'Reprimand'

Accordingly, the complaint stands disposed-off.

(sb· v/(S K Agrawala) (Atul B Mehta)

Member Member. P"-esiding Officer

Date: \~ \\) 'Yt>1 b

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