1. Who filed the case against whom?
Rajat Kumar Singh, who was the CFO of Adani Power Ltd. during FY 2017-18 and 2018-19, filed
the petition before the NCLT, Ahmedabad.
The respondent was the Registrar of Companies (RoC).
2. What was the main issue?
The RoC alleged that there were certain problems in the company's financial statements,
disclosures and accounting treatment.
The allegations mainly related to:
1. Accounting treatment of a merger/amalgamation.
2. Non-disclosure of related party transactions.
3. Alleged diversion of funds.
4. Financial statements not giving a proper true and fair view regarding certain charges
and borrowings.
5. Not properly providing details relating to fuel cost and purchase of stock-in-trade.
These allegations were connected mainly with Section 129 and Section 133 of the Companies
Act.
3. What did the RoC do?
The RoC first issued a notice to the company on 17 August 2021 asking for explanations and
documents. The company gave detailed replies and supporting documents.
Later, on 25 April 2023, the RoC identified the alleged violations and directed the company and officers to file compounding applications, failing which prosecution would be initiated.
The company continued to give explanations and even provided an independent Chartered
Accountants certificate regarding certain disclosures.
4. What did Rajat Kumar Singh say?
Rajat Kumar Singh basically said:
I have not committed any offence.
He relied upon the explanations and documents already submitted by the company.
However, without admitting the allegations, he said that if the alleged offences were
considered to have occurred, he wanted them to be compounded under Section 441 so that the
matter could come to an end.
What is compounding?
Compounding means paying an amount/penalty to settle a specified offence instead of
continuing with criminal prosecution for that offence.
So Rajat was essentially saying:
"I deny wrongdoing, but without prejudice, if there is an offence, please allow me to compound it and close the prosecution.
5. Why did the matter come before NCLT?
The alleged offences involved several counts and the maximum fine calculated for Rajat was
around ₹35 lakh. Because of the amount and the provisions of Section 441, the matter was
before the NCLT for compounding. Also, prosecution had already been initiated against him.
Therefore, this was not a situation where he applied for compounding before any prosecution.
The prosecution was already pending.
6. What did NCLT consider?
The NCLT considered several factors.
A. Was the offence serious?
The Tribunal said financial statements and accounting standards are important for corporate
governance. However, there was no material showing direct prejudice to shareholders,
creditors or the public.
B. Was it intentional?
The Tribunal found that the alleged default appeared to be interpretational rather than
deliberate. The company had relied upon an NCLT-approved Scheme of Arrangement and the accounting treatment under that scheme. So the Tribunal did not treat it as a deliberate fraud - type violation.
C. Had the company tried to correct/explain the issue?
Yes. The company had submitted explanations, clarifications and an independent CA
certification.
D. Was there previous similar compounding?
There was nothing on record showing that a similar offence had been compounded in the
previous three years.
7. How much was the minimum and maximum penalty?
There were 7 counts attributable to Rajat Kumar Singh.
For each count:
Minimum: ₹50,000
Maximum: ₹5,00,000
Therefore:
Minimum total = ₹3,50,000
Maximum total = ₹35,00,000.
8. What did NCLT finally decide?
The NCLT allowed the compounding application.
But Rajat had asked for the minimum penalty of ₹3.50 lakh.
The Tribunal did not grant only the minimum.
Because the compounding application was filed after prosecution had already started, NCLT
imposed 150% of the minimum penalty.
Calculation:
Minimum penalty = ₹3,50,000
150% × ₹3,50,000 = ₹5,25,000
Therefore, Rajat Kumar Singh was directed to pay:
₹5,25,000
He had to deposit this amount with the Pay Accounts Office, Ministry of Corporate Affairs, New Delhi within two weeks.
9. What happened to the prosecution?
Since the offences were compounded: No further prosecution can be initiated against Rajat
Kumar Singh for those compounded offences. And because prosecution was already pending,
the RoC was directed to inform the court where the prosecution was pending about the
compounding. After that, the applicant would be discharged in respect of those compounded
offences.
10. Final outcome
Petition allowed and disposed of.
Rajat Kumar Singh had to pay ₹5.25 lakh.
After payment:
Compounding → RoC informs pending prosecution court → Rajat gets discharged from those
compounded offences.
One-line takeaway:
NCLT allowed Rajat Kumar Singh, CFO of Adani Power, to compound alleged financial
statement/accounting violations under Sections 129 and 133 by paying ₹5.25 lakh, after which
the pending prosecution against him for those offences would be discharged.