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Azacycles Judicial Precedent

Municipal Court in Prague

Azacycles s.r.o. vs. Czech Republic

Azacycles Judicial Precedent

In 2009 – 2011 an in-depth audit took place at the incentive of one of the statutory representatives of the financing of the Tandem Programme project at the level of the Grant Department of the Financial Authority in Kladno and the Audit Department of the Financial Directorate in Prague. In almost 28 months of the in-depth audit all documentary material related to the financing of the project was examined by the tax administration, witness testimonies and reports requested, the reality of all received payments and adequacy of acquisition prices was examined in detail. By the decisions of the director of the Financial Directorate in Prague of 2.6.2011 and 15.6.2011 it was stated that the project’s accounts books were kept in accordance with strict legal intentions and there were no reservations, and it is conclusive that all received payments, invoices and further accounting documents related to the project have a real and fully conclusive basis. Based on the examination of the accounting documents and testimonies of independent experts, witnesses and third parties it was further stated that the project was financed and solved in accordance with the Contract for Specific Support (provider the Ministry of Industry and Trade of the Czech Republic) and generally valid regulations.

In July 2010 the Municipal Court in Prague in its verdict 9Ca 118/2007-34 annulled the validity of the assessment of the Financial Directorate in Prague for breach of budgetary discipline which had already been waived in December 2006 at the request of the company by the Ministry of Finance of the Czech Republic. In April 2006 the investigation was initiated at the incentive of the Ministry of Industry and Trade of the Czech Republic of the possible breach of budgetary discipline because the company had allegedly transferred funds contrary to the Contract for Specific Support from its current account to which the provider had sent grant funds to its other current account. A worker of the grant audit department of the Ministry of Industry and Trade of the Czech Republic passed on the incentive despite the protests of the company’s statutory representatives to the Financial Authority in Kladno and to the Financial Directorate in Prague which confirmed breach of budgetary discipline resulting in the levy of the full amount of the drawn grant for 2005 and calculated legal penalty. Not one of the three levels accepted our highly succinctly formulated objectives. Only a court accepted our arguments, stated in the grounds of the judgment that the necessary condition for breach of budgetary discipline is the unauthorised use of funds and because the transfer between two bank accounts is not seen as use of funds, let alone in an unauthorised manner, no breach of budgetary discipline could have occurred. In a lengthy and expensive dispute the erroneous, legally incompetent (de facto null) decision and wilful activities of the director of the Financial Authority in Kladno greatly damaged the reputation of the company at the grant provider the Ministry of Industry and Trade of the Czech Republic. The person of the then director of the research and development department and the highly unqualified approach of the worker conducting the audit at the company in April 2006 also greatly contributed to this. It can only be said that although the court recognised the truth of our arguments after three years since the lawsuit had been filed, if the payments of the assessment had not been waived by the Ministry of Finance of the Czech Republic the company would have most likely gone bankrupt in 2007. The entire case fully exposed what fatal consequences the breach of the division of power laid down in the Constitution of the Czech Republic has if the right of interpreting a business contract is usurped by tax administration, otherwise part of executive power.

Azacycles s.r.o. vs. Czech Republic
Azacycles s.r.o. vs. Czech Republic (The verdict of the Municipal Court in Prague, Oct. 2nd 2010), 9Ca 118/2007-34
© 2012 Azacycles s.r.o.