2017 (2) TMI 1566 - AT - Companies Law

Tribunal Upholds Fines for Companies, Adjusting Penalties According to Companies Act

In Company Appeal No. 49 of 2016, the Tribunal imposed a fine of Rs. 2 lakhs on each defaulting party for contravening Section 383-A of the Companies Act ... Compounding of offences - Tribunal's jurisdiction to compound - Limits of compounding where imprisonment is prescribed - Factors to be considered in compounding - Consistency and precedent in compounding orders - Transition of penal provisions between Companies Act, 1956 and Companies Act, 2013 - Remand for fresh adjudication on compoundingTribunal's jurisdiction to compound - Limits of compounding where imprisonment is prescribed - Extent of the Tribunal's power to compound offences under the Companies Acts and the limitation where imprisonment is prescribed. - HELD THAT: - The Tribunal (erstwhile CLB) has wide jurisdiction to compound offences punishable with fine only, either before or after institution of prosecution. Where an offence carries imprisonment, or imprisonment is an available punishment, compounding is permissible only with the permission of the Special Court as provided in the statute; where an offence is punishable with imprisonment only, the Tribunal has no jurisdiction to compound. Thus, before compounding the Tribunal must consider not only the gravity of the offence but also the statutory punishment prescribed. [Paras 9]Tribunal has jurisdiction to compound offences punishable with fine only; offences attracting imprisonment require application of the statutory restrictions and, where imprisonment is prescribed, compounding by the Tribunal is precluded unless statutory procedure is followed.Factors to be considered in compounding - Consistency and precedent in compounding orders - Relevant factors the Tribunal must consider when exercising its discretion to compound and the requirement of consistency with earlier analogous orders. - HELD THAT: - The Tribunal is required to notice and evaluate enumerated factors including the gravity of the offence, whether the act was intentional or inadvertent, the maximum punishment prescribed, the Registrar's report, period of default, timing of the compounding petition, whether the default has been rectified, financial condition of the company/defaulters, continuity of the offence, previous similar offences, prejudice to members/creditors/public interest, and share value. Where similarly situated defaulters advance similar grounds, the Tribunal should be consistent in compounding and take earlier analogous orders into account; materially different treatment without recorded reasons is impermissible. [Paras 11, 12]Tribunal must consider specified factors and maintain consistency with precedents; where it departs from earlier analogous compounding orders it must record reasons.Compounding of offences - Challenge to compounding order in Company Appeal No. 49 of 2016 (contravention of Section 383-A of Companies Act, 1956). - HELD THAT: - The Registrar's report showed the company had significant paid-up capital and operating revenue, defaults in filing annual returns for specified periods were subsequently rectified, and there was no earlier default or complaint. The Tribunal imposed a composition amount less than one-fifth of the maximum permissible fine. No specific grounds were shown to justify interference with the Tribunal's assessment. [Paras 13, 14, 15]No interference with the Tribunal's order; appeal dismissed in respect of this compounding.Compounding of offences - Challenge to compounding order in Company Appeal No. 50 of 2016 (contravention of Section 166/168 of Companies Act, 1956 regarding AGM non-holding). - HELD THAT: - Although the maximum statutory penalty was substantial, the Tribunal reduced the penalty to less than one-fifth of the maximum after noting the appellants' pleas of inadvertence, lack of prejudice to members/creditors/public interest, and rectification. Given these grounds and the Tribunal's exercise of discretion to impose a substantially reduced fine, no interference was warranted. [Paras 16, 17, 18]Tribunal's reduction of the penalty is upheld; appeal dismissed as to this compounding.Consistency and precedent in compounding orders - Compounding of offences - Challenge to compounding order in Company Appeal No. 51 of 2016 (contravention of Section 220 of Companies Act, 1956) and modification of Tribunal's order. - HELD THAT: - The Tribunal compounded at approximately 50% of the maximum fine though in analogous earlier matters the same Bench had compounded similar defaults at about one-fifth of the maximum. The impugned order did not record reasons for the heavier composition despite similar grounds of inadvertence and rectification being urged. The Tribunal's order was therefore modified to bring the composition in line with the Bench's previous practice in analogous cases. [Paras 19, 20, 21, 22]Impugned compounding order modified: the offence is compounded on payment of the specified reduced composition (as set out by the Appellate Tribunal) and the appeal disposed accordingly.Consistency and precedent in compounding orders - Compounding of offences - Challenge to compounding order in Company Appeal No. 52 of 2016 (contravention of Section 159 of Companies Act, 1956) and modification consistent with analogous orders. - HELD THAT: - The Tribunal imposed a composition amount equal to about 42% of the maximum though in comparable earlier matters the same Bench had reduced similar defaults to about one-fifth. Applying the principle of consistency and having regard to the facts and pleas advanced by the appellants, the Appellate Tribunal reduced the composition to an amount consistent with the modification made in Company Appeal No. 51 of 2016. [Paras 23, 24, 25]Impugned compounding order modified to the reduced composition (as set out by the Appellate Tribunal) and the appeal disposed accordingly.Transition of penal provisions between Companies Act, 1956 and Companies Act, 2013 - Remand for fresh adjudication on compounding - Challenge to compounding order in Company Appeal No. 53 of 2016 (contravention of Section 210 of Companies Act, 1956 and applicability of Section 129 of Companies Act, 2013 for 2014-15) and remand for fresh decision. - HELD THAT: - The Tribunal compounded the offence at a sum which ignored the minimum fine prescribed under Section 129(7) of the Companies Act, 2013 for the financial year ending 31 March 2015 and also failed to account for the fines payable under Section 210(5) of the 1956 Act for earlier years. Given the mixed applicability of the 1956 and 2013 Act provisions and the grievousness of the allegations as reflected by the statutory punishments, the Appellate Tribunal found an error apparent on the face of the record and set aside the impugned order. The matter was remitted to the National Company Law Tribunal, New Delhi Bench for fresh adjudication after taking into account the Registrar's report, the petitioners' grounds and the relevant statutory provisions. [Paras 35, 36, 37, 38, 39]Impugned order set aside and the petition remitted to the Tribunal for fresh decision on compounding after notice and hearing.Final Conclusion: The Appellate Tribunal affirmed the Tribunal's compounding orders in two appeals, modified and reduced the compositions in two appeals to amounts consistent with the Bench's prior practice, and set aside and remitted one compounding order for fresh adjudication to the National Company Law Tribunal; no costs were awarded. Issues Involved:1. Objective and punitive nature of Section 621A of the Companies Act 1956.2. Consistency in fines imposed by the Tribunal compared to previous Company Law Board decisions.3. Intentionality and proportionality of delays in compliance.4. Subsequent rectification of defaults by appellants.Detailed Analysis:1. Objective and Punitive Nature of Section 621A:The appellants argued that the Tribunal failed to appreciate the objective of Section 621A of the Companies Act 1956, which is not punitive. They contended that no harsh and burdensome punitive order should be passed under this section. The Tribunal, however, compounded the offences and imposed fines on each of the defaulting parties, which the appellants challenged as being too severe.2. Consistency in Fines Imposed:The appellants contended that the Tribunal did not consider that for similar contraventions, the then Company Law Board (CLB) had imposed lesser fines. They cited previous CLB decisions where fines for similar offences were significantly lower. For instance, in Company Application No. 16/239/2015-CLB, the CLB compounded the offence for Rs. 50,000 each, and in Company Application No. 16/226/2015-CLB, the fine was Rs. 25,000 each. In contrast, the Tribunal in the present case imposed fines between Rs. 2 lakhs and Rs. 10 lakhs for similar violations.3. Intentionality and Proportionality of Delays:The appellants claimed that the delays in compliance were not intentional but due to ongoing management and organizational changes within the holding company. They argued that the composition fee imposed by the Tribunal was disproportionate to the alleged technical default, which was beyond their control. They also highlighted that the defaults were subsequently rectified by them, and they had suo moto preferred compounding applications before any penal order was issued.4. Subsequent Rectification of Defaults:The appellants emphasized that they had rectified the defaults and filed the necessary documents before any penal action was taken. They argued that this should have been considered by the Tribunal while imposing fines. The Tribunal, however, imposed fines despite the rectification, leading to the appellants' dissatisfaction.Company Appeal No. 49 of 2016:In this case, the appellants contravened Section 383-A of the Companies Act 1956 by not having a whole-time Secretary. The Tribunal imposed a fine of Rs. 2 lakhs on each defaulting party, which was less than 1/5th of the maximum penalty. The Tribunal's decision was upheld as no specific grounds were shown to reduce the amount further.Company Appeal No. 50 of 2016:The appellants failed to hold Annual General Meetings regularly, violating Section 166 of the Act 1956. The Tribunal imposed a fine of Rs. 10 lakhs on each defaulting party, which was less than 1/5th of the maximum amount. The Tribunal's decision was upheld as the appellants' plea of inadvertence and lack of intention was not sufficient to warrant a further reduction.Company Appeal No. 51 of 2016:The appellants contravened Section 220 of the Act 1956 by filing Balance Sheets late. The Tribunal imposed a fine of Rs. 5 lakhs on each appellant, which was 50% of the maximum amount. The Tribunal's decision was modified to Rs. 2 lakhs each to be consistent with analogous cases where similar offences were compounded at 1/5th of the maximum fine.Company Appeal No. 52 of 2016:The appellants failed to file Annual Returns timely, violating Section 159 of the Act 1956. The Tribunal imposed a fine of Rs. 4 lakhs on each appellant, which was about 42% of the maximum amount. The Tribunal's decision was modified to Rs. 2 lakhs each to be consistent with analogous cases.Company Appeal No. 53 of 2016:The appellants contravened Section 210 of the Companies Act 1956 by failing to lay down annual accounts and balance sheets timely. The Tribunal imposed a fine of Rs. 50,000 on each defaulting party, which was the minimum fine prescribed under Section 129 of the Companies Act 2013 for the year ending 31st March 2015. The Tribunal's decision was set aside due to an error in not considering the fine payable for the years ending 31st March 2011 to 31st March 2014. The case was remitted back to the Tribunal for a fresh decision.Conclusion:The appeals highlighted inconsistencies in the fines imposed by the Tribunal compared to previous CLB decisions and argued for proportionality and consideration of subsequent rectification of defaults. The Tribunal's decisions were upheld in some cases, modified in others, and one case was remitted back for a fresh decision.