2022 (8) TMI 883 - HC - Companies Law

Appeal Dismissed in Compounding Case Under Section 266C - Upholding Board's Order

The court upheld the Board's order in C.A.No.287/621A/CB/2014, confirming the compounding of the offence under Section 266C without requiring prior court ... Compounding of offence under Section 266G of the Companies Act, 1956 - discretionary power exercised in compounding the offence by the Board under 266C read with Section 621A of the Act - contravention of Section 266G of the Act or not - Whether the compounding of the offence by the Board under Section 266C read with Section 621A is justified without seeking prior permission from the Court? - HELD THAT:- The company does not dispute that they had applied for three DINs, but specifically contends that obtaining of DIN was by using different IDs and address and was obtained due to inadvertence and not intentional and contended that the company was only using one DIN. To consider whether order of the Board is justifiable, relevant provisions needs to be considered - A careful reading of the provisions envisage that it excludes such offences which are punishable with imprisonment only or with imprisonment and also with fine. Thus, on facts, the nature of offence which the company has charged does not invite with imprisonment or imprisonment and fine, but the penalty imposed is punishable with fine, which may extend upto five thousand rupees and where the contravention is continuing one, with a further fine, which may extend to five hundred rupees for everyday thereafter. Thus, the nature of offence is such that it is compoundable, and the same is just and proper. Whether the compounding of the offence by the Board under Section 266C read with Section 621A is justified without seeking prior permission from the Court? - HELD THAT:- The appellant sought to contend that prior permission of the Court needs to be accorded for compounding of offence is contrary to the intention of the legislature for enacting the provision under Section 621A as the powers under Section 266C are concurrent/parallel powers to be exercised by the Company Law Board/other Authorities or Court in seisin of the matter with a difference that a Company Law Board can proceed to compound such offence either before or after the institution of any prosecution whereas criminal Court possesses similar power to compound such offence only after institution of prosecution and as the Apex Court held in the case of VLS. FINANCE LTD. VERSUS UNION OF INDIA AND OTHERS [2013 (5) TMI 348 - SUPREME COURT] where it was held that while interpreting the provisions of a statute, the court avoids rejection or addition of words and resort to that only in exceptional circumstances to achieve the purpose of Act or give purposeful meaning. It is also a cardinal rule of interpretation that words, phrases and sentences are to be given their natural, plain and clear meaning. Appeal dismissed. Issues Involved:1. Whether the discretionary power exercised in compounding the offence by the Board under Section 266C read with Section 621A of the Companies Act, 1956 is in contravention of Section 266G of the Act.2. Whether the compounding of the offence by the Board under Section 266C read with Section 621A is justified without seeking prior permission from the Court.Detailed Analysis:Issue 1: Discretionary Power in Compounding the OffenceThe company admitted to applying for three Director Identification Numbers (DINs) but argued that this was due to inadvertence and not intentional misconduct. The relevant legal provisions were considered, including Section 266C, which prohibits obtaining more than one DIN, and Section 266G, which prescribes penalties for such contraventions. Section 266G states that the penalty for violating Section 266C is a fine that may extend to Rs. 5,000, with an additional fine for continuing contraventions. Section 621A allows for the composition of certain offences not punishable with imprisonment only or with imprisonment and also with fine.The court noted that the nature of the offence, punishable only with a fine, falls within the scope of compoundable offences under Section 621A. This interpretation is supported by the Supreme Court's judgment in V.L.S. Finance Limited vs. Union of India, which clarified that offences punishable with fine or imprisonment or both can be compounded by the Company Law Board without necessarily imposing imprisonment.Therefore, the court concluded that the Board's exercise of discretionary power in compounding the offence under Section 266C read with Section 621A was justified and not in contravention of Section 266G.Issue 2: Compounding Offence Without Prior Court PermissionThe appellant argued that prior permission from the court was necessary for compounding the offence. However, the court referred to the legislative intent behind Section 621A, which provides concurrent powers to the Company Law Board and the court to compound offences. The Company Law Board can compound offences either before or after the institution of prosecution, whereas the court can only do so after prosecution has begun.The Supreme Court in V.L.S. Finance Limited emphasized that the non-obstante clause in Section 621A allows the Company Law Board to compound offences without requiring prior court permission. This interpretation avoids adding words to the statute that the legislature did not include.Thus, the court held that the compounding of the offence by the Board without prior court permission was in line with the legislative framework and judicial precedents.Conclusion:The court dismissed the appeal, confirming the Board's order dated 22/05/2015 in C.A.No.287/621A/CB/2014. The compounding of the offence under Section 266C is upheld, without prejudice to the ongoing case before the I Addl. Chief Metropolitan Magistrate, Bangalore, under Sections 177, 420, and 416 of the IPC. No order as to costs was made.