2023 (5) TMI 936 - HC - Companies Law

Companies Act Amendment Act 2020 applies to pending prosecutions

The court concluded that the Companies Amendment Act 2020, reducing the punishment for violations under Section 165(6) of the Companies Act, should apply ... Holding Directorship of companies in excess of the limits prescribed (29 Companies) under the provisions of Section 165 of the Companies Act, 2013 - offence punishable under Section 165(6) of the Act - whether the amendment that was brought into force on 21.12.2020 by virtue of the Companies (Amendment) Act, 2020 can be applied to pending prosecutions? HELD THAT:- At the relevant point of time, contravention was considered as an offence. Further, there was no Explanation II, which specifically clarified for the purpose of reckoning in the limit of Directorship of the 20 companies, the dormant companies shall not be included. By virtue of the Companies (Amendment) Act, 2019 and the Companies (Amendment) Act 2020, the contravention is now liable for penalty by the adjudicating officer appointed by the Central Government. If the contravention is liable for fine, it is triable by a Magistrate and it is an offence and therefore, triable by a Magistrate. Penalty, however, is imposed by the adjudicating officer by the Central Government and hence, the contravention is no longer an offence. The Act not only mollifies the punishment prescribed for contravention, but also the procedure, for determining the penalty. The Hon'ble Apex Court in T. BARAI VERSUS HENRY AH HOE AND ANOTHER [1982 (12) TMI 186 - SUPREME COURT] had an occasion to consider the amendments made to Section 16(1)(a) of the Prevention of Food Adulteration Act, 1954. The Act originally prescribed punishment of 6 years for the said offence of the Act. In 1975, an amendment was made by the State of West Bengal by the West Bengal Amendment Act, which provided for punishment upto imprisonment for life for the said offence. Thereafter, the Parliament passed the Prevention of Food Adulteration (Amendment) Act, 1976, which provided for reduced punishment for the offence. The question that was raised before the Hon'ble Supreme Court inter alia was whether the amendment would be prospective or would apply to pending prosecutions as well in the State of West Bengal. The amendment not only brought about change in the punishment, but also change in the procedure. By virtue of the amendment, the punishment prescribed was only 3 years, whereas, in the West Bengal Act, the punishment prescribed was life imprisonment. Therefore, the earlier West Bengal Act provided a trial by the Court of Sessions and by virtue of the amendments, the trial was to take place before the Magistrate. Applying the above principles to the instant case on hand, it is found that the Parliament had made amendments for the purpose of easing the doing of business and also for reduction of prosecution that are filed in the Special Court - there is no reason why the said Amendment cannot be applied in favour of the accused in the pending prosecution. The accused shall also be entitled to the benefit of Explanation-II to Section 165(1) of the Companies Act. The intention of the Parliament is very clear and the since of the Amendment Act 2020 mollifies the rigour of punishment the beneficial construction has to be applied in favour of the accused in pending prosecutions and all the prosecution has to be withdrawn and transferred to the adjudicating authority appointed under Section 454 of the Companies Act for further proceedings in terms of the said provision. This Court is of the view that it may not be necessary to deal with the other contentions of the parties - petition disposed off. Issues Involved:1. Alleged violation of Section 165 of the Companies Act, 2013 by holding directorships in excess of the prescribed limit.2. Applicability of Section 165(6) as a penal provision for the alleged violations.3. Impact of the Companies Act, Amendment 2020 on pending prosecutions.4. Consideration of dormant companies in reckoning the limit of directorships.5. Retrospective application of beneficial amendments.Detailed Analysis:1. Alleged Violation of Section 165 of the Companies Act, 2013:The petitioner was accused of holding directorships in 29 companies, exceeding the limit prescribed under Section 165(1) of the Companies Act, 2013, which restricts a person from holding office as a director in more than 20 companies, with a maximum of 10 public companies. The complaint stated that this violation is punishable under Section 165(6) of the Act.2. Applicability of Section 165(6) as a Penal Provision:The petitioner argued that Section 165(6) pertains to accepting an appointment as a director, which is different from holding the position. Therefore, the penal provisions for violations under Sections 165(1), (3), and (5) should fall under Section 450 of the Act, not Section 165(6). The respondent contended that Section 165(6) is the appropriate penal provision for holding directorships in excess of the prescribed limit.3. Impact of the Companies Act, Amendment 2020 on Pending Prosecutions:The petitioner highlighted that the Companies Act, Amendment 2020, which came into force on 21.12.2020, reduced the severity of punishment under Section 165(6) to a penalty adjudicated by an officer appointed under Section 454. The petitioner argued that this beneficial amendment should apply to pending prosecutions, referencing the Supreme Court judgments in T.Barai vs. Henry Ah hoe and Nemi Chand vs. State of Rajasthan, which support the application of reduced punishments in pending cases.4. Consideration of Dormant Companies in Reckoning the Limit of Directorships:The petitioner noted that Explanation II to Section 165(1), effective from 09.12.2018, excludes dormant companies from the count of directorships. This amendment, being beneficial, should apply to the pending prosecution.5. Retrospective Application of Beneficial Amendments:The respondent argued that amendments should not apply retrospectively, citing Section 6(A) of the General Clauses Act and a Queen's Bench Division judgment. However, the court found that the beneficial amendments reducing the rigour of punishment should apply to pending cases, as they align with the legislative intent to ease business operations and reduce prosecutions for technical violations.Conclusion:The court concluded that the Companies Amendment Act 2020, which mollifies the punishment for contraventions under Section 165(6) and introduces a penalty adjudicated by an officer, should apply to pending prosecutions. The court transferred the complaint to the adjudicating authority under Section 454 for further proceedings, emphasizing the legislative intent to promote ease of doing business and better corporate compliance.Final Order:The complaint in EOCC No.46 of 2016 was transferred to the adjudicating authority appointed under the Companies Act, and the Criminal Original Petition was disposed of with the connected miscellaneous petitions closed.