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 ... Beneficial construction of penal amendments - retrospective application of criminal law reducing punishment - conversion of an offence into adjudicable penalty - application of Explanation II to reckoning directorships with dormant companies excluded - transfer of pending prosecutions to adjudicating authority under Section 454 - legislative intent of ease of doing business and decriminalisation of technical lapsesBeneficial construction of penal amendments - retrospective application of criminal law reducing punishment - conversion of an offence into adjudicable penalty - Whether the amendments effected by the Companies (Amendment) Act, 2019/2020 that convert the contravention under Section 165(6) from an offence triable by a Magistrate into a contravention liable to adjudication and penalty apply to prosecutions pending at the time of the amendment. - HELD THAT: - The Court analysed the principle that where an amendment reduces the rigour of criminal law, the beneficial change may be applied to pending cases. Relying on the ratio in T. Barai v. Henry Ah Hoe and related authorities, the Court held that Article 20(1) bars retrospective criminal legislation that creates or increases punishment but does not prevent application of a later statute that mitigates punishment. The amendments not only reduce the quantum and nature of the sanction but change the procedure by shifting determination to an adjudicating officer under Section 454. The legislative materials and Statement of Objects and Reasons show an intent to treat technical or procedural lapses through in-house adjudication to promote ease of doing business and reduce prosecutions. Given that the amendment mollifies the rigour of the law and the offence under the earlier provision and the contravention under the amended scheme are of the same character for purposes of mitigation, the Court held that the beneficial construction applies and the amended adjudicatory regime is available in pending prosecutions. [Paras 8, 9, 10, 12, 14]The amendment reducing the offence to an adjudicable penalty applies to the pending prosecution and the accused is entitled to the benefit of the amended regime.Application of Explanation II to reckoning directorships with dormant companies excluded - legislative intent of ease of doing business and decriminalisation of technical lapses - Whether Explanation II to Section 165(1) (excluding dormant companies for reckoning the limit of directorships) is applicable to the pending prosecution. - HELD THAT: - The Court noted that Explanation II was introduced by amendment and is beneficial to an accused by excluding dormant companies when reckoning the limit of directorships. Considering the legislative objective to relieve technical non-compliances and the settled principle of applying beneficial statutory changes in favour of accused persons, the Court concluded that Explanation II must be applied to the pending proceedings so as to afford the accused the benefit of the exclusion of dormant companies from the reckoning. [Paras 11, 12, 13]Explanation II to Section 165(1) is applicable to the pending prosecution and the accused is entitled to its benefit.Transfer of pending prosecutions to adjudicating authority under Section 454 - conversion of an offence into adjudicable penalty - What relief should follow where the amended scheme applies to a pending prosecution under Section 165(6)? - HELD THAT: - Given the Court's conclusions that the amended, less onerous adjudicatory regime and Explanation II apply to pending cases, the appropriate procedural consequence is not continued criminal prosecution before the Magistrate but transfer of the complaint to the adjudicating authority constituted under Section 454 for determination of penalty and compliance. The Court observed that Section 454 provides for adjudication and, in default of compliance with adjudicating orders, penal consequences may follow, thereby preserving legislative objectives while allowing opportunity for compliance and adjudication under the amended framework. [Paras 14, 16]The complaint is to be transferred to the adjudicating authority under Section 454 for further proceedings in terms of the amended Act.Final Conclusion: The Court held that the Companies (Amendment) Act (2019/2020) amendments that convert the contravention under Section 165(6) into an adjudicable penalty, and Explanation II to Section 165(1), are beneficial and apply to the pending prosecution; accordingly, the complaint is transferred to the adjudicating authority under Section 454 for adjudication, and the criminal prosecution before the Magistrate is to be treated in accordance with the amended statutory scheme. 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.