COMPOUNDING OF OFFENCES- Where no Specific Penalty prescribed under the Section
COMPOUNDING
OF OFFENCES-
Where no Specific
Penalty prescribed under the Section
SHORT SUMMARY
Under the relevant provisions of the
Companies Act, 2013, offences committed under the Act entail penal consequences
by way of fine, or imprisonment or both. . In this editorial, the author begins
by referring the provisions of section 441 of the Companies Act, 2013 and also makes
an attempt to light up on provisions of compounding of Offence where there is
no penalty prescribed under the Companies Act, 2013. The main thrust of the
article, however, is upon the provisions of section 441 which deals with
compounding of offences and most recent case laws decided by the Benches of National
Company Law Tribunal. Author will share the process relating to Compounding of
offence in next piece of writing.
Introduction:
Corporates are run by humans. To err is human. As committing of mistakes
inadvertently by the corporate are unavoidable. Ignorance of law cannot be
pleaded as an excuse for the default committed, whether intentional or
unintentional. These defaults are the *Non-Compliances of
provisions of the Law.
The Companies Act, 2013 ( Act ), inter alia,
provides for penalties for the contravention of any of the provisions of the
Act, any Rule, Regulation, Notification, Direction or Order issued there under
or for contravention of provision in the section itself. Even Act has provide the
penalties for the contravention of provisions of section ‘where there is no
specific penalty provide under the section’ [Section 450 of the Act]. At the
same time, an enabling provision to compound the contravention is also provided
for in the Act [Section 441 of the Act].
"the aforesaid section was brought in
view of the need of leniency in the administration of the Act because a large
number of defaults are of technical nature and many defaults occurred because
of the complex nature of the provision."
What
we understood by Non-Compliance?
Non-compliance means - such as default,
violation, breach, failure, contravention, failure to do something - all
ultimately mean the same thing, i.e., something required to be done under the
Companies Act, 2013, 'Not Done' resulting in default. In short any
contravention of the Companies Act, 2013 or any previous Company Law would be
an offence and it is punishable depending upon the section under which the
default is committed with simple fine or imprisonment or both.
Offence:
Offence
doesn’t defined by the Companies Act, 2013 in any of its sections. However, the
definition could be seen in the Code of Criminal Procedure (Cr.P.C.) which
states as under:
"Any act or omission made punishable by any law for the time being
in force."
Reasons
behind Offences:
Many of
the offences committed by companies under the Companies Act are technical and
complex in nature, as has been observed by the Hon'ble Supreme Court of India
in its judgment.
Offences for which no
specific penalty is provided - HOW THESE ARE DEALT WITH
In some of the sections of the Companies Act,
2013, specific penalty is not provided although there could be instances of
offences arising in those sections. Section 450 of the Companies Act, 2013
addresses the above issue and the penalties would be decided as provided in
this section.
Statutory Framework:
Section 450 Punishment where no specific penalty or
punishment is provided
If a company or any officer of a
company or any other person contravenes any of the provisions of this
Act or the rules made there under, or any condition, limitation
or restriction subject to which any approval, sanction, consent,
confirmation, recognition, direction or exemption in relation to any
matter has been accorded, given or granted, and for which no penalty or
punishment is provided elsewhere in this Act, the company and every
officer of the company who is in default or such other person shall be
punishable with fine which may extend to ten thousand rupees, and where the
contravention is continuing one, with a further fine which may extend to one
thousand rupees for every day after the first during which the contravention
continues.
Analyses
of the Section:
It is understandable from the above provision that
if no specific penalty provide under the Act for any Section or Rule then the
Company and officers in defaults are legally responsible for penalty under
Section 450 of the Companies Act, 2013. Let’s discuss the same on the basis of
the recent judgments of the NCLT.
NATIONAL
COMPANY LAW TRIBUNAL, BANGALURU BENCH
In
National Company Law Tribunal, Bangaluru Bench Narayana Hrudayalaya (P.) Ltd.,
In re
Section 179, read
with section 441, of
the Companies Act, 2013/Section 621A of the
Companies Act, 1956 - Board - Powers of - Whether where petitioner company had
granted inter-corporate loan to its subsidiary companies but there was a delay
of 96 days in approving transactions by board of directors, petitioner's had
not complied with section 179. The petitioners filed petition under section
621A of Companies Act, 1956, read with section 179(3) and section 185 of
Companies Act, 2013 with a prayer to record compounding of the offence.
The petitioner stated that the company could not comply
provisions of section 179(3) due to paucity of time and due to urgency of
releasing of funds. Thus, default had occurred unintentionally and without any
mala fide intention
There is no penal provision provided under section 179(3) of
Companies Act, 2013. Therefore, provision of section 450 of Companies Act, 2013
is applicable. Any violation of section 179 of Companies Act, 2013 is
punishable under section 450 of Companies Act, 2013. The company and every
officers of the company are liable for punishment.
As the petitioner
mentioned that due to paucity or time and due to urgency of releasing of fund
this offence occurred which was unintentionally, the offence stated in the
petition is compounded by the NCLT Bangaluru Bench.
National Company Law Tribunal,
Hyderabad Bench Case:
In
National Company Law Tribunal, Hyderabad Bench ICOMM Tele Ltd., In re
In this
case applicant's company, it was
noticed that the company failed to appoint a Woman Director on its Board of
Directors as per section 149 of the Companies Act, 2013 read with rule 3 of the
Companies (Appointment and Qualification of Directors) Rules, 2014.
Show-cause
notice was issued to the company and its Directors by the Registrar of
Companies (RoC), Hyderabad, dated 10-8-2015, under section 149 of the Companies
Act, 2013, questioning the applicants as to why penal action, under section 450
of the Companies Act, 2013, should not be initiated against the applicants for
not appointing a woman director on the Board of Director of the Company.
The
Company failed to reply to the said show-cause notice. It was stated by the
applicants that the company had appointed 'N', woman director on 28-9-2015,
in accordance with the provisions of the Companies Act, 2013 and as per
requirement laid down under section 149 of the Companies Act, 2013. However,
the Company delayed in intimating the same to the RoC in Form DIR - 12.
Subsequently it was intimated to the RoC in Form DIR-12 only on 25-4-2016.
The RoC the absence of any communication or reply filed a criminal complaint
under section 450 of the Companies Act, 2013, before the Court of Special
Judge for the Economic Offences-cum-VIII AMSJ Court, Hyderabad for
prosecuting the applicants
|
Application by the applicant: The applicant filed application under section
621A of Companies Act, 1956, read with Regulations 35, 40, 44 of Company Law
Board Regulations, 1991 and also under section 149 of Companies Act, 2013 read
with rule 3 of Companies (Appointment and Qualification of Directors) Rules,
2014 before NCLT by seeking direction to compound the offence by imposition of
minimum composition fee
In the
lights of above facts of the case, the issue to be decided in the present case
is whether the NCLT is having power to permit the applicants to compound the
offence when there is no penalty prescribe under Section 149 for non compliance
of provisions of this Section.
In the light of decision of the
Larger Bench of Company Law Board (Hon'ble P. Majumdar, Hon'ble S.
Balasubramanian and Hon'ble C. Das) was constituted in the case known as
Hoffland Finance Ltd., In re [1997] 13 SCL 12 (CLB) and
the subsequent decision of Hon'ble High Court of Delhi, V.L.S. Finance Ltd. v.
Union of India [2003] 48 SCL 742 the issue of the Company Law Board/NCLT
having jurisdiction and power to compound offences, where no fine or
imprisonment or both is prescribed under the Act, is no longer res Integra. The
Tribunal can exercise its jurisdiction under Section 621A of Companies Act,
1956 or its corresponding Section 441 of Companies Act, 2013. Though the
applicants have filed the Application under Section 621A of the Companies Act,
1956, later they have mentioned Section 441 of the Companies Act, 2013 in their
Affidavit dated 16th August, 2016
Conclusion
On the basis of above mentioned
judgements and the provisions of Companies Act, 2013 one can interpret that
provisions where no specific penalty or punishment is provided under the Act
read with relevant rules (e.g. Section 135, Section 179)
then penalty as per Section 450 will be levy on the Company and the officers in
default.
Ideally, one has to comply with
the requirements of the Act, under which, the companies are incorporated or any
subsequent Law. In case of any non-compliance, if not done willfully, and the
person acted honestly and reasonably. The only recourse available go for
Compounding of Offence.
(Author – CS
DiveshGoyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from
Delhi and can be contacted at csdiveshgoyal@gmail.com)
Disclaimer: The entire
contents of this document have been prepared on the basis of relevant
provisions and as per the information existing at the time of the preparation.
Although care has been taken to ensure the accuracy, completeness and
reliability of the information provided, I assume no responsibility therefore.
Users of this information are expected to refer to the relevant existing
provisions of applicable Laws. The user of the information agrees that the
information is not a professional advice and is subject to change without
notice. I assume no responsibility for the consequences of use of such
information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT,
SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION
WITH THE USE OF THE INFORMATION.
This is only a
knowledge sharing initiative and author does not intend to solicit any business
or profession.
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