2017 (2) TMI 1566 - AT - Companies Law

Compounding of certain offences - Contravened the mandate of Section 383-A of the Companies Act 1956 as per which the company should have a whole time Secretary - Held that - From the report submitted by Registrar of the Companies it appears that the 1st appellant company has 1, 01, 42, 820/- paid up capital share as per Balance Sheet for the Financial Year ended on 31st March 2015. It has operating revenue of 549, 246, 895/- as per Profit and Loss Account of March 31st 2015. The company had not filed any Annual Return for the period from 1st November 2011 to 8th May 2013 - 1st November 2014 to 17th December 2015. The maximum penalty for default in complying with Section 383A was calculated at 10, 89, 500/- to be paid by each defaulter. We find that the defaults have been made good and compliance certificate were filed in majority cases after about two years. There is no complaint against the company and there is no default earlier. In the present case the learned Tribunal referring to provision of Section 383-A observed that the Bench deemed it sufficient to impose a fine of 2 lacs on each of the defaulting parties. That means less than 1/5th of the maximum penalty as could have been imposed has been imposed which is less than 100/- per day. As we find that no specific grounds have been shown to reduce the amount no interference is called for against the impugned order. Contravention of Section 166 of Act 1956 - Held that - As we find that the appellants have only taken plea that the violation occurred due to inadvertence and without intention 25, 000/- each as ordered by Company Law Board in the other case. It is also noted that non-filing of Annual Returns for any continuous period of three Financial Years is also a disqualification for appointment as Director under Section 164(2)(a) of Companies Act 2013 thus making it a serious offence. However to be consistent with the orders passed by Tribunal in analogous case which is approximately 175th of the maximum fine we modify the impugned order of Tribunal and to compound the offence on payment of 2 lacs by each of the appellants i.e. the Company and the two Directors Mr. Sandeep Kapoor and Mr. Atul Prabhakar Kulkarni. That means total six lacs to be paid by them.The amount as compounded be deposited with the Tribunal within three weeks after adjusting the amount if any already deposited by appellants Contravened Section 210 of the Companies Act 1956 - failure to lay down annual accounts and balance sheet for the year ending 31st March 2011 31st March 2012 31st March 2013 31st March 2014 and 31st March 2015 - Held that - Tribunal failed to notice the minimum fine prescribed under sub-section (7) of Section 129 of Companies Act 2013 which is applicable for the year ending 31st March 2015 also failed to notice that a fine up to 10, 000/- is payable by appellants under Sub Section (5) of Section 210 of Companies Act 1956 for each of the year ending 31st March 2011 31st March 2012 31st March 2013 and 31st March 2014. This court is not inclined to decide the aforesaid issue as there will be enhancement of fine if the fine for the year ending 31st March 2011 31st March 2012 31st March 2013 and 31st March 2014 are taken together with minimum fine of 50, 000/- to be imposed for year ending 31st March 2015. In this background we deemed it proper to remit the case back to the National Company Law Tribunal New Delhi Bench to decide the question of compounding of offence afresh after taking into consideration the Report submitted by the Registrar of the Companies the grounds shown by the petitioner and the ratio laid down and discussed above. Tribunal will also take into consideration the punishment prescribed under sub-section (5) of Section 210 of the Companies Act 1956 and sub-section (7) of Section 129 of Companies Act 2013 which are applicable for different year ending.

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 ?50,000 each, and in Company Application No. 16/226/2015-CLB, the fine was ?25,000 each. In contrast, the Tribunal in the present case imposed fines between ?2 lakhs and ?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 ?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 ?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 ?5 lakhs on each appellant, which was 50% of the maximum amount. The Tribunal's decision was modified to ?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 ?4 lakhs on each appellant, which was about 42% of the maximum amount. The Tribunal's decision was modified to ?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 ?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.

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