1996 (10) TMI 501 - Board - Companies Law

Issues Involved:

1. Compounding of the alleged offence under Section 621A of the Companies Act, 1956.
2. Issuance of duplicate shares with intent to defraud.
3. Penal action under Section 84(3) of the Companies Act.
4. Permission from the court for compounding offences.
5. Interpretation of Section 621A of the Companies Act in conjunction with Section 320 of the Criminal Procedure Code, 1973.
6. Role and authority of the Company Law Board in compounding offences.

Detailed Analysis:

1. Compounding of the Alleged Offence under Section 621A of the Companies Act, 1956:

The applicants filed separate applications under Section 621A of the Companies Act, 1956, seeking compounding of the alleged offence concerning the issuance of duplicate shares with intent to defraud. The Company Law Board (CLB) considered these applications collectively due to the common cause of action. Section 621A provides a mechanism for compounding offences that are punishable with fine or imprisonment, or both, and outlines the roles of the Company Law Board and the Regional Director in this process.

2. Issuance of Duplicate Shares with Intent to Defraud:

The Registrar of Companies, Maharashtra, issued a show-cause notice alleging that 10,950 duplicate shares were issued on July 11, 1994, to certain individuals in preference to the original lodgers who had lodged the original shares. Further, 26,650 shares were issued on August 22, 1994, and November 11, 1994, despite the original shares being returned with objection memos. This issuance was alleged to be fraudulent, making the company and its officers liable for penal action under Section 84(3) of the Act.

3. Penal Action under Section 84(3) of the Companies Act:

The Registrar found the applicants' replies to the show-cause notices unsatisfactory and lodged a complaint in the Additional Chief Metropolitan Magistrate's Court. The case was pending while the applicants sought to compound the offence through the CLB. The CLB noted that the offence was punishable with a fine, and the compounding could proceed independently for the company, but for the officers, it required court permission.

4. Permission from the Court for Compounding Offences:

The matter was first heard on October 3, 1996, where it was determined that the compounding could proceed with court permission. The magistrate, on October 10, 1996, stated that permission for compounding could only be granted after the terms and conditions of compounding were decided. This decision emphasized that the compounding process required a joint action and court approval to ensure the terms were agreed upon.

5. Interpretation of Section 621A of the Companies Act in Conjunction with Section 320 of the Criminal Procedure Code, 1973:

The applicants argued that Section 621A of the Companies Act is in pari materia with Section 320 of the Criminal Procedure Code, 1973, regarding the compounding of offences. Section 621A starts with a non-obstante clause, allowing it to operate independently of the Criminal Procedure Code. It specifies the offences that can be compounded, the authorities who can compound them, and the requirement for court permission for certain offences.

6. Role and Authority of the Company Law Board in Compounding Offences:

The CLB, being a quasi-judicial body, has the authority to compound offences under the Companies Act. The decision to compound and the terms thereof are determined by the CLB, after which court permission is sought. The CLB emphasized that the magistrate's permission is not a prerequisite before the CLB can decide on compounding. The Registrar of Companies' role is limited to forwarding the compounding application with comments to the CLB.

Conclusion:

The CLB concluded that it had the jurisdiction to compound the offence and that the matter could be brought before the court for permission. On the merits, it was noted that the issuance of duplicate shares did not cause any loss, and the shares were either canceled or not in circulation. The Registrar confirmed no complaints from original lodgers, and it was the first instance of such an offence.

Order:

The alleged offence under Section 84(3) was compounded as follows:

(a) Against the company, on payment of a Rs. 10 lakh compounding fee, subject to court permission for the officers.
(b) For the officers, on payment of Rs. 1 lakh each by the directors and Rs. 10,000 each by the secretary and assistant vice-president, subject to court permission.
(c) Reliance Consultancy Services Limited to pay Rs. 10 lakhs.

The parties were instructed to follow the procedure under Section 621A(7) for court permission, with payments to be made within 15 days of court approval. The Registrar of Companies was to take further action upon compliance.

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