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2017 (2) TMI 3 - Tri - Companies LawCompounding of alleged offence committed under under section 217(2AA) of the Companies Act, 1956 - In what types of cases, the CLB/NCLT can exercise its powers under Section 621A of Companies Act, 1956, for composition of offence(s), without reference to Criminal Court? - Whether the present case is a fit case to allow composition of alleged offence? - Held that - In the light of the above discussions of the provisions of section 621(A) of the Companies Act, 1956, and the interpretations given in the Hon ble High Court of Delhi in VLS Finance Ltd. 2003 (11) TMI 334 - HIGH COURT OF DELHI there is no iota of doubt about jurisdiction and power of the Company Law Board or NCLT to consider for composition of offences under the Companies Act, 1956, either before or after institution of the prosecution and, the only exception is in a case, where the offence alleged is liable to be punished with imprisonment only or with imprisonment and also with fine. However, the Criminal Court does not have any jurisdiction before the Institution of criminal case but whereas the Company Law Board/Tribunal has power and competency, under the Companies Act, to entertain even suo moto application before institution of criminal. It is not in dispute that offence in question is compoundable and, the applicants have also declared unequivocally that the new management of the Company has taken appropriate actions and implemented policies/designs to prevent any future defaults. It is not in dispute that the present offence is the first of its kind committed by the Company and, the Registrar of Companies also has not opposed the case and left it to the consideration of Tribunal as per merits. The Company also committed not to recur this type of the offences in future. In the light of the facts and circumstances of the case and, also in the interest of Justice, we are inclined to allow the present application by exercising the powers conferred under Section 621A of the Companies Act, 1956, however, subject to payment of compounding fees for the alleged offence committed U/s. 217(2AA) of the Companies Act, 1956. Thus direct each applicants to pay ₹ 20,000/- (Rupees Twenty Thousand Only) which is the maximum penalty as prescribed under Section 217(6) of the Companies Act, 1956 within a period of three weeks from the date of the receipt of the copy of the order.
Issues Involved:
1. Jurisdiction and power of NCLT to compound offences under Section 621A of the Companies Act, 1956. 2. Whether the present case is fit for compounding the alleged offence under Section 217(2AA) of the Companies Act, 1956. Issue-wise Detailed Analysis: 1. Jurisdiction and Power of NCLT to Compound Offences: The application was initially filed before the Company Law Board (CLB) and later transferred to the NCLT Hyderabad Bench. The applicants sought to compound the alleged offence under Section 217(2AA) of the Companies Act, 1956. The NCLT has full powers to compound offences attracting imprisonment or fine or both, even without referring to any Criminal Court or Special Courts. The Tribunal noted that under the new Companies Act, 2013, NCLT is empowered to compound offences leading to fine only under Section 441, which states that any offence punishable with fine only may be compounded by the Tribunal or Central Government. However, under the Companies Act, 1956, the powers of CLB were broader under Section 621A for compounding offences. The Tribunal discussed two conflicting decisions on whether permission of the Court is necessary before compounding offences where prosecution has already been instituted. In Reliance Industries Ltd (1997) and Hoffland Finance Ltd (1997), different views were taken on the necessity of obtaining court permission. The Full Bench of CLB in Hoffland Finance Ltd held that the Company Law Board could compound offences without the need for court permission, even if prosecution was pending. This view was affirmed by the Delhi High Court in VLS Finance Ltd. vs Union of India and upheld by the Supreme Court. 2. Fit Case for Compounding the Alleged Offence: The present case involved a violation of Section 217(2AA) of the Companies Act, 1956, where the company failed to comply with certain Accounting Standards. The applicants submitted that the offence was not intentional and did not harm public interest. The Registrar of Companies did not oppose the application for compounding. The Tribunal noted that this was the first offence committed by the company and that the new management had taken steps to prevent future defaults. The Tribunal concluded that it had the jurisdiction and power to compound the offence under Section 621A of the Companies Act, 1956. It directed each applicant to pay ?20,000 as compounding fees, the maximum penalty prescribed under Section 217(6) of the Companies Act, 1956, within three weeks. The Tribunal also directed the Registry to forward a certified copy of the order to the Chairman, SEBI, for appropriate action, as the applicant company is a listed company. Conclusion: The NCLT Hyderabad Bench allowed the application for compounding the offence under Section 217(2AA) of the Companies Act, 1956, subject to payment of compounding fees. The Tribunal confirmed its jurisdiction and power to compound such offences without requiring court permission, in line with established judicial precedents.
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