2017 (5) TMI 493 - Tri - Companies Law

Compounding of offence for the violation of Section 309(5B) of the Companies Act, 1956 - company had not obtained approval for initial appointment under Section 269 read with clause (e) of Part I to Schedule XIII of the Act - Held that - Sub-section (9) of Section 269 says that the Tribunal may terminate the appointment if it is in contravention of requirements of Schedule XIII. Sub-section (10) of Section 269 says that the Tribunal may, while passing an order declaring there is contravention of requirements of Schedule XIII, pass an order imposing fine on the company and its officers. Therefore, this Tribunal is given power under Section 269(9) of the Act to declare that there is contravention of requirements of Schedule XIII and to impose fine on the company and its officers. Further, sub-section (11) says that, if the company contravenes the orders passed by the Tribunal under sub-section (10) of Section 269, the company and its officers shall be punishable with imprisonment for a term which may extend to three years and shall also be liable to pay a fine which may extend to 500 rupees. Unless and until a reference is made to the Tribunal, unless and until the Tribunal declares contravention of requirements of Schedule XIII and unless and until the Tribunal proposed to imposes fine as contemplated under sub-section (10), there is no cause of action for the petitioners to invoke Section 621A of the Act. The Registrar of Companies in his report also stated that the application does not appear proper. In view of the above discussion, it is held that the petitioners cannot seek compounding of violation of Section 309(5B) before this Tribunal under Section 621A of the Act.

Summary

Issues:
Compounding of offence for violation of Section 309(5B) of the Companies Act, 1956.

Analysis:
The petition was filed by M/s. Nexans India Pvt. Ltd., its Managing Director, and Director under Section 621A of the Companies Act, 1956, seeking compounding of the offence for violating Section 309(5B) of the Act read with Schedule XIII. The company, a deemed public company, appointed a foreign national as Managing Director without the necessary approvals. The company paid managerial remuneration without obtaining approval from the Central Government, leading to rejection of their subsequent applications for waiver. The matter was referred to the Tribunal for decision as per Section 269(7) of the Act.

The Central Government rejected the company's applications for waiver, citing non-compliance with Section 269 read with Schedule XIII. The Tribunal was empowered under Section 269(9) to terminate appointments made in contravention of Schedule XIII and impose fines on the company and its officers. However, as no such action was initiated by the Central Government, the Tribunal could not entertain the compounding application under Section 621A.

The Tribunal held that unless a reference is made, contravention of Schedule XIII is declared, and fines are proposed, there is no cause of action for invoking Section 621A. The Registrar of Companies also found the application improper. Consequently, the petitioners were not entitled to seek compounding of the violation of Section 309(5B) before the Tribunal under Section 621A. The application was dismissed, and no costs were awarded.

This detailed analysis of the judgment highlights the key legal provisions, violations, procedural aspects, and the Tribunal's decision regarding the compounding application for the offence under Section 309(5B) of the Companies Act, 1956.