2018 (1) TMI 830 - AT - Companies Law

Compounding of the offences for violation of certain provisions during some of the financial years - Composition of certain offences u/s 621A - Held that - Merely on the ground that investigation by SFIO is going on or some other cases are pending Ld. Tribunal ought not have rejected all the appeals. Sub-section (1) of Section 621 prohibits compounding when an offence punishable with imprisonment only or with imprisonment and also with fine. Where fine is alternative to the imprisonment or where there are no provisions of punishment is well within the jurisdiction of the Tribunal to compound the offence. Sub-section (6) of Section 621A further makes it clear that any offence which is punishable under Act with imprisonment or with fine or with both the case is liable to be compounded. Thus we hold that the Appellant is entitled for compounding of offence

Summary

Issues Involved:
1. Compounding of offences under the Companies Act, 1956.
2. Impact of ongoing investigations and criminal prosecutions on compounding applications.
3. Jurisdiction and authority of the Tribunal in compounding offences.
4. Interpretation of Section 621A of the Companies Act, 1956.

Detailed Analysis:

Issue 1: Compounding of offences under the Companies Act, 1956.
The Appellant, former Managing Director of a company, sought to compound offences under Section 621A of the Companies Act, 1956 for violations during various financial years. The Tribunal rejected the applications, stating that the non-adherence to statutory compliances was deliberate and malicious, involving large-scale document fabrication and fraud. The Tribunal emphasized that the defaults were incurable and intrinsically linked to criminal prosecutions, thus compounding would prejudice the penal proceedings.

Issue 2: Impact of ongoing investigations and criminal prosecutions on compounding applications.
The Tribunal noted that the offences were under investigation by the Serious Fraud Investigation Office (SFIO) and were subject to criminal prosecution under various sections of the Indian Penal Code. The Tribunal held that compounding these offences would undermine the criminal prosecutions and allow the accused to evade accountability for deliberate misconduct. The Appellant argued that the pendency of cases should not be a sole ground for rejecting compounding applications, especially since the violations were technical and not related to the SFIO investigation.

Issue 3: Jurisdiction and authority of the Tribunal in compounding offences.
The Tribunal's decision was challenged on the grounds that it failed to consider the provisions of Section 621A, which allows for the compounding of offences not punishable with imprisonment only or with imprisonment and fine. The Appellant contended that the Tribunal should have exercised its jurisdiction to compound the offences, as the penalties involved fines and not solely imprisonment.

Issue 4: Interpretation of Section 621A of the Companies Act, 1956.
The Appellate Tribunal analyzed Section 621A, which permits the compounding of certain offences by the Central Government or the Tribunal, provided they are not punishable with imprisonment only or with imprisonment and fine. The Tribunal cited the Supreme Court's judgment in V.L.S. Finance Ltd. Vs Union of India, which clarified that the Company Law Board (now Tribunal) has the power to compound offences without requiring prior court permission, even if prosecutions have been initiated.

Judgment:
The Appellate Tribunal held that the Tribunal erred in rejecting the compounding applications solely based on ongoing investigations and prosecutions. It was within the Tribunal's jurisdiction to compound the offences as they involved fines and not solely imprisonment. The Appellant was entitled to compounding under Section 621A.

Orders:
1. Company Appeal (AT) No.101 of 2017: Offence under Section 217(2AA) compounded with a fine of ?20,000.
2. Company Appeal (AT) No.102 of 2017: Offence under Section 217(1)(b) compounded with a fine of ?20,000.
3. Company Appeal (AT) No.103 of 2017: Offence under Section 211(1) compounded with a fine of ?10,000.
4. Company Appeal (AT) No.104 of 2017: Offence under Sections 255 and 256 compounded with a total fine of ?3,59,900.
5. Company Appeal (AT) No.105 of 2017: Offence under Section 217(4)(b) compounded with a fine of ?20,000.

The total fine amounted to ?4,29,900, to be paid within 30 days, with the withdrawal of related complaints by the Registrar of Companies. However, this compounding would not affect ongoing SFIO investigations or other pending proceedings under the Indian Penal Code or any other law.

The impugned order dated 6th February 2017 was set aside, and all appeals were disposed of accordingly.