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2019 (12) TMI 192 - HC - Companies LawAllotment of sharers made by the respondent on preferential basis - Failure on the part of the respondent to comply with requirement of SEBI Act and Regulations - offences under Sections 81(1), 75 and 150 of the Companies Act, 1956 - Composition/Compounding of offences - Two orders have been passed by the SEBI are on account of certain violation under the Companies Act, 1956 and therefore, the respondents wanted to compound the offences by paying composition. HELD THAT - The respondents have settled disputes under the Companies Act, 1956 alone. By settling the dispute under Section 621-A of the said Act, the machinery provided to the appellant under the SEBI Act, 1992 to prosecute respondents for any violation of the said Act and regulations made thereof has not been stifled in any manner. From the reading of the provisions of Section 621-A of the companies Act, 1956, it is clear that compounding of offence by payment of composition fee before the Company Law Board as it stood under the provisions of the erstwhile Companies Act, 1956 read with Section 629-A was confined to any offence punishable under the Companies Act, 1956. The power of compounding of offences by the Company Law Board under Section 621-A of the Companies Act, 1956 as it stood could be exercised only in relation to any offences punishable under the said Act either before or after the institution of any prosecution - Composition of offences under the provisions of the aforesaid Act did not in any manner preclude the appellant from initiating any proceedings for alleged violations under the SEBI Act, 1992 or the regulations made. Therefore, attempt of the respondents to settle the dispute qua the Companies Act, 1956 did not come in the legitimate way of the appellant from initiating any criminal proceedings against the respondents. There are no merits in the appeals - appeal dismissed.
Issues:
1. Compounding of offences under the Companies Act, 1956 by the Company Law Board. 2. Appellant's challenge regarding the compounding of offences and receipt of composition fees by the respondents. 3. Appellant's contention on violations of SEBI regulations and guidelines. 4. Interpretation of Section 621-A of the Companies Act, 1956. 5. Legitimacy of the respondents' settlement under the Companies Act and its impact on SEBI Act violations. 6. Appellant's authority to initiate proceedings under the SEBI Act, 1992. Analysis: 1. The appellant contested the compounding of offences under the Companies Act, 1956 by the Company Law Board, challenging the reasoning and alleging violations of SEBI regulations. The Board imposed composition fees on the respondents, settling disputes related to shareholders and SEBI Act compliance. The appellant raised concerns about preferential share allotments potentially breaching SEBI regulations. 2. The appellant questioned the Board's decision on compounding offences and accepting composition fees from the respondents. Despite the absence of representation from the respondents, the case proceeded to final hearing, where the Board's orders were reviewed. The appellant emphasized the seriousness of the violations and the need for stringent action. 3. Section 621-A of the Companies Act, 1956 was central to the dispute, allowing for the composition of certain offences. The appellant argued that the compounding should not impede SEBI's jurisdiction to prosecute violations under the SEBI Act, 1992. The Board's decision to compound offences under the Companies Act was distinct from potential SEBI Act violations. 4. The interpretation of Section 621-A was crucial in determining the scope of compounding offences under the Companies Act. The provision limited compounding to offences under the Act, not extending to SEBI Act violations. The Supreme Court's ruling in V.L. Finance Ltd vs Union of India clarified the powers of the Company Law Board in compounding offences. 5. The respondents' settlement under the Companies Act did not obstruct the appellant's authority to pursue actions under the SEBI Act. The compounding of offences related solely to the Companies Act did not prevent the appellant from initiating proceedings for alleged SEBI Act violations. The settlement did not restrict the appellant's ability to address SEBI regulatory breaches. 6. The appellant's ability to enforce SEBI regulations and prosecute violations under the SEBI Act, 1992 remained intact despite the compounding of offences under the Companies Act. The appellant's right to initiate appropriate proceedings under SEBI regulations was preserved, ensuring accountability for any breaches. The dismissal of the appeals did not hinder the appellant's legal recourse under the SEBI Act. In conclusion, the judgment upheld the compounding of offences under the Companies Act, 1956 by the Company Law Board, affirming the respondents' settlement while safeguarding the appellant's authority to pursue actions under the SEBI Act, 1992 for regulatory violations. The detailed analysis of Section 621-A highlighted the limitations and implications of compounding offences, emphasizing the distinct nature of violations under different statutes.
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