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2025 (2) TMI 20 - AT - Companies LawLevy of penalty u/s 162 of the Companies Act 1956 - failure to file the Board s Report for the financial years 2010-11 and 2013-14 - continuing offence or not - Compounding of offences under Section 441 of the Companies Act 2013 for the offences made under Section 217 read with Section 220 of the Companies Act 1956 - HELD THAT - It is an admitted fact that the Appellants 1 2 3 have failed to file Board Report with the financial statement for the financial years 2010-11 and 2013-14 respectively within the stipulated time and hence the offences have been committed. They have to be taken as a continuing offence. Penalty for Non-filing of Board Report for financial year ending on 31.03.2011 will be determined as per the provisions of Section 220 r/w Section 162 of the Companies Act 1956 which is not disputed by either party. The Appellant has contended that the mistake is inadvertent that he himself has found out the mistake and has sought to rectify it by seeking composition of the offence that he has failed to file the Board Report with ROC only and that it has been circulated to shareholders within the due date that the omission is not prejudicial to the interest of members creditors regulators or other stakeholders and that the content of the Board Reports was such that there is nothing to hide - In view of absence of any assertion to the contrary by the Respondent the above contention is acceptable. Conclusion - The offences were committed for the financial year 2010-11 and financial year 2013-14 under Section 220 of the Companies Act 1956 only and that penalty levied for compounding appears excessive in view of orders issued by the same Ld. Tribunal and other Tribunals in similar cases and therefore penalty should be levied at the rate of Rs.50 per day for every day during which the default continued both for the company and for the directors. Appeal allowed.
ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS 1. Failure to File Board's Report and Continuing Offence The relevant legal framework includes Section 220 of the Companies Act, 1956, which mandates the filing of the Board's Report along with the financial statements, and Section 162, which prescribes penalties for non-compliance. The Court acknowledged that the failure to file the Board's Report for the financial years 2010-11 and 2013-14 constituted a continuing offence. The Appellant admitted the lapse but argued it was inadvertent and non-serious. The Court agreed that the offences were committed but noted that the nature of the offence was technical. 2. Application of Companies Act, 2013 to Financial Year 2013-14 The Appellant argued that the provisions of the Companies Act, 2013 should not apply to the financial year 2013-14 due to the Ministry of Corporate Affairs Circular clarifying that the 1956 Act applies to financial years commencing before April 1, 2014. The Court agreed, citing the circular and a previous judgment in Surojit Kumar vs ROC Kolkata, which supported the Appellant's position. The Court concluded that the 1956 Act should apply to both financial years in question. 3. Excessive Penalties Imposed by NCLT Bengaluru The Appellant contended that the penalties imposed by the NCLT Bengaluru were excessive compared to other similar cases. The Court examined precedents where more lenient penalties were applied for similar violations and found that the penalties in this case were indeed excessive. The Court decided that penalties should be calculated at a rate of Rs.50 per day for each day of default, aligning with other cases handled by NCLT benches. SIGNIFICANT HOLDINGS The Tribunal held that the offences for the financial years 2010-11 and 2013-14 should be compounded under the Companies Act, 1956, and not the 2013 Act. The penalties were recalculated as Rs.50 per day for each day of default, resulting in significantly lower penalties than initially imposed by the NCLT Bengaluru. The Tribunal set aside the impugned order and allowed the appeals on these terms. The core principles established include the application of the correct legislative framework based on the timing of the financial year and the importance of aligning penalties with precedents to ensure fairness and proportionality in compounding offences. The final determination was that the impugned order was set aside, and the appeals were allowed with recalculated penalties, ensuring compliance with the Companies Act, 1956. The Tribunal ordered the Registrar of Companies, Bengaluru, to ensure compliance with this judgment.
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