Case Law Details
Registrar of Companies Vs Karan Kishore Samtani (NCLAT Delhi)
Introduction: The National Company Law Appellate Tribunal (NCLAT) recently upheld the compounding fees of Rs. 5000 per day in the case of Registrar of Companies vs. Karan Kishore Samtani. The appellant, Registrar Companies West Bengal, challenged an order by the National Company Law Tribunal (NCLT) related to compounding fees in Company Petition CP No. 690/KB/2017.
Facts- The offender/director is accused of being the director of more than twenty private limited companies as of March 31, 2015. He actually demanded that at least one company out of the twenty leave the director’s office by March 31, 2015. He submitted his letter of resignation to the company, using the name Fabins Properties Private Ltd. The company’s board of directors approved it on December 29, 2015. However, the Registrar of Companies got notification of his resignation.
He received a show cause notice from the West Bengal Registrar of Businesses on January 27, 2016, requesting him to explain why he should not be prosecuted under the Companies Act of 2013’s sections 165(1) and 165(3) for simultaneously serving as the director of more than 20 companies. He filed a representation with the Registrar with a request to compound an offence in accordance with Section 441(1) of the Companies Act; therefore, it appears that he accepted and admitted his guilt. This tribunal will review the aforementioned proposition.
The offender/director pleaded guilty, making it obvious that he was simultaneously serving in the capacity of director for more than 20 private limited corporations. He actually had to submit his resignation to at least one of the corporations on or before March 31, 2015, but he chose not to.
Under subsection (5) of section 165, the penalty for breaking the terms of sections 165(1) and 165(3) of the Companies Act is specified:
No such person shall act as a Director in more than the specified number of companies;
(a) after dispatching the resignation of his office as a Director or nonexecutive director thereof, in pursuance of clause (b) of sub-section (3); or
(b) after the expiry of one year from the commencement of this Act, whichever is earlier.
If a person accepts an appointment as a director in contravention of sub-section (1), he shall be punishable with a fine that shall not be less than Rs. 5,000 but may extend to Rs. 25,000 for every day after the first during which the contravention continues.
In this instance, we discovered that the offender/director simultaneously held the position of director in more than 20 different organizations as of March 31, 2015. On December 19, 2015, he submitted his resignation as a director to one of these companies. However, the registrar received notice of it.
The resignation was delayed by 272 days as a result, during which the offender/director served as the director of more than 20 private limited businesses. As per Section 165(6) of the Act, punishment for violation of provisions of Section 165(1) read with Section 165(3) of the Companies Act is “fine, which shall not be less than Rs. 5,000/- but which may extend to Rs. 25,000/- for every day after the first during which the contravention continues.”.
The violation of Sections 165(1) and 165(3) of the Companies Act of 2013 punishable by Section 165(6) is compounded against the violator/director, Mr. Karan Kishore Samtani, so long as he pays compounding fees of Rs. 50,000/-.
Issue- The issue is whether the Tribunal can impose compounding costs that are lower than the minimum penalties set forth for the offence under the Act. Being dissatisfied with this ruling, ROC filed this appeal, arguing that the Rs 50,000/- compounding fee is unreasonable given the minimum penalties set forth for the offence.
Arguments by Prosecutor
Learned Company Prosecutor argued that the appellant breached Section 165(1) of the Companies Act for 272 days and was liable for a fine of Rs 5,000 per day for violation, warranting a minimum fine of Rs. 13,60,000 as per Section 165(6). However, the Tribunal imposed a lower compounding fee of Rs. 50,000. The appeal seeks direction for the respondent to pay the minimum prescribed compounding fees, citing a precedent supporting minimum fines for such offenses under Section 441(1) of the Act.
Arguments by Respondent
The respondent’s counsel contests the claim by stating that the respondent’s resignation was submitted within one year of the commencement of Section 165(1) of the Act (January 1, 2014 to October 14, 2014), therefore not breaching the Act. They further argue that Section 165(1) restricts individuals from holding directorships in more than 20 companies and not more than 10 public companies after the Act commenced. According to the counsel, the respondent did not accept any directorial roles in companies post-Act, hence not violating Section 165(1). The respondent’s counsel also asserts that while compounding the offense, the principle of imposing a minimum fine is not obligatory. They argue that the impugned order is not flawed as the minimum fine imposition is not mandatory during compounding proceedings.
The respondent’s counsel emphasizes that the Tribunal, under Section 441(1) of the Act, isn’t bound to impose the minimum fine prescribed for the offense. They argue that the Tribunal, after considering the case’s circumstances, has exercised its judicial discretion. Consequently, the counsel asserts that there’s no basis for interference in the appeal, advocating for its dismissal.
The respondent’s counsel argues that even when a minimum penalty is mandated, the competent authority can justify not imposing it. They suggest that such leniency applies in cases of technical or minor breaches of the Act or if the breach stems from a genuine belief that the individual wasn’t obligated to act as per the statute. They support this argument by citing judgments such as Hindustan Steel Ltd. v. State of Orissa (1969), 2 SCC 627, and the Adjudicating Officer Securities and Exchange Board of India v. Bhavesh Pabari (2019), 5 SCC 90. The counsel asserts that the Tribunal, acknowledging the mitigating circumstances, imposed a compounding fee of Rs. 50,000 as the offense was deemed technical. Therefore, they contend that the appeal should be dismissed based on these grounds.
Held– The compounding fees must be greater than or equal to the statutory minimum fine. The Respondent violated Section 165(1) of the Companies Act of 2013, which is punished under that statute’s Section 165. The NCLAT ruled that the NCLT, Kolkata Bench had neglected to take into account the applicable minimum fine under Section 165 of the Companies Act, 2013 at the relevant time. As a result, the NCLAT imposed a minimum fine of 13,60,000 rupees, or 5000 rupees, for each day from April 1, 2015, to February 21, 2016, or 272 days.
FULL TEXT OF THE NCLAT JUDGMENT/ORDER
The Appellant Registrar Companies West Bengal, filed this Appeal under Section 421 of the Companies Act, 2013 (in brief the Act) against the order dated 03.04.2018 passed by National Company Law Tribunal, Kolkata Bench, Kolkata in Company Petition CP No. 690/KB/2017. Whereby, allowed the compounding application subject to payment of compounding fees 50,000/-.
2. Brief Facts of this case are that the Respondent was the Director, for more than 20 Companies till 31.03.2015. The Respondent tendered his resignation as the Director of the Company M/s Fabius Properties Pvt. Ltd. the same was accepted by the Board of Directors of the Companies on 29.12.2015. However, the intimation of his resignation was sent to the Registrar of Companies vide Form DIR-12 on 10.02.2016.
3. On 27.01.2016 the Registrar of Companies, West Bengal sent show cause notice and asking him as to why prosecution under Section 165(1) read with Section 165(3) of the Act, should not be initiated against him on the ground that he was the Director of more than 20 Companies at once. The Respondent admitted the guilty and sent representation to the Registrar with a request to compound the offence under Section 441(1) of the Act. RoC forwarded the representation along with his report to the Tribunal.
4. After hearing the parties Ld. Tribunal allowed the compounding application under Section 441(1) of the Act, subject to payment of compounding fees Rs. 50,000/-. Being aggrieved with this order RoC has filed this Appeal.
5. Learned Company Prosecutor submits that the certified copy of the impugned order was received on 05.12.2018. Hence from the receipt of the copy of the impugned order i.e. 05.12.2018 within a period of 45 days, the appeal is filed on 04.01.2019. Hence the Appeal is well within a period of limitation as prescribed under Section 421 (3) of the Act.
6. This Appellate Tribunal after hearing the Parties vide order dated 12.04.2019 held that the appeal is within limitation. Respondent challenged this interim order in Civil Appeal No. 4584 of 2019 before Hon’ble Supreme Court. However, the appeal has been dismissed vide order dated 09.05.2019. Thus, the order attained finality.
7. Learned Company Prosecutor submits that the compounding fees under Section 441 (1) of the Act should be minimum amount which is prescribed for the offence as held by this Tribunal, in the case of Company Appeal (AT) No. 249 of 2018 Registrar of Companies cum Official Liquidator, Rajasthan, Jaipur Vs Gyan Chandra Agarwal decided on 12.09.2018. The Appellant has contravened the provisions of Section 165(1) read with Section 165(3) of the Act, for a period of 272 days. Therefore, as per the provisions of Section 165 (6) of the Act, he is liable for minimum fine prescribed for the violation i.e. Rs. 5000/- per day which comes to 13,60,000/-. Whereas Ld. Tribunal has imposed compounding fees Rs. 50,000/- which is less than the minimum prescribed in Section 165 (6) of the Act. Hence, the Appeal be allowed and Respondent be directed to pay minimum compounding fees.
8. On the other hand, Learned Counsel for the Respondent opposes the prayer and submits that the Respondent’s resignation was received by the Company on 14.10.2014 i.e., within a period of one year from the date on which Section 165 (1) of the Act, came into force i.e. 01.0.2014 and hence, the Respondent has not contravened provisions of the Act. Learned Counsel for the Respondents also submits that Section 165 (1) of the Act, provides that no person after the commencement of the Act shall hold office as Director in more than 20 Companies and cannot be director in more than 10 public Companies. The Appellant after the commencement of the Act, has not accepted appointment of the Director in any company. Hence, the Respondent has not contravened provisions of Section 165(1) of the Act. Learned Counsel for the Respondent also submits that in case of compounding of the offence the principal of imposing as minimum fine is not mandatory and hence, the impugned order has not suffered from any infirmity.
9. Learned Counsel for the Respondent also submits that the Tribunal’s powers under Section 441(1) of the Act, are not restricted to impose minimum fine prescribed for the violation of the offence. The Tribunal has after, taking into consideration circumstances of the case, exercised its judicial discretion therefore, no interference is called for in the Appeal and Appeal is liable to be dismissed.
10. Learned Counsel for the Respondent submits that even if a minimum penalty is prescribed, the Competent Authority will be justified in refusing to impose minimum penalty, when there is a technical or venial breach of the provisions of the Act, or where the breach flows from a bonafide belief that the offender is not liable to act in the manner prescribed by the statute, for this purpose, he placed reliance on the Judgments of Hon’ble Supreme Court in the case of M/s Hindustan Steel Ltd. Vs. State of Orissa 1969 (2) SCC 627. and the Adjudicating Officer Securities and Exchange Board of India Vs. Bhavesh Pabari (2019) 5 SCC 90. Learned Tribunal considering the mitigating circumstances imposed compounding fees Rs. 50,000/- as the offence is technical. Hence, the Appeal be dismissed.
11. After hearing Learned Counsel for the parties we have gone through the record.
12. This Appellate Tribunal in the case of M/s Viavi Solutions India Pvt. Ltd. & Ors. Vs. Registrar of Companies, NCT Delhi and Haryana (C.A (AT) No. 49 to 53 of 2016 decided on 28.02.2017 held that:
“the Tribunal is required to notice the relevant factors while compounding any offence, such as:-
(i) The gravity of offence;
(ii) The act is intentional or unintentional;
(iii) The maximum punishment prescribed for such offence, such as fine or imprisonment or both fine and imprisonment.
(iv) The report of the Registrar of Companies.
(v) The period of default.
(vi) Whether petition for compounding is suo moto before or after notice from Registrar of Companies or after imposition of the punishment or during the pendency of a proceeding.
(vii) The defaulter has made good of the default.
(viii) Financial condition of the company and other defaulters.
(ix) Offence is continuous or one time.
(x) Similar offence earlier committed or not.
(xi) The act of defaulters is prejudicial to the interest of the member(s) or company of public interest or not.
(xii) Share value of the company, etc.”
13. Admittedly, in this case, the Respondent has violated the provisions under Section 165(1) read with Section 165(3) of the Act, for a period 01.04.2015 to 28.12.2015 which is punishable under Section 165(6) of the Act, (before amendment) which reads as under:-
“(6) if a person accepts and appointment as a director in contravention of sub-section 1, he shall be punishable with fine which shall be less than five thousand rupees but which may extend to twenty-five thousand rupees for every day after the first during which the contravention continues.”
14. We have considered the arguments of Learned Counsel for the Respondent Hon’ble Supreme Court in the case of M/s Hindustan Steel Ltd. (Supra) while dealing the provisions of Sales Tax Act, held that penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of its obligation. In this case, the Respondent was conscious that after coming into force the provisions under Section 165(1) of the Act, he cannot hold Directorship in more than 20 companies and Directorship in more than 10 Public Companies, at the same time. As per the Section 165 (3) of the Act, till 31.03.2015 Respondent was required to resign from the Directorship of the Companies more than the limits specified in sub-Section 1 of Section 165 of the Act, within the specified period. The Respondent has resigned from the Directorship of M/s Fabius Properties Pvt. Ltd. and resignation was accepted by the Company on 29.12.2015 and there is nothing on record to presume that the Respondent violated the provisions on a bonafide belief. The conduct of Respondent shows that he acted in conscious disregard of its obligation.
15. Hon’ble Supreme Court, in the case of Adjudicating Officer, Securities and Exchange Board of India (Supra) dealt with different questions in reference to Securities and Exchange Board of India Act, 1992, which are as under:-
(i) Whether the conditions stipulated in Clauses (a), (b) and (c) of Section 15-J of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as “SEBI Act”) are exhaustive to govern the discretion in the Adjudicating Officer to decide on the quantum of penalty or the said conditions are merely illustrative?
(ii) Whether the power and discretion vested by Section 15-J of the SEBI Act to decide on the quantum of penalty, regardless of the manner in which the first question is answered, stands eclipsed by the penalty provisions contained in Section 15-A to Section 15-HA of the SEBI Act?
16. Thus, we are not convinced with the argument of Learned Counsel for the Respondent that the Tribunal while dealing with under Section 441 (1) of the Act, can impose the compounding fees less than minimum which is prescribed for the offence.
17. The issue for consideration is, whether Tribunal can impose the compounding fees under Section 441 (1) of the Act, less than minimum prescribed for the offence under Section 165 (1) read with Section 165(6).
18. This Appellate Tribunal in the case of Registrar of Companies cum Liquidator, Rajasthan, Jaipur (Supra) held as under: –
“2. Learned Company Prosecutor appearing on behalf of the Registrar of Companies, Jaipur referred to sub-section (6) of Section 165 of the Companies Act, 2013, which reads as follows:-
“165(6). If a person accepts an appointment as a director in contravention of sub-section (1), he shall be punishable with fine which shall not be less than five thousand rupees but which may extend to twenty-five thousand rupees for every day after the first during which the contravention continues.”
3. It is submitted that though the Tribunal had noticed the aforesaid provision and the punishment attributed for the default pursuant to the provision but notwithstanding the minimum quantum of fine imposed, the impugned order has been passed.
4. Suresh Sharma, Practicing Company Secretary appearing on behalf of Respondent/ Petitioner submitted that the penalty provided under sub-section (6) of Section 165 of Companies Act is not mandatory.
5. However, we do not agree with such submission in view of the provision as quoted above, which prescribe minimum penalty. The legislature having prescribed minimum fine, which shall not be less than five thousand rupees for every day and maximum fine of twenty-five thousand rupees for every day, the Tribunal has no jurisdiction to reduce the fine less than the minimum fine prescribed for the offence.”
19. From the impugned order its manifesto and clear that the Tribunal failed to notice the minimum fine prescribed under Sub-Section 6 of Section 165 of the Act, which was applicable at relevant time i.e. before the amendment.
20. In view of the error apparent in the impugned order dated 03.04.2018 passed by the Tribunal, thus, the order cannot be upheld. It is accordingly, set aside.
21. The Respondent has contravened the provisions of 165(1) of the Act, which is punishable under Sub-Section 6 of Section 165 of the Act. Taking into consideration, the facts and circumstances of the case, we imposed minimum fine at the rate of five thousand rupees for every day for the period 01.04.2015 to 21.02.2016 i.e. 272 days. We quantified penalty to Rs. 13,60,000/-. The Respondent has already paid Rs. 50,000/- after adjustment, now he is liable to pay Rs. 13,10,000/-. Therefore, The Respondent is directed to pay such amount within a period of 60 days in National Company Law Tribunal, Kolkata. The Registrar of Companies will ensure compliance of the order.
Thus, the Appeal is allowed. No Costs.
The Registry is directed to send the copy of judgment to National Company Law Tribunal, Kolkata, and Registrar of Companies West Bengal for Information and Compliance.
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