Shri Subhinder Singh Prem vs Union Of India Through Roc

(arising out of Order dated 06.02.2017 passed by the National Company Law Tribunal, New Delhi in CP Nos. 16/152/2015, 16/153/2015, 16/154/2015, 16/155/2015 and 16/157/2015)

IN THE MATTER OF:

Shri Subhinder Singh Prem ...Appellant

Vs

Union of India Through ROC ...Respondent

Present: Mr. Sanjiv Sen, Senior Advocate with Mr. Rakesh Kumar and Mr. Dev Roy, Advocates for the appellants.

Mr. Nawal Kishore Jha, Senior Panel Counsel UoI along with Mr.Rakesh Kumar Tiwari, RoC, NCT of Delhi & Haryana, for Respondent.

ORDER

17.05.2017- In these appeals, as common order dated 6th February,

2017 passed by the National Company Law Tribunal, New Delhi ("Tribunal"

for short) is under challenge, they were heard together and disposed of by

this common judgment.

2. The Appellant, Mr. Subhinder Singh Prem, who was the Managing

Director of the Company M/s. Reebok India Company preferred five

applications before the Tribunal under section 621 A of the Companies Act,

1956 for compounding of the offences for violation of certain provisions

during some of the financial years. The Tribunal by common order dated 6th

February, 2017, rejected all the applications with following observations:

Page 1 of 16

"6. The investigations in this case have clearly

revealed that non adherence to statutory compliances was

deliberate and malafide as there was vast scale fabrication

of documents giving rise to fraud, in conspiracy with a larger

group.

7. There is merit in the arguments advanced by the Ld.

Counsel for the SFIO that non adherence to the statutory

requirements under the Companies Act were intentional and

deliberate. In certain cases of prosecution for an offence

under the Companies Act, the defaults are sometimes

rectified and compounding such defaults would have no

effect on any criminal prosecution. However, in the present

cases, the defaults are incurable and cannot be rectified.

Compounding of these offences would demolish and

prejudice the prosecution under the Penal provisions also.

Given the circumstances, I find that the present prayers for

compounding in all these petitions cannot be permitted, as

these were not due to any bonafide omission or a delayed

rectification of a statutory requirement. The offences herein

under the Companies Act and those under the Penal Code

are intrinsically linked and incurable. Compounding of the

offences under the Companies Act would hamper the

Criminal Prosecutions and no accused should be allowed to

Page 2 of 16 get away with deliberate large scale bungling and fabrication

of documents carried out with criminal intention.

8. Under such circumstances, the petitioner/applicant is

not entitled to compounding of the offences under the

Companies Act.

9. The prayers made for compounding of the various

offences inter alia under sections 255 & 256, 297, 255,

217(4), 2(11) etc in CP Nos. 16/152/2015, 16/153/2015,

16/154/2015, 16/155/2015, 16/157/2015 are all rejected.

10. Consequently all the five CPs stand dismissed. Copy of

the order be placed in all five petitions and consigned to the

Record Room."

3. According to Appellant he was functioning as Managing Director since

1st October, 2003 and resigned from the company on 28th March 2012.

During his tenure, in August, 2009. The Company received a notice from

Registrar of Companies in respect of various non-compliance and violations

under section 58A, 209(1) & (6) r/w 209(5) AS-9 r/w 211 (3A) (3B) & (3C),

211(1) & 2 r/w 211 (8), 217 (2AA) r/w 217(6), 227(2) r/w 233, 166(1) & 210

of the Companies Act, 1956. These violations pertain to Sections 295, 297,

255 & 256, 193(2), 217(4) & 211(1).

Page 3 of 16

4. The office of the Registrar of Companies initiated prosecution against

the Appellant and the company and several other persons for various defaults

which are pending adjudication before different Courts. The offences were

also referred to the SFIO which in turn has launched Criminal Prosecution

for serious offences involving Sections 477A, 464, 471, 405 r/w 406, 418,

107, 409, 120A r/w 120B under the Indian Penal Code (r/w offences under

the Companies Act, 1956). It was brought to the notice of the Tribunal that

on the basis of documentary and oral evidences, a compliant case no.

38J/2014 against Appellant and 34 others was filed in the Gurgaon Court.

The charge sheet has been filed under sections 420, 477A, 406 IPC r/w the

relevant provisions of the Companies Act. The investigation carried out by

the office of SFIO established that the sale of RIC products were grossly

inflated by the Applicant in connivance with other executives of the RIC by

raising fictitious invoices and booking fictitious sales and manipulating other

documents.

5. Though the Registrar of Companies has sent a report quantifying the

fees attracted for compounding and also bringing to the notice of the Tribunal

the factum of pending Criminal Cases, the SFIO has filed a detailed report

vehemently resisting any indulgence being granted to the Applicant. In view

of the aforesaid objections, the Ld. Tribunal rejected all applications.

6. Ld. Senior Counsel appearing on behalf of the Appellant submitted a

detailed chart showing defaulting section, relevant provision, period of

Page 4 of 16 default, details of default, penalty/punishment and additional information,

as detailed below:

S.No. Case no. Default- Relevant Provision Period of Details of Penalty/ Additional ing default default Punishm Information section ent

1. Co. 217(2AA) 217(2AA):- 31.12.2008 The company Imprison Not covered Appeal r/w 217(5) Board's report shall include the has not ment for by 621A(2), No. Directors' Responsibility complied a term as no other 101(AT)/ statement, indicating the with AS-5 which default of 2017 following:- (manner of may Appellant,

1. that the Annual Accounts preparation extend to ever has been prepared by following of profit and 6 months compounded the accounting standards. loss account) or with a under the

2. accounting policies have and AS-20 fine Companies been applied so as to give true (calculation which Act, 1956 and fair view of the financial and may statement of the company. disclosure of extend to

3. adequate accounting records Earning per Rs.

have been maintained for share) r/w 20,000 or safeguarding the assets. section 211 with

4. annual accounts have been (3A), 211 (3B) both.

prepared on going concern and 211 (3C). basis.

2. Co. 217(1) (b) 217(1) (b):- 31.12.2008 Amount Imprison Not covered Appeal and 217 proposed to ment for by 621A(2), No. (5) (1) There shall be attached with carry to the a term as no other 102(AT)/ every balance sheet laid before reserves in which default of 2017 a company in general meeting, the balance may Appellant, a report by its Board of sheet was not extend to ever Directors, with respect to- disclosed in 6 compounded (b) the amounts, if any, which it the Director's months, under the proposes to carry to any Report. or with Companies reserves in such balance sheet fine Act, 1956 (5) provision for punishment in which case of default. may extend to Rs. 20,000/-, or with both. 3. Co. 211 (1) 211 (1):- Every balance sheet 31.12.2008 Gain on Imprison Not covered Appeal read with should give a true and fair view exchange ment for by 621A(2), No. 211 (7) of the state of affairs of the fluctuation a term as no other 103(AT)/ Company. and rent which default of 2017 amount has may Appellant, 211(7):- been shown extend to ever If officer/director fails to do so, under the 6 compounded shall be punishable with head "other months, under the imprisonment for a term which income and or with Companies may extend to 6 months, or with operating fine Act, 1956 fine which may extend to Rs. and other which 10,000/- or both. expenses", may hence netting extend to against basic Rs. spirit of 10,000/- provision of or both. Schedule-VI.

4. Co. 255 and 255:- Not less than 2/3 of the 31.12.2008 The company With fine Not covered Appeal 256 r/w total number of directors to is a which by 621A(2), No. 629A retire by rotation at every subsidiary of may as no other

Page 5 of 16 104(AT)/ Annual General Meeting of the the Limited extend to default of 2017 Company. Company Rs. 5000, Appellant, 256:-Director longest in the and as per and ever office to retire first. the where the compounded provisions of contraven under the Section 4(7) tion is Companies had to continuin Act, 1956 comply with g one, the with a provisions further applicable to fine with Public may limited extend to Company, Rs. 500 therefore, for every had to day comply with during Section 255 which the & 256, default however, no continues mention was . there in the notice about the rotational retirement of directors.

5. Co. 217(4) r/w 217(4):- The Board's report 31.12.2009 Board's Imprison Not covered Appeal 217(5) shall be signed by chairman if report has ment for by 621A(2), No. he is authorized and where he been signed a term as no other 105(AT)/ is not so authorized, shall be by Subhinder which default of 2017 signed by such number of Singh Prem, may Appellant, directors as are required to sign Managing extend to ever the balance sheet and profit and Director, 6 months compounded loss account. which is in or with under the (5):- Provision of penalty in case contraventio fine Companies of default n of the which Act, 1956 provisions of may Section extend to 217(4). Rs. 20,000 or with both

7. It is contended that there is a provision for compounding of offence

where pendency of cases cannot be sole ground of rejecting the prayer to

which the Appellant entitled under the law. It is also contended that the

Appellant was working for certain period in the company which is subsidiary

company of a foreign company. The violations were alleged by the Registrar

of Companies has nothing to do the investigation made by the SFIO or the

investigations which are pending. For example, violation of Section 217 (2AA) Page 6 of 16 of the Companies Act relate to submission of Board's Report including the

Directors' Responsibility statement indicating the Annual Accounts

prepared, accounting policies applied for, adequate accounting records

maintained or not, annual accounts prepared or not. Similarly, Section

217(1) (b) relates to non-attachment of every balance sheet laid before a

company, the amounts, if any, which it proposes to carry to any reserves in

such balance sheet. The other allegation is violation of Section 211(1) where

under every balance sheet has required to provide a true and fair view of the

state of affairs of the company. Similarly, Section 255 stipulates that there

should not be less than 2/3rd of the total number of directors to retire by

rotation at every Annual General Meeting of the Company. Section 256 talks

of Director longest in the office is to retire first. Similarly, Section 217(4)

relates to Board's Report to be signed by the Chairman if he is authorised or

by such number of directors as are required to sign. For all those violations,

penalty have been provided which may be imprisonment for a term which

may extend to six months or with a fine which may extend to Rs. 20,000/-

or with both. With regard to the violation of Section 255 read with Section

629 A, the only penalty which can be imposed is fine which may extend to

Rs.5000/-, and where the contravention is continuing one, with a further

fine which may extend to Rs.500/- for every day during which the default

continues. No punishment of imprisonment has been prescribed thereunder.

8. Ld. Senior Counsel for the Appellant contended that the Tribunal failed

to consider the aforesaid facts and treating all the cases as similar, only on

Page 7 of 16 the ground that serious allegations are there and cases under the Indian

Penal Code are pending and that the investigation by the SFIO is continuing,

has rejected the application.

9. Ld. Counsel appearing on behalf of Registrar of Companies contended

that the Registrar of Companies have no objection if offences are

compounded subject to outcome of the investigation as being conducted by

the SFIO. It is further contended that if offences are compounded it cannot

affect the cases pending before Courts for commission of offences under

Indian Penal Code.

10. Having heard the parties and having gone through the records, we are

of the opinion 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.

11. Section 621A of the Companies Act, 1956, deals with composition of

certain offences which reads as follows:

"621A. Composition of certain offences- (1)

Notwithstanding anything contained in the Code of Criminal

Procedure, 1973 (2 of 1974), any offence punishable under

this Act (whether committed by a company or any officer

thereof), not being an offence punishable with imprisonment

only, or with imprisonment and also with fine, may, either

Page 8 of 16 before or after the institution of any prosecution, be

compounded by the Central Government on payment or

credit, by the company or the officer, as the case may be, to

the Central Government of such sums as that Government

may prescribe.

Provided that the sum prescribed shall not, in any case,

exceed the maximum amount of the fine which may be

imposed for the offence so compounded:

Provided further that in prescribing the sum required to

be paid or credited for the compounding of an offence under

this sub-section, the sum, if any, paid by way of additional

fee under sub-section (2) of section 611 shall be taken into

account.

(2) Nothing in sub- section (1) shall apply to an offence com-

mitted by a company or its officer within a period of three

years from the date on which a similar offence committed by

it or him was compounded under this section. Explanation.-

For the purposes of this section, any second or subsequent

offence committed after the expiry of a period of three years

from the date on which the offence was previously

compounded, shall be deemed to be a first offence;

(3) (a) Every application for the compounding of an offence

shall be made to the Registrar who shall forward the same,

Page 9 of 16 together with his comments thereon, to the Central

Government.

(b) Where any offence is compounded under this section,

whether before or after the institution of any prosecution, an

intimation thereof shall be given by the company to the

Registrar within seven days from the date on which the

offence is so compounded.

(c) Where any offence is compounded before the institution of

any prosecution, no prosecution shall be instituted in relation

to such offence, either by the Registrar or by any shareholder

of the company or by any person authorised by the Central

Government against the offender in relation to whom the

offence is so compounded.

(d) Where the composition of any offence is made after the

institution of any prosecution, such composition shall be

brought by the Registrar in writing, to the notice of the Court

in which the prosecution is pending and on such notice of the

composition of the offence being given, the company or its

officer in relation to whom the offence is so compounded shall

be discharged.

(4) The Central Government while dealing with a proposal for

the compounding of an offence for a default in compliance

with any provision of this Act which requires a company or

its officer to file or register with, or deliver or send to, the

Page 10 of 16 Registrar any return, account or other document, may, direct,

by order, if it or he thinks fit to do so, any officer or other

employee of the company to file or register with, or on

payment of the fee, and the additional fee, required to be paid

under section 611, such return, account or other document

within such time as may be specified in the order.

(5) Any officer or other employee of the company who fails to

comply with any order made by the Company Law Board or

the Regional Director under sub- section (5) shall be

punishable with imprisonment for a term which may extend

to six months, or with fine not exceeding five thousand

rupees, or with both.

(6) Notwithstanding anything contained in the Code of

Criminal Procedure, 1973 (2 of 1974 ),-

(a) any offence which is punishable under this Act with

imprisonment or with fine, or with both, shall be

compoundable with the permission of the Court, in

accordance with the procedure laid down in that Act for

compounding of offences;

(b) any offence which is punishable under this Act with

imprisonment only or with imprisonment and also with

fine shall not be compoundable.

Page 11 of 16

(8) No offence specified in this section shall be compounded

except under and in accordance with the provisions of this

section."

12. 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.

13. The Hon'ble Supreme Court in Civil Appeal No.2102 of 2004, V.L.S.

Finance Ltd. Vs Union of India & Ors. by its judgment dated 10th May,

2013, while dealing with the provision of section 621 A observed and held as

follows:

"15. From the conspectus of what we have observed above, it is more

than clear that an offence committed by an accused under the Act, not

being an offence punishable with imprisonment only or imprisonment

and also with fine, is permissible to be compounded by the Company

Law Board either before or after the institution of any prosecution. In

view of Sub-section (7) of Section 621A, the criminal court also

possesses similar power to compound an offence after institution of

the prosecution.

Page 12 of 16

16. Now the question is whether in the aforesaid circumstances the

Company Law Board can compound offence punishable with fine or

imprisonment or both without permission of the court. It is pointed out

that when the prosecution has been laid, it is the criminal court which

is in seisin of the matter and it is only the magistrate or the court in

seisin of the matter who can accord permission to compound the

offence. In any view of the matter, according to the learned Counsel,

the Company Law Board has to seek permission of the court and it

cannot compound the offence without such permission. This line of

reasoning does not commend us. Both Sub-section (1) and Subsection

(7) of Section 621A of the Act start with a non-obstante clause. As is

well known, a non-obstante clause is used as a legislative device to

give the enacting part of the section, in case of conflict, an overriding

effect over the provisions of the Act mentioned in the non-obstante

clause.

17. Ordinarily, the offence is compounded under the provisions of the

Code of Criminal Procedure and the power to accord permission is

conferred on the court excepting those offences for which the

permission is not required. However, in view of the non-obstante

clause, the power of composition can be exercised by the court or the

Company Law Board. The legislature has conferred the same power

to the Company Law Board which can exercise its power either before

or after the institution of any prosecution whereas the criminal court

has no power to accord permission for composition of an offence before

Page 13 of 16 the institution of the proceeding. The legislature in its wisdom has not

put the rider of prior permission of the court before compounding the

offence by the Company Law Board and in case the contention of the

Appellant is accepted, same would amount to addition of the words

"with the prior permission of the court" in the Act, which is not

permissible.

18. As is well settled, while interpreting the provisions of a statute,

the court avoids rejection or addition of words and resort to that only

in exceptional circumstances to achieve the purpose of Act or give

purposeful meaning. It is also a cardinal rule of interpretation that

words, phrases and sentences are to be given their natural, plain and

clear meaning. When the language is clear and unambiguous, it must

be interpreted in an ordinary sense and no addition or alteration of

the words or expressions used is permissible. As observed earlier, the

aforesaid enactment was brought in view of the need of leniency in

the administration of the Act because a large number of defaults are

of technical nature and many defaults occurred because of the

complex nature of the provision.

19. From what we have observed above, we are of the opinion that

the power under Sub-section (1) and Sub-section (7) of Section 621A

are parallel powers to be exercised by the Company Law Board or the

authorities mentioned therein and prior permission of Court is not

necessary for compounding the offence, when power of compounding

is exercised by the Company Law Board."

Page 14 of 16

14. In view of what we have observed above and decision of the

Hon'ble Supreme Court, we hold that the Appellant is entitled for

compounding of offence. We, accordingly, order as follows:

(i). Company Appeal (AT) No.101 of 2017 - The offence

committed by violating of Section 217(2AA) is compounded with

fine of Rs.20,000/-.

(ii). Company Appeal (AT) No.102 of 2017 - The offence

committed by violating of Section 217(1) (b) is compounded with

fine of Rs.20,000/-.

(iii). Company Appeal (AT) No.103 of 2017 - The offence

committed by violating of Section 217(1) is compounded with fine

of Rs.10,000/-.

(iv). Company Appeal (AT) No.104 of 2017- The offence

committed by violating of Section 255 and Section 256 is

compounded with onetime fine of Rs.5,000/- plus fine of Rs.300

per day for 1183 days is compounded with total fine of

Rs.3,59,900/-.

(v). Company Appeal (AT) No.105 of 2017- The offence

committed by violating of Section 217(4) (b) is compounded with

fine of Rs.20,000/-.

_______________________

Total- Rs.4,29,900/-

_______________________

Page 15 of 16

15. The Appellant is directed to deposit the total amount of Rs.

4,29,900/- (Rupees Four lacs twenty-nine thousand nine hundred)

within 30 days, by Demand Draft(s) or through online payable in favour

of "Pay and Accounts Officer, Ministry of Corporate Affairs, Government

of India, New Delhi" and will also file Form INC-28 within 45 days.

16. The Registrar of Companies is directed to withdraw the complaint

against Appellant for alleged violation of Sections 217 (2AA), 217(1) (b),

211(1) (b), 255, 256 and 217(4) of the Companies Act, 1956.

17. However, it is made clear that the compounding of offence as

made above will not come in the way of investigation by SFIO and other

proceedings pending against Appellant under the Indian Penal Code,

1908 or under any other law.

18. The impugned common order dated 6th February, 2017 passed by

Tribunal in CP Nos. 16/152/2015, 16/153/2015, 16/154/2015,

16/155/2015 and 16/157/2015 is set aside. All the appeals stand

disposed of with the aforesaid observations and directions.

(Justice S.J. Mukhopadhaya) Chairperson

(Mr. Balvinder Singh) `Member (Technical) ar

Page 16 of 16