CLB can compound certain offences under Companies Act, 1956, without permission from Court

Company Law Board if so approached can compound offences and in such case no prior permission of the Court is necessary
 

Leniency is required in the administration of the provisions of the Companies Act particularly in respect of penalty provisions as large number of defaults are of technical nature.Company Law Board if so approached can compound offences and in such case no prior permission of the Court is necessary

V.L.S. Finance Ltd.  vs. Union of India (UOI) and Ors.

Civil Appeal No. 2102 of 2004, decided on 10th May 2013 by Supreme Court of India

In the present matter it was the admitted position that the allegations made exposed the accused to an offence punishable under Section 211(7) of the Act, which relates to form and contents of balance-sheet and profit and loss account. The relevant provision states that if there is a failure on the part of concerned person to take all reasonable steps to secure compliance by the Company, as respects any accounts laid before the company in general meeting, he shall, in respect of each offence is punishable with imprisonment or with fine or both, provided, in any proceedings against a person in respect of an offence under this section, it shall be a defence to prove that a competent and reliable person was charged with the duty of seeing that the provisions of this section and the other requirements aforesaid were complied with and was in a position to discharge that duty and further that no person shall be sentenced to imprisonment for any such offence unless it was committed wilfully.

It was contended that the Company Law Board has no jurisdiction to compound an offence punishable under Section 211(7) of the Act as the punishment provided is imprisonment. On the contrary it was contended that since imprisonment in this provision is not a mandatory punishment the Company Law Board has the authority to compound the same.

Section 621A was inserted by the Companies Amendment Act, 1988 on the recommendation of the Sachar Committee. The provision stipulates that notwithstanding anything contained in the Code of Criminal Procedure, 1973, 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 before or after the institution of any prosecution, be compounded by, the Company Law Board either before or after the institution of the prosecution.

Section 211(7) of the Act provides for punishment with imprisonment for a term which may extend to six months or with fine or with both. Therefore, an accused charged with the offence Under Section 211(7) of the Act does not necessarily face imprisonment or imprisonment and also fine but can be let off by imposition of fine only. Section 621A(1) excludes such offences which are punishable with imprisonment only or with imprisonment and also with fine.

The power for compounding can be exercised in relation to the same nature of offences by the Company Law Board or the court in seisin of the matter with the difference that the Company Law Board can proceed to compound such offence either before or after the institution of any prosecution. Section 621A(4)d) mandates that where the composition of any offence is made after the institution of any prosecution, such composition would 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 accused in relation to whom the offence is so compounded shall be discharged.

Thus, 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.

Both Sub-section (1) and Sub-section (7) of Section 621A of the Act start with a non-obstante clause. 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.

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 the institution of the proceeding.

The provision was brought in view of the need of leniency in the administration of the Act. Large number of defaults is of technical nature which results mainly because of the complex nature of the provisions. Power under sub-sections (1) and (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.