Company Law Board
In Re: Adani Exports Limited And Ors. vs Unknown on 9 March, 2004
Equivalent citations: [2005]125COMPCAS686(CLB)
ORDER
S. Balasubramanian, Chairman
1. M/S Adani Exports Limited (the company) and its four officers, namely, Sarvshri Gautam S. Adani, Chairman, Rajesh S. Adani, Managing Director, Vasant S. Adani, Wholetime Director and Hemendra C. Shah, Company Secretary have jointly moved an application for compounding of offence committed under Section 293A(4) of the Companies Act, 1956 in respect of failure on the part of the company in making specific disclosure in the Profit & Loss Account in respect of political donations made by the applicant company to political parties.
2. The facts of the case are that the Company had made contributions of Rs. 25,000/- to Gujarat Pradesh Youth Congress on 12.5.1998 and a sum of Rs. 15 lakhs to All India Youth Congress Committee on, 24.8.1999. In terms of Section 293A(4), these contributions made should have been specifically disclosed in the Profit and Loss Account of the respective years, which the Company had failed. Instead, these contributions were shown as "Miscellaneous Expenses" without any details. The Registrar of Companies issued a show cause notice to the Company as to why the Company and the officers in default should not be prosecuted in terms of Section 293 A(5) of the Act for non disclosure, by a notice dated 17.9.2003. The company filed an application before the ROC for compounding the offence and it also filed a writ petition before Gujarat High Court praying for restraining the ROC from initiating any penal action against the company and other officers of the company. The High Court, while granting the interim stay, directed the ROC to dispose of the compounding, application filed by the company and its officers. The Registrar of companies dismissed the compounding application on the ground that the same had been filed under, Section 293 and not under Section 293A. Thereafter, the company filed the present application to the ROC who in turn forwarded the same to the Regional Director. The Regional Director advised the ROC to forward the said application to this Board stating that the offence against the officers in default was not compoundable in view of the provisions of Section 293A(5) of the Act.
3. Shri Subramonian, General Manager (Finance) appearing for the applicants submitted: It is a fact that the company had made political "contributions but the same is within the limits as prescribed under Section 293A(2) of the Act. The company has been making donations to various charitable organisations for a long period and all these donations used to be shown as "miscellaneous expenses" in the Profit & Loss Account. In the same way the political contributions made also were shown as "miscellaneous expenses". The company and the concerned officers had, by over sight, omitted to show these contributions separately in detail as envisaged under Section 293A(4) of the Act and the non disclosure was not wilful. Section 293A(5) of the Act deals only with Political contributions made in contravention of the provisions of Section 293A(2) and does not deal with default in disclosure as envisaged under Section 293A(4). In other words, there is no penalty provided in Section 293A for default to make disclosure under Section 293A(4) and therefore the provisions of Section 629A alone are applicable and as such compounding of the offence may be made in terms of that section.
4. Shri Raval appearing on behalf of ROC submitted: In course of inspection conducted under Section 209A of the Act in the affairs of the company, it was detected that the company had defaulted in disclosing the political contributions made in the Profit & Loss Account for the year 1998-99 and 1999-2000. Section 293A(4) of the Act enjoins detailed disclosure to be made in the Profit and Loss Account. Therefore, a show cause notice was issued to the company as to why action in terms of Section 293A(5) should not be taken. While filing an application under Section 293, the company also filed a writ petition before the High Court. The ROC dismissed the said compounding application as not maintainable and therefore the present application has been filed. Since the company had defaulted in disclosing the details of political contributions made contrary to the specific provisions of Section 293A(4) of the Act, the company and the officers are punishable in terms of Section 293A(5) of the Act. This sub section is applicable to whole of Section 293A. According to this sub section, the company is punishable with a fine which may extend to 3 times of the amount so contributed while every officer of the company who is in default is punishable with imprisonment for a term which may extend to 3 years and shall also be liable to fine. In terms of Section 621A(7)(b), offences punishable with imprisonment alone of with imprisonment and fine are not compoundable. Therefore, while the offence committed by the company can be compounded, it cannot be done in respect of the officers in default. The disclosure in terms of Section 293A(4) of the Act is mandatory as is evident from the Statement of Objects when this provision was inserted in the Companies Act. That is the reason that the Department of Company Affairs has directed the ROC to take action against the company and the officers in default in terms of Section 293A(5). Therefore the application of Section 629A of the Act as sought for by the applicants does not arise. The compounding should be done only in respect of the company and the prayer of the officers in default should be rejected.
5. I have considered the arguments. Section 293A deals with political contributions. While Sub-section (1) prohibits certain companies from making any political contribution, Sub-section (2) prescribes limits of political contributions by other companies. Sub-section (3) elaborates what could be considered to be a political contribution. Sub-section (4) reads " Every company shall disclose in its Profit and Loss Account any amount or amounts contributed by it to any political party or for any political purpose to any person during the financial year to which the account relates; giving particulars of the total amount of contributed and name of the party or person to which or to whom such amount has been contributed. Sub-section (5) reads "If a company makes any contribution in contravention of the provisions of this section: (a) The Company shall be punishable with fine which may extend to three times the amount so contributed; and (b) Every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years shall also be liable to fine. "
6. While the contention of the Company is that the penal provisions contained in Sub-section (5) relates only to contribution made in contravention of Section 293A, the contention of the Registrar of Companies is that it also covers default in disclosure as envisaged in Sub-section (4) also. Thus the short issue for my consideration is the scope of Section 293A(5)- whether it applies to the whole Section or only to a few sub Sections.
7. Many Sections in the Companies Act contain penal provisions. There are Sections without sub Sections and there are Sections with sub-sections. Wherever there are sub-sections, the Legislature has clearly indicated as to whether the penal provision in that Section would apply to violation of provisions any or all of sub Sections. In other words, the Legislature has clearly spelt out as to whether the penal provision is applicable to whole of a particular Section or part of the same. Wherever it is intened to cover the whole Section the penal provision commences with " If default is made in complying with the provisions of this Section-----" . To give a few examples - Section 188 contains eight sub-sections and Sub-section (8) containing penal provision which reads " If default is made in complying with the provisions of this Section----- " clearly indicates that default in complying with provisions of any of the sub Sections would also attract penalty. Likewise, Section 77A contains 11 sub-sections and Sub-section (11) containing penal provision specifically provides that default in complying with any of the provisions of the section would attract penal action. There are many such provisions in the Act. Thus, it is clear that whenever Legislature intended that contravention of any of the sub-section in these sections would attract penalty, it has made its intention clear by the words " If default is made in complying with the provisions of this Section----- ". However, where the intention of the Legislature is that violation of a particular sub Section alone would attract penalty, it has specifically expressed its intention. For instance, Section 89 contains four sub-sections, but penalty has been specifically provided for the violation of Sub-section (3) only. Likewise, Section 79 dealing with issue of shares at discount has 4 sub sections. The penalty provided covers only violation of Sub-section (4). There are number of other sections in the Companies Act providing for penalty for violation of the provisions of a particular sub section. There are certain sections where different penalties have been provided for violation of the provisions of sub-sections of the same Section. For instance, in Section 58A, Sub-section (5) dealing with penalty, covers violation of provisions of Sub-sections (3)(c) and (4) and penalty under Sub-section (6) covers violation of provisions of Sub-sections (1) and (2). Thus a perusal of various sections in the Companies Act would indicate that the legislature has specifically spelt out its intention in respect of penalty. Where ever compliance is mandatory and no specific penalty is provided for in respect of violation of the same, the legislature has also provided Section 629A to cover those instances.
8. Section 293A deals with political contribution and connected obligation of the company to disclose the same. Section 293A(5) states " if a company makes contribution in contravention of this Section----- ". If the intention of the legislature had been that this sub section would cover violation of provisions relating to both contribution and disclosure, as is found in many other Sections, Sub-section (5) would have specifically spelt out its application to the entire Section by stating " If default is made in complying with the provisions of this Section----- ". In the same way, this sub section does not also specify application to any particular sub section. Therefore, the intention of the legislature has to be a ascertained from the wording of this sub section. Admittedly, Section 293A deals with both contribution and disclosure, naturally the contribution occurring first and the disclosure later. But in this sub section, while the word "contribution" is mentioned, the word "disclosure " is absent. The quantum of political contribution is dealt with in Sub-section (2) and since Sub-section (5) specifically mentions contravention of the provision relating to contribution, it has to be held that this sub section would apply only to contravention of Section 293A(2) and not to default in complying with provisions of Sub-section (4) in the absence of any mention about disclosure in Sub-section (5). When violation of any provision visits with penalty, more so, criminal in nature, that provision has to be construed strictly. If done so, it is clear beyond doubt that Sub-section (5) would apply only to contravention of the provisions relating to contribution and not to default in disclosure in terms of Sub-section (4). It is not the case of ROC that the company has contravened the provisions relating to contribution in terms of Sub-section (2). Therefore, the contention of the ROC that the offence of non disclosure against the officers in default cannot be compounded in view of the penalty of fine and imprisonment provided in Sub-section (5) cannot be sustained as this sub section has no application to default in complying with the provisions of Sub-section (4).
9. However, the admitted position is that the company has violated the provisions of Sub-section (4) by not disclosing the details of political contribution and since there is no provision in Section 293A to penalize for such a violation, provisions of Section 629A would apply. Since, default in complying with the provisions of Section 293A(4) is a one time offence, in terms of Section 629A, the company and every officer in default is punishable with a fine of Rs 5000 each. Accordingly, I compound the default committed by the company and the 4 officers in default in complying with the provisions of Section 293A(4) on payment of Rs. 5000/- by each.
10. The application is disposed of in the above terms.