Company Law Board
In Re: Reliance Industries Ltd. vs Unknown on 3 October, 1996
Equivalent citations: [1997]89COMPCAS465(CLB)
ORDER
C.R. Mehta, Member
1. Reliance Industries Limited (hereinafter referred to as "the company") and its officers, namely, Shri Dhirubhai H. Ambani, Mukesh D. Ambani, Ramniklal H. Ambani, Anil D. Ambani, Natubhai H. Ambani, Nikhil R. Meswani, all directors of the company, and Vinod M. Ambani, Secretary, and Rohit C. Shah, Asstt. Vice-President-Secretarial, and Reliance Consultancy Services Limited (hereinafter referred to as "RCS"), the share transfer agents of the company, have moved applications dated June 27, 1996, under Section 621A of the Companies Act, 1956, for compounding of the alleged violation of the provisions of Section 113(1) of the Companies Act, 1956, read with Section 113(2) of the said Act for failure on the part of the company to deliver the shares lodged for registration of transfers within a period of two months. The applications have been duly forwarded by the Registrar of Companies, Maharashtra, to this Board for consideration. Since the cause of action is common, these applications are being disposed of by this common order.
2. The Registrar of Companies, Maharashtra, issued show-cause notice No. 11/19786/96/113(S), dated June 7, 1996, to the aforesaid officials alleging that in the case of the shares lodged for and on behalf of the Unit Trust of India, Peerless and Can Bank some time between December, 1991 and September, 1994, involving 22,411 lakhs shares as detailed in the show-cause notice, the company has failed to deliver the share certificates within two months after the application for registration of transfer of such shares was lodged in accordance with the procedure laid down in Section 53 of the Act. The delay in the delivery of share certificates ranges from 12 days to 9 months and 23 days. The total delay in the delivery of the share certificates from the details indicated in the show-cause notice is computed at 2,371 days.
3. Likewise, the Registrar of Companies, Maharashtra, had issued another show-cause notice No. 11/19786/96/113, dated June 7, 1996, to the company, RCS, and the abovementioned directors and officers of the company in default except Shri Ramnikal H. Ambani and Natubhai H. Ambani (who have ceased to be officers in default at the relevant time) alleging that in the 10 cases detailed in the show-cause notice involving 10,950 shares, the company has failed to deliver the share certificates within two months after the lodgment of the applications for registration of transfer. The shares in question were returned to the parties under objection and the total delay in these 10 instances detailed in the show-cause notice is computed at 300 days.
4. Shri J. J. Bhatt, advocate, appearing for the applicants, invited attention to the replies dated June 24, 1996, furnished by the applicants to the show-cause notices issued by the Registrar of Companies, Maharashtra, both dated June 7, 1996, wherein it is submitted that the delay in the delivery of the certificates took place because of the substantial volume of transfers which were being handled at that time by RCS. The delay in receipt of the share certificates by the lodgers was on account of events beyond the control of RCS and not on account of any act of omission or commission by RCS. It is further submitted that in relation to the shares which are the subject-matter of the show-cause notice, in some cases, RCS had received standing instructions from the lodgers named in the show-cause notice that the share certificates after transfers should not be delivered by RCS to them but the said certificates would be collected from the office of the RCS after the transfer was completed. It is further submitted that at the material time RCS was functioning as the registrars and transfer agents of the company, under the agreement RCS was entirely responsible for matters relating to transfer of shares. RCS functioned from a distinct and independent location and at no time was RCS a subsidiary of the company. The company did not hold any shares in RCS nor were there any common directors on the respective boards of the company and RCS. Neither the company nor any of its directors were involved in the operations of RCS. The company and its directors did not have any personal knowledge of the operations of RCS. It is further submitted that the alleged default is clearly inadvertent and not wilful. No harm, injury or prejudice has been caused to anyone including RIL, its investors and the general public as a result of any such alleged default. The default is purely of a technical and venial nature. It is further submitted that there have been no allegations of any loss having been directly or indirectly occasioned to any investor.
5. Shri Bhatt at the time of hearing again stressed that the delay was procedural and not wilful and did not cause any prejudice or loss to anybody. He further submitted that in some of the cases, the company was under instructions from lodgers not to send shares as their representative would come and collect them, also caused the delay. He also attributed the delay due to large volume of work involved particularly at the time of book closure. He further submitted that RCS were acting as the transfer agents of the company and directors were not involved in day-to-day affairs of the RCS. Hence they should be absolved of any direct responsibility. He further submitted that RCS were entirely responsible for the matters relating to the transfer of shares.
6. Shri Bhatt also placed reliance on the two earlier decided cases of Usha (India) Ltd., In re [1996] 85 Comp Cas 581 (CLB), wherein it has been viewed that the jurisdiction granted to the Company Law Board in regard to compounding is independent of any provisions in the Code of Criminal Procedure, 1973. It is further observed that so long as the petitioners desire that the alleged offence be compounded, subject to the requirements of Section 621A of the Companies Act being fulfilled, which in this case is done, the compounding would be well within the jurisdiction of this Bench. He also referred to the case of Vikrant Tyres Ltd., In re [1995] 83 Comp Cas 210 (CLB) ; [1995] CLJ 248. While summing up, Shri Bhatt submitted that in deciding the compounding of matters, the Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa [1970] 25 STC 211 have observed as under (page 214) :
"An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and 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. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances."
And he submitted that the aforesaid principle laid down by the Supreme Court may be kept in view in deciding the matters.
7. The Registrar of Companies, Maharashtra, present in person, submitted that the relevant prosecutions numbering 26 complaints have been launched and that offences are compoundable. He conveyed no objection to the compounding of offences as applied for.
8. I have considered the various submissions made. From the facts stated it is clear that there is a failure on the part of the company to deliver share certificates lodged for registration of transfer within two months of their lodgment and thus the company, RCS, and the aforesaid officers of the company have rendered themselves liable for penal action under Section 113(2) of the Companies Act. The filing of the compounding application itself implies admission of default by the applicants. It is noted that the Company Law Board is empowered under Section 621A of the Companies Act to compound the offence wherein default is punishable with fine. In the case of a default under Section 113(1) of the Companies Act, 1956, read with Section 113(2) of the said Act, the company and every officer in default is liable for fine. Further, such offence can be compounded even after the institution of the prosecution in the court. The applicants have made the applications as per procedure laid down under Section 621A of the Companies Act and the same have been duly forwarded by the Registrar of Companies, Maharashtra. The Registrar who was present in person had conveyed no objection to the compounding of offence as the offence is compoundable. It is further noted that the shares have been delivered and as such the offence no longer persists. In view of the aforesaid position, I am inclined to agree to the request of the applicants for compounding of the offence.
9. In the present case, one has to keep in view that the company has appointed RCS as their transfer agents and they are duly authorised by the appropriate authorities to undertake this work. The delay in the delivery of shares has occurred at RCS's end as they have not been able to deliver the shares within the stipulated period. The company is equally liable for the default as it occurred at their transfer agents' end. Even though the directors have appointed authorised transfer agents for transfer work and they were not looking after the day-to-day transfer work, they cannot absolve themselves altogether for the default committed. There is delay of more than 2,670 days in the delivery of shares lodged for transfer in respect of the lodgments detailed in the Registrar of Companies, Maharashtra's two Show Cause Notices No. 11/19786/96/113(8) and No. 11/19786/96/113, both dated June 7, 1996.
10. Having regard to the aforesaid position and the facts and circumstances of the case, the offence under Section 113(1) read with Section 113(2) of the Companies Act, 1956, detailed in the aforesaid two show-cause notices of the Registrar of Companies, Maharashtra, is compounded against :
(1) Reliance Industries Limited and Reliance Consultancy Services Limited, the share transfer agents, on payment of Rs. 10 lakhs each separately.
(2) Shri Dhirubhai H. Ambani, Mukesh D. Ambani, Ramnikbhai H. Ambani, Natubhai H. Ambani, Nikhil R. Meswani, Anil D. Ambani, the directors, falling under the definition of officers in default, on payment of Rs. 1 lakh each separately from their personal account.
(3) Shri Vinod M. Ambani, Secretary, and Rohit C. Shah, Asstt. Vice-President-Secretarial on payment of Rs. 10,000 each separately from their personal account.
11. The payment is to be made by way of demand draft payable in favour of "Pay and Accounts Officer, Department of Company Affairs, Mumbai" within 15 days from the date of receipt of this order. The compounding would be effective only on compliance with the requirement regarding payment of compounding fee as aforesaid by the abovementioned parties. The Registrar of Companies, Maharashtra, on being satisfied about compliance with this order shall take necessary further action as required under Section 621A(4)(d) of the Companies Act, 1956.