Karnataka High Court
Serious Fraud Investigation Office vs Channapatna Puttamadegowda ... on 22 July, 2022
Author: B.Veerappa
Bench: B.Veerappa
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 22ND DAY OF July, 2022
PRESENT
THE HON'BLE MR. JUSTICE B.VEERAPPA
AND
THE HON'BLE MRS. JUSTICE K.S.HEMALEKHA
COMPANY APPEAL NO.17/2015
BETWEEN :
SERIOUS FRAUD INVESTIGATION OFFICE,
MINSITRY OF CORPORATE OFFICE,
GOVERNMENT OF INDIA,
2ND FLOOR, PARYAVARAN BHAWAN, B-3 WING,
CGO COMPLEX, LODI ROAD,
NEW DELHI - 110 003. ... APPELLANT
(BY SMT. ANUPAMA HEGDE, CGSC)
AND:
CHANNAPATNA PUTTAMADEGOWDA YOGEESHWARA
MANAGING DIRECTOR,
MAGACITY (BENGALURU) DEVELOPERS AND BUILDERS LTD.,
RESIDING AT 1857, HANUMANTHANAGAR,
BENGALURU MYSORE ROAD,
CHANNAPATNA,
KARNATAKA - 571 501. ... RESPONDENT
(BY SRI R.S. RAVI, SENIOR COUNSEL A/W
SRI.CHANDRASHEKARA K., ADVOCATE)
THIS APPEAL IS FILED UNDER SECTION 10F OF THE
COMPANY ACT, 1956, PRAYING THIS HON'BLE COURT TO
SET ASIDE THE JUDGMENT DATED 22.05.2015 IN CA
NO.287/2014 PASSED BY THE HON'BLE COMPANY LAW BOARD,
CHENNAI, AND ETC.
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THIS APPEAL COMING ON FOR FINAL HEARING, THIS
DAY, K.S.HEMALEKHA J., PASSED THE FOLLOWING:
JUDGMENT
This Court, vide order dated 08/06/2016, directed the present appeal to be listed for hearing on 28/06/2016. However, the matter was not heard subsequently. Today (22/07/2022), the matter is listed for final hearing and with consent, it is heard finally.
2. The Union of India/Serious Fraud Investigation Office ("SFIO" for short) has preferred this appeal assailing the order dated 22/05/2015 in C.A.No.287/621A/CB/2014 before the Company Law Board, Chennai Bench (hereinafter referred as "the Board" for the sake of convenience), whereby the Board compounded the offence under Section 266G of the Companies Act, 1956 ("the Act"
for short) and held that the compounding of offence under Section 266C was without prejudice to the case pending before the I Addl. Chief Metropolitan Magistrate, Bangalore under Sections 177, 420 and 416 of IPC.-3-
3. The appellant is referred as SFIO and the respondent is referred as the Company for the sake of convenience.
4. Brief facts of the case are as under:
The Company was engaged in the business of developing real estate projects at various places and had collected large amount towards booking in respect of "Vajragiri" real estate project. It appears that the said project did not materialize and a large number of investors' money was not refunded and as such, the investors filed complaints against the company pointing towards the financial affairs of the company being conducted prejudicial to the interest of various stakeholders. In the backdrop of this, investigation was ordered and a report was submitted by the Registrar of Companies, Bangalore. The Registrar of Companies, Bangalore under Section 243(6) of the Act scrutinized the balance sheet of the company and on scrutiny, found that there is violation of Sections 295, 211(3A) read with -4- Sections 211(3C), 211, 299/301, 628, 269(2), 159, 166, 210, 220 and 58A of the Act. The Central Government, after considering the report of the Registrar of Companies ordered an investigation into the affairs of the company Under Section 235 of the Act. The SFIO conducted investigation and submitted the report to the Central Government concluding that there were various inconsistency and fraud committed by the company and its Directors while dealing with the affairs of the company and during investigation, the company Directors were summoned and in terms of Section 240 of the Act, the Directors deposed and the investigation by SFIO concluded holding that the company has obtained three Directors' Identification Numbers ("DINs") in violation of Section 266G of the Act as the three DINs were obtained by cheating impersonation and by false evidence and hence, recommended for prosecution under Sections 177, 420 and 416 of the Indian Penal Code, 1860 ("IPC"). The Central Government, considering the investigation report and exercising the power under Section 242 of the Act -5- directed the SFIO to file complaints against the company for violation of Section 266 G of the Act as well as under
Sections 177, 420 and 460 of the IPC and accordingly, two separate complaints were filed.
5. This being so, the company moved an application before the Board seeking compounding of offences under Section 266G of the Act and the same was forwarded to the Bench by the Registrar of Companies along with the report for compounding of offences under Section 621A(4)(a) of the Act. The application by the company was seeking to compound the offences relating to contravention of Sections 266C, 159, 166, 210 and 220(1) of the Act. The application for contravention of Section 266C of Act was numbered as CA287/621A/CB/2014 for compounding the offence under Section 266C read with Section 621A of the Act. The reasons accorded by the applicant seeking compounding of offence under Section 266C read with Section 621A of the Act was that though the company had applied and got allotted three DINs in -6- the name of the company under various dates as per Section 266A of the Act and that the DIN application was filed at different times using different identity and as such, there was confusion and stated that as per the provisions of the Act, only one DIN can be applied by the individual and that seeking for three DINs was due to inadvertence and not intentional and also stated that the company is using only one DIN and has sought to cancel the other two DINs and that the same was not misused at any point of time.
6. The SFIO filed objections to the compounding application, inter alia, contending that the charges leveled against the company are serious in nature and this Court directed a joint trial of both the complaints bearing No.28/2012 for violation under Section 266G of the Act and the complaint bearing CC.No.6906/2012 before the I Addl. Chief Metropolitan Magistrate, Bangalore, for the offences punishable under Sections 177, 416, 419 and 420 of the IPC in Crl.P.No.3393/2012 and thus, stated that the -7- offence punishable under Section 266G of the Act could not be considered in isolation for compounding of offences, more particularly when such violation is willful and warranted prosecution for non-compoundable offences under the IPC.
7. The Board on hearing and considering the material on record and the objections to the application filed by the SFIO exercising its discretionary powers as envisaged under Section 621A of the Act, compounded the offences by specifying compounding fee payable by the applicants. However, the compounding of offence committed under Section 266C of the Act was held to be without prejudice to the case pending before the I Addl. Chief Metropolitan Magistrate, Bangalore, under Sections 177, 420 and 416 of the IPC.
8. It is this order, which is in challenge by the SFIO in this company appeal.
9. Heard learned counsel for the parties to the lis. -8-
10. Smt. Anupama Hegde, learned Central Government Standing Counsel would contend that the order of the Board in compounding the offence under Section 621A of the Act is contrary and the order is passed in violation of the Act as the violations sought to be compounded by the company are serious in nature and the Board exercising the discretionary power under Section 621A of the Act is unwarranted. It is contended that the Board has failed to consider the directions of this Court in Crl.P.No.3393/2012, whereby, this Court directed the proceedings in C.C.Nos.6906/2012 and 28/2012 to be taken up together and this being so, it is contended that the compounding of offence in isolation would lead to multiplicity of proceedings. It is further stated that the Board was not justified in compounding the offences under Sections 266C read with Section 621A of the Act as it is without obtaining prior permission from the Court, which is mandatory and thus sought to allow the appeal. -9-
11. Per contra, learned senior counsel, Sri R.S.Ravi appearing for the respondent while justifying the order of the Board contended that the compounding of offences by the Board is by assigning proper reasons and as per Section 266C read with Section 266G of the Act, penalty for contravention of provisions of Section 266 or Section 266C or Section 266D or Section 266E is punishable with a fine, which may extend to Rs.5,000/- and there is no punishment for imprisonment. In support of his contention, learned senior counsel relied upon the judgment of the Apex Court in the case of V.L.S. Finance Limited vs. Union of India and others [(2013)6 SCC 278].
12. Having heard learned counsel for the parties and perused the material on record, the points that arise for consideration are:
(i) Whether the discretionary power exercised in compounding the offence by the Board under 266C read with Section 621A of the Act is in contravention of Section 266G of the Act?
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(ii) Whether the compounding of the offence by the Board under Section 266C read with Section 621A is justified without seeking prior permission from the Court ?
13. With regard to point No.(i), the company does not dispute that they had applied for three DINs, but specifically contends that obtaining of DIN was by using different IDs and address and was obtained due to inadvertence and not intentional and contended that the company was only using one DIN. To consider whether order of the Board is justifiable, relevant provisions needs to be considered. Section 266C of the Act states the prohibition to obtain more than one DIN by any individual, the said Section reads as under:
"266C. Prohibition to obtain more than one Director Identification Number.- No individual, who had already been allotted a Director Identification Number under Section 266B, shall apply, obtain or possess another Director Identification Number."
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The penalty for contravention of provision of Section 266C is as mentioned in Section 266G which reads as under:
"266G. Penalty for contravention of provisions of Section 266A or Section 266C or Section 266D or Section 266E.-If any individual or director, referred to in Section 266A or Section 266C or Section 266D or a company referred to in Section 266E, contravenes any of the provisions of those sections, every such individual or director or the company, as the case may be, who or which, is in default, shall be punishable with fine which may extend to five thousand rupees and where the contravention is a continuing one, with a further fine which may extend to five hundred rupees for every day after the first during which the contravention continues."
(underlining by us) Section 621A (d) & (6) states the composition of certain offences which reads as under:
"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
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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 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.
xxx xxx xxx
(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
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company or its officer in relation to whom the offence is so compounded shall be discharged.
xxx xxx xxx (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 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."
14. A careful reading of the provisions envisage that it excludes such offences which are punishable with imprisonment only or with imprisonment and also with fine. Thus, on facts, the nature of offence which the company has charged does not invite with imprisonment or imprisonment and fine, but the penalty imposed is punishable with fine, which may extend upto five thousand
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rupees and where the contravention is continuing one, with a further fine, which may extend to five hundred rupees for everyday thereafter. Thus, the nature of offence is such that it is compoundable, and the same is just and proper. Our view is fortified by the Judgment of the Apex Court in the case of V.L.S. Finance Limited vs. Union of India and others [(2013)6 SCC 278)(V.L.S. Finance Limited) at paragraph Nos.11, 12 and 16, which read as under:
"11. From a plain reading of Section 621-A(1) it is evident that any offence punishable under the Act, not being an offence punishable with imprisonment only or with imprisonment and also with fine, may be compounded either before or after the institution of the prosecution by the Company Law Board and in case, the minimum amount of fine which may be imposed for such offence does not exceed Rs.5,000/, by the Regional Director on payment of certain fine. The penal provisions of the Act provide for different kinds of punishments for a variety of offences and can be categorised as follows:
(i) offences punishable with fine only,
(ii) offences punishable with imprisonment only,
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(ii) offences punishable with fine and imprisonment,
(iv) offences punishable with fine or imprisonment,
(v) offences punishable with fine or imprisonment or both.
12. 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 has not necessarily to be visited with imprisonment or imprisonment and also fine but can be let off by imposition of fine only. Therefore, the punishment provided under Section 211(7) of the Act comes under category (v) aforesaid. Section 621-A(1) excludes such offences which are punishable with imprisonment only or with imprisonment and also with fine. As we have observed above, the nature of offence for which the accused has been charged necessarily does not invite imprisonment or imprisonment and also fine. Hence, we are of the opinion that the nature of the offence is such that it was possible to be compounded by the Company Law Board.
xxx xxx xxx
16. Now the question is whether in the aforesaid circumstances the Company Law Board can compound an offence punishable with fine or
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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 sub-section (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."
15. For the reasons stated supra, we answer point No.(i) in the negative in favour of the company.
16. With regard to point No.(ii), the learned Central Government Standing Counsel appearing for the appellant sought to contend that prior permission of the Court needs to be accorded for compounding of offence is contrary to the intention of the legislature for enacting the
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provision under Section 621A as the powers under Section 266C are concurrent/parallel powers to be exercised by the Company Law Board/other Authorities or Court in seisin of the matter with a difference that a Company Law Board can proceed to compound such offence either before or after the institution of any prosecution whereas criminal Court possesses similar power to compound such offence only after institution of prosecution and as the Apex Court held in the case of V.L.S. Finance Limited stated supra at paragraph Nos.17 and 18 which read as under: "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 the institution of the proceeding. The
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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."
17. For the reasons stated above, point No.(ii) is answered in the affirmative in favour of the company.
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18. In the result, we pass the following:
ORDER
(i) The company appeal is dismissed.
(ii) The order dated 22/05/2015 in C.A.No.287/621A/CB/2014 passed by the Board at Chennai is hereby confirmed.
(iii) It is needless to observe that the compounding of offence committed under Section 266C is without prejudice to the case pending before the I Addl. Chief Metropolitan Magistrate, Bangalore under Sections 177 420 and 416 of the IPC as stated in the order dated 22/05/2015.
No order as to costs.
Sd/-
JUDGE Sd/-
JUDGE S*