Company Law Board
In Re: Reliance Industries Ltd. And Ors. vs Unknown on 14 October, 1996
Equivalent citations: [1997]89COMPCAS67(CLB)
ORDER
C.R. Mehta, Member
1. The aforesaid applicants have made separate applications under Section 621A of the Companies Act, 1956 (hereinafter called "the Act"), for compounding of the alleged offence committed in issuance of duplicate shares with intent to defraud and thus rendering liable for penal action under Section 84(3) of the Act. The cause of action being the same, all these applications are being disposed of by this common order.
2. The Registrar of Companies, Maharashtra, issued show-cause notice No. 011/19786/96-84(3), to the aforesaid applicants alleging that 10,950 duplicate shares were issued on July 11, 1994, to Ms. Rajul Vasa and her family members in preference to the claims of the original lodger who lodged the original shares, while at the same time Reliance Consultancy Services Limited (hereinafter called "RCS") was in possession of these shares as evidenced by the objection memos issued by them to the lodgers. It is further alleged that 26,650 shares were issued to Ms. Rajul Vasa, and her family members on August 22, 1994, and November 11, 1994, in spite of the fact that the original shares lodged by Opera Investment and Trading Company with RCS were returned on July 15, 1994, with objection memos. Thus, it is evidenced from the above that RCS had knowledge of the existence of the original shares at the time when the duplicate shares were issued to Ms. Rajul Vasa and family on various dates in 1994, rendering the company and its officers in default liable for penal action under Section 84(3) of the Act.
3. The applicants replied to the said show-cause notices to the Registrar of Companies, Maharashtra, but the said reply was found unsatisfactory and the Registrar of Companies, Maharashtra, lodged a complaint in the Additional Chief Metropolitan Magistrate IIIrd Court, Esplanade, Bombay, bearing CC No. RC 128 of 1996. The said case is pending and in the meanwhile the applicants have moved this Board for the compounding of the offence in question.
4. The matter was earlier heard on October 3, 1996, and a prima facie view was taken that the matter can be compounded by the Company Law Board after the court's permission is obtained. The above view was taken keeping in view that for the alleged offence, the company is punishable with fine only and the Company Law Board can compound it independently but for other applicants who are punishable with fine or with imprisonment or with both, the offence can be compounded with the permission of the court and the matter is pending in the court. If after considering the matter, the court permits compounding of offence, the Company Law Board being a quasi-judicial body, constituted under the Companies Act and whose orders are appealable in the High Court, can proceed with the compounding of the offence by determining the compounding fees. Thereafter, the applicants approached the Additional Chief Metropolitan Magistrate IIIrd Court, Esplanade, Mumbai, for such permission. The learned magistrate by his order dated October 10, 1996, has held that the stage of permission to compound had not quite been reached as the parties had not finally arrived at the terms and conditions of compounding and it was only after the terms and conditions on which compounding is made are decided, that the stage of permission for compounding can arise.
5. Thereafter, the matter was taken up for hearing on October 11, 1996, and on October 14, 1996. The applicants have submitted that the scheme of Section 320 of the Code of Criminal Procedure, 1973, is in pari materia in certain respects with that of Section 621A of the Companies Act.
6. Section 621A broadly proceeds on the same scheme that the compounding of offences as has been dealt with under Section 320 of the Criminal Procedure Code, 1973. Since the offences under the Companies Act, particularly the authorities who can compound such offences alleged to have been committed under the Companies Act, have not been mentioned in the Code of Criminal Procedure, 1973, of necessity, Section 621A has to start with a non-obstante clause, viz., sub-section (1) that Section 621A would operate notwithstanding the provisions of the Criminal Procedure Code, 1973,
7. It is submitted that if the scheme of Section 621A is seen, it provides for (i) the offences that are compoundable, viz., only those that are punishable with fine or imprisonment, or both (and not those that are compul-sorily punishable with imprisonment); (ii) the person who can compound the offence, viz., the Company Law Board or the Regional Director; (iii) the consequences of such compounding ; (iv) the requirement for obtaining the permission of the court before compounding certain offences (analogous to Section 320(2) of the Criminal Procedure Code, 1973 ; (v) that no offence specified in Section 621A shall be compounded except and in accordance with the provisions of Section 621A of the Act as provided in Sub-section (8) of the said section.
8. While Section 621A makes that section operate notwithstanding the provisions of the Criminal Procedure Code, 1973, Sub-section (7) of Section 621A specifically provides that an offence which is punishable under the Companies Act with imprisonment or with fine, or with both, shall be compounded with the permission of the court in accordance with the procedure laid down in the Criminal Procedure Code, 1973, for compounding of offences. Thus, the non-obstante clause operates only as the Companies Act creates new offences and new situations demanding intervention by new authorities, as compounding authorities.
9. Thus, it is submitted that in respect of an offence of the kind alleged in the present case, Section 621A would read that the offence may, either before or after institution of any prosecution, be compounded by the Company Law Board (Sub-section (7) of Section 621A) with the permission of the court in which the prosecution is pending, in accordance with the procedure laid down in the Criminal Procedure Code, 1973, for compounding of offences. It would mean that such compounding would be done by the Company Law Board and such offences would be compoundable only by the Company Law Board (Sub-section (7) of Section 621A) with the permission of the court in which the prosecution is pending.
10. Shri Bhatt, advocate appearing for the applicants, concluded that in the present case, the permission of the Magistrate is not a condition precedent before the Company Law Board can proceed to compound the offence. Section 621A clearly makes the Company Law Board, the repository of the power to compound and thus the decision is of the Company Law Board whether the offence is to be compounded and on what terms and once the Company Law Board takes that decision, the permission of the Magistrate is to be sought. To that extent, the Company Law Board is the "person by whom the offence may be compounded" in the context of Section 320(2) of the Criminal Procedure Code, 1973. Even though the Registrar of Companies, Maharashtra, is the complainant before the Magistrate, Section 621A provides that the role of the Registrar of Companies is to forward the compounding application to the Company Law Board with his comments and it is then left to the Company Law Board alone (in respect of those offences over which it has jurisdiction) to consider, as a person who can compound the offence, whether it wishes to compound the offence and on what terms. Having come to a conclusion on both the said issues and having passed an order on that basis, it is then that a party to the proceeding may approach the court before whom the prosecution is pending for permission.
11. In this behalf he invited attention to the order dated October 10, 1996, of the Magistrate which is relevant and the material portion thereof is set out hereinbelow for ready reference :
"There can be no doubt that the compounding indeed signifies a joint action of two parties and when the offence is said to be compound-able with the permission of the court all that is meant is that a compromise already arrived at by and between the parties, should not be given effect to without the approval of the court. If the view expressed by the learned Member of the Company Law Board is accepted, it would mean that the accused would obtain the permission of the court for compounding of the offence without explaining to the court, the terms and conditions on which such compounding would be effected. In fact, it would not be certain, if such procedure is adopted, that the offence would be really compounded. It is possible that the parties may disagree with the terms and conditions on which the compounding is to be made. In that event, the permission sought from the court would be meaningless."
13. Shri Bhatt further submitted that the judgment of the Magistrate reflects the correct view on the interpretation of Section 621A of the Companies Act read with Section 320 of the Criminal Procedure Code, 1973. In this behalf, it is submitted that the judgment in the case of Naurangrai v. Kedarnath, AIR 1928 Lahore 232, page 234 is relevant.
14. In view of the aforesaid submissions, he submitted that the Company Law Board may proceed to consider and decide upon the compounding applications of the applicants.
15. I consider the various contentions raised above and it is clear that the Company Law Board has been invested with the power, authority and jurisdiction to compound the offence and it is only when such compounding is done that the matter can be brought before the court for according permission to compound the offences which are punishable with fine or imprisonment or with both.
16. On the merits of the matter, Shri Bhatt, appearing for the applicants, while inviting attention to the replies to the show-cause notice and the submissions made in the applications for compounding of the offences, submitted that in issuing duplicate shares no loss has occurred to anybody. These shares have been issued inadvertently, due to pressure of work, particularly at the time of book closure. The shares in question have either been cancelled or are lying with the Bombay Stock Exchange and are not in circulation and, therefore, there is no possibility of any loss being caused to anybody. He further submitted that none of the accused has gained from the issue of these duplicate shares. He further submitted that 1,130 duplicate share certificates have been issued after observing due procedure of giving public notice and obtaining indemnity bonds and thus, it is a fit case for compounding of offence.
17. The Registrar of Companies, Maharashtra, submits that these shares have been issued in preference to the claims and rights of the original lodgers and without any notice to them. He further states that no complaints have been lodged by any of the lodgers of the original shares with him and this is the first occasion when the offence of this nature has come to his notice. He further submits that alleged offences under Sections 84(2) and 84(4) in respect of issuance of these duplicate shares have already been compounded by the Regional Director, Department of Company Affairs, Mumbai.
18. I have considered the various submissions made and note that the offences under Sections 84(2) and 84(4) for issuance of these duplicate shares have already been compounded by the Regional Director, Department of Company Affairs, Mumbai. The matter for consideration before me is for compounding the offence of issuing these duplicate share certificates with intent to defraud. At the time of earlier hearing the Registrar of Companies, Maharashtra, has already conveyed his no objection to the compounding of the offence after the court's permission is obtained. It is also noted that duplicate share certificates have been issued after giving intimation of loss of shares lodged by the original shareholders and after observing the due procedure of issuing public notice, obtaining indemnity bonds but without intimation to the lodgers of original shares. From the submission made it is noticed that it is the first occasion when an offence of this nature has come to the notice of the Registrar of Companies, Maharashtra. It is also confirmed by the Registrar that no complaints have been filed by the lodgers at his end.
19. Having regard to the facts and circumstances of the case and particularly, keeping in view that the alleged offence of the nature is stated to have come to the knowledge for the first time and having regard to the fact that the original share certificates have either been cancelled or are lying with the Bombay Stock Exchange, thus the possibility of these shares remaining in circulation in future is unlikely, I am inclined to accede to the request of the above-named applicants for compounding of the alleged offence. Accordingly, the alleged offence under Section 84(3) of the Companies Act, 1956, which is the subject-matter of complaint No. 128 RC of 1996 pending in the Court of the Additional Chief Metropolitan Magistrate, IIIrd Court, Esplanade, Mumbai, is compounded in the manner indicated hereunder :
(a) against the company, viz., Reliance Industries Limited, on the condition that the court accords permission for the compounding of the alleged offence against applicants Nos. 2 to 8 named above and on payment of compounding fee of Rs. 10 lakhs ;
(b) in respect of applicants Nos. 2 to 8 named above, who are officers in default, subject to the court granting permission under Section 621A(7)(a) of the Companies Act, for compounding of the offence, on the following terms :
(i) on payment of compounding fee of Rs. 1 lakh by S/Shri Dhirubhai H. Ambani, Mukesh D. Ambani, Anil D. Ambani, Nikhil R. Meswani, the directors of the company, each separately from their personal account ;
(ii) on payment of compounding fee of Rs. 10,000 by S/Shri Vinod M. Ambani, secretary of the company, and Rohit C. Shah, Assistant Vice-President--Secretarial, each separately from their personal account.
(c) on payment of compounding fee of Rs. 10 lakhs by Reliance Consultancy Services Limited, the share transfer agents of the company.
20. The parties would have to follow the procedure prescribed under Section 621A(7) for obtaining the court's permission. The payment is to be made within 15 days of the court's according permission for the compounding of the offence, by way of demand draft in favour of "Pay and Accounts Officer, Department of Company Affairs, Mumbai".
21. The Registrar of Companies, Maharashtra, on being satisfied about the compliance with the aforesaid order, shall take necessary further action under Section 621A(4)(d) of the Companies Act, 1956.