V.L.S. Finance Limited vs. Union of India & Ors. Civil Appeal No. 2102 of 2004, Decided on
May 10, 2013
ROC filed
complaint before Magistrate for the offence punishable under Section 211(7) of
the Companies Act. The Company and its Chairman-cum-Managing Director, were
arrayed as accused. However before the Magistrate could proceed, the Company
and its Managing Director jointly filed an application before the Company Law
Board for compounding the offence. The Company Law Board acceded to the prayer
and compounded the offence against the Managing Director holding that:
“The exercise of powers by the Company Law Board under 621A (1) is
independent of exercise of powers by the court under sub-section (7) and all
offences other than those which are punishable with imprisonment only or with
imprisonment and also fine, can be compounded by Company Law Board without any
reference to sub-section (7), even in cases where prosecution is pending in a
criminal court.”
Against the
order of the Company Law Board, an appeal was filed in High Court contending
that the power of compounding could be exercised by the criminal court and not
by the Company Law Board allowed the appeal holding that:
“offence punishable with imprisonment or with fine or both shall be
compoundable with the permission of the Court and for such compounding the
procedure laid down under the Criminal Procedure Code is to be followed in that
regard provided the prosecution is pending in that Court”.
Thus the matter
came before Hon’ble Supreme Court.
The Court
observed:
“Sub-section (1) of Section
621A and sub-section (7) thereof are differently worded but on their close
reading it is evident that both cover such offences depending upon the nature
of punishment. Sub-section (1) of Section 621A excludes offence punishable with
imprisonment only or with imprisonment and also fine and includes the residue
offences which will obviously include offence punishable with imprisonment or
with fine or with both whereas sub-section (7) specifically include those and
excludes, like sub-section (1), offences punishable with imprisonment only or
with imprisonment and also fine. Therefore, both cover similar nature of
offences. Hence, 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. In this
connection, it shall be relevant to refer to Section 621A(4)b) of the Act,
which provides that where any offence is compounded under this section, whether
before or after the institution of any prosecution, an intimation thereof shall
be given by the Company to the Registrar within 7 days from the date on which
the offence is compounded. 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.”
“Now the question is
whether in the aforesaid circumstances the Company Law Board can compound
offence punishable with fine or 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.”
“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
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.”
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