HOFFLAND FINANCE LTD Vs. STATE

JUDGEMENT

(1.) HOFFLAND Finance Limited has filed an application for compounding, duly forwarded by the Registrar of Companies, National Capital Territory of Delhi and Haryana under Section 621A of the Companies Act, 1956 (hereinafter referred to as "the Act"), for contravention of Section 68(a) and 68(b) of the Act. The Registrar of Companies has already filed a prosecution against the company and five of its delinquent directors and the same is pending before the Additional Chief Metropolitan Magistrate, Delhi. The defaults under Section 68(a) and 68(b) of the Act attract a maximum penalty of Rs. 10,000 or imprisonment up to five years or with both. When the present application of the applicants was taken up by the learned Member, Northern Region Bench, Company Law Board, the learned Member felt that before the question of compounding could be considered, the applicants were to obtain the permission of the criminal court where the proceeding was pending. Accordingly, the applicants were directed to obtain permission of the concerned criminal court and pursuant to the said direction the applicants moved an application before the Additional Chief Metropolitan Magistrate, Delhi, for permission to compound the offence. It appears that the learned Magistrate, while hearing the said application made an order that the jurisdiction of the court comes into operation only after the parties had compounded the offence. It was also observed by the learned Magistrate that the court could not issue any direction to any of the parties to compound the offence. The application made before the learned Magistrate was therefore rejected.

(2.) The learned Member of the Company Law Board felt that this situation raised an important legal issue with regard to the question whether a compounding order under Section 621A of the Act could be passed without first obtaining the permission of the trial court. The Western Region Bench of the Company Law Board in the case of Reliance Industries Ltd., In re [1997] 89 Comp Cas 67 had observed that the question of seeking permission of the court would arise only after compounding is done by the Company Law Board and accordingly compounded the offences. The learned member of the Company Law Board found that in a prior case, the Northern Region Bench of the Company Law Board, while considering a similar default under Section 68(a) and (b) of the Act, directed the defaulter to obtain permission of the criminal court and, after such permission of the criminal court being obtained by the defaulter, the offence was compounded by the learned Member presiding over the Northern Region Bench of the Company Law Board.

(3.) WHEN the matter was taken up for hearing, we advised counsel for the petitioner, Shri M. G. Ramachandran, to address us on the issue whether there is any need to obtain the permission of the court and if so as to the timing of obtaining the permission of the court as envisaged by Sub-section (7) of Section 621A. He submitted that a careful analysis of the section would reveal that Sub-sections (1) and (7) are independent of each other and that while Sub-section (1) confers jurisdiction upon the Company Law Board, Sub-section (7) confers concurrent jurisdiction upon the criminal court to deal with matters relating to compounding of offences. He dwelt in detail on, various reasons in support of his proposition, which we have taken into consideration in deciding the issue before us.