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Dhandho India Private Limited, In Re
Summary of the Opinion — Compounding Application No. 59/441/NCLT/MB/2016
Factual and Procedural Background
Applicants in default were: (1) Dhandho India Pvt. Ltd. (company), (2) Mr. Vinay Parikh (director), and (3) Mr. Mohnih Pabrai (director). The Compounding Application was filed before the Registrar of Companies (RoC), Pune, on 7 October 2016 and forwarded by the RoC to the National Company Law Tribunal (NCLT), Mumbai Bench on 25 November 2016 together with the RoC report.
The application arose from a failure to hold the first board meeting within the statutory period under Section 173(1) of the Companies Act, 2013. The company, incorporated on 18 May 2015, was required to hold its first board meeting on or before 16 June 2015 but held it on 17 September 2015, producing a delay of 93 days.
The RoC reported the delay and treated the matter as compounding under Section 450 of the Companies Act, 2013 (applicable where no specific penalty is provided elsewhere). The Bench considered the application, imposed fines, accepted payment, and disposed of the application.
Legal Issues Presented
- Whether the applicants committed an offence by failing to hold the first board meeting within the time required by Section 173(1) of the Companies Act, 2013.
- Whether the offence could be compounded under Section 450 of the Companies Act, 2013 (given no specific penalty under Section 173(1)).
- If compounding is permissible, what quantum of fine is appropriate in the circumstances.
Arguments of the Parties
Applicants' Arguments
- The applicants admitted that the first board meeting was not held within the prescribed time but asserted that the failure was inadvertent and not wilful or mala fide.
- They stated they acted bona fide and had complied with the remaining provisions of Section 173(1) after the delayed meeting on 17 September 2015.
- The compounding application was filed to put the matter to rest.
Registrar of Companies (Reported Position)
- The RoC reported the delay in holding the first board meeting and noted that although the default was made good later, the delay (93 days) made the contravention punishable for the period of delay.
- The RoC forwarded the compounding application to the NCLT for consideration under Section 450.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The Bench reviewed the compounding application, the RoC report, and oral submissions. It accepted the factual concession that the first board meeting was held late (17 September 2015) contrary to the requirement to hold it on or before 16 June 2015 for a company incorporated on 18 May 2015, thereby establishing a contravention of Section 173(1).
Because Section 173(1) did not prescribe a specific fine, the Bench applied Section 450 of the Companies Act, 2013, which provides a general penal provision where no penalty is prescribed elsewhere. Section 450 authorises fines up to Rs. 10,000 and, for continuing contraventions, further fines up to Rs. 1,000 per day.
Having considered the applicants' explanation that the breach was inadvertent and made good, and on examination of the circumstances, the Bench determined a reduced monetary penalty was appropriate and imposed a fine of Rs. 2,500 on each applicant who was in default.
The imposed fines (total Rs. 7,500) were paid by the applicants by three Demand Drafts (nos. 15205, 15206, 15207 dated 12 January 2017) in favor of the Pay and Accounts Officer, Ministry of Corporate Affairs, Mumbai.
Holding and Implications
HOLDING: The compounding application is allowed and the offence under Section 173(1) of the Companies Act, 2013 is compounded upon payment of the imposed fines.
Direct consequences: The Bench imposed a fine of Rs. 2,500 on each defaulting applicant (total Rs. 7,500), observed that the fines were paid by Demand Drafts, ordered that the compounding application be marked as compounded, directed the Registrar of Companies to take consequential steps to incorporate the findings of the order, disposed of the application, and consigned the file to records.
The opinion does not discuss broader legal implications or purport to establish a precedent beyond the resolution of this compounding application.
Applicants in Default:
(1) Dhandho India Pvt. Ltd. - Company
(2) Mr. Vinay Parikh - Director
(3) Mr. Mohnih Pabrai - Director
Section Violated:
Section 173(1) of the Companies Act, 2013.
1. This Compounding Application was filed before the Registrar of Companies, Pune, on 7 October, 2016 and the RoC, Pune, has forwarded the same to NCLT, Mumbai Bench on 25 November, 2016 alongwith the RoC Report. The Applicants stated in their application that they have committed a default by not holding the first Board meeting of the Company as per the provisions of Section 173(1) of the Companies Act, 2013. Therefore, committed the default under the provisions of S. 173(1) of the Companies Act, 2013, and hence, punishable for the said default under the Section 450 as under Section 173 there is no specific provisions to levy fine has been provided. The Applicants have also submitted that on 17 September, 2015 they have conducted the first Board meeting and made the default good. Otherwise the law prescribed for the First Board Meeting to be held on 16 June, 2015. According to the Ld. RoC, although the Applicants had made good of the default, due to the delay in doing so, the default is punishable for the period of delay i.e. 93 days in this case.
2. Therefore, it is evident that the Applicant Company committed the default under the provisions of Section 173(1) of the Companies Act, 2013.
The Ld. RoC has also reported that the Applicant Company has claimed that they had complied with rest of the provisions of Section 173(1) of the Companies Act, 2013. However, they claimed that they have filed the Compounding Application so as to put the matter to rest.
Facts of the Case:
3. As per the Applicant's own submissions made in the Compounding Application filed by them for violation of Section 173(1) of the Companies Act, 2013, the Applicant has committed default as follows:—
“2. That the first Board meeting of the Company was required to be held on or before 16 June, 2015 as the Company was incorporated on 18 May, 2015. But the Company was unable to conduct the same because of unavailability of both directors at one place and comply quorum provisions under the Act.
3. That eventually the first Board Meeting was conducted on 17 September, 2015.
4. Accordingly, the Applicant has violated the provision under Section 173(1) of the Companies Act, 1956. The Registrar of Companies, Maharashtra, Pune, has forwarded the Compounding Application vide his letter No. ROCP/STA/621A/2016/6111 dated 23 November, 2016 to National Company Law Tribunal, Mumbai Bench and the same has been treated as Compounding Application No. 59/441/NCLT/MB/2016. Section 450 of Companies Act, 2013 for violation of Section 173(1) of Companies Act, 2013, which is relevant in this Case, is as follows:—
“If a company or any officer of a company or any other person contravenes any of the provisions of this Act or the rules made there under, or any condition, limitation or restriction subject to which any approval, sanction, consent, confirmation, recognition, direction or exemption in relation to any matter has been accorded, given or granted, and for which no penalty or punishment is provided elsewhere in this Act, the company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to ten thousand rupees, and where the contravention is continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which the contravention continues.”
5. From the side of the Applicant, Ld. Practicing Company Secretary Mr. Pramodkumar Ladda had appeared and explained that inadvertently the Applicants could not fulfil the conditions laid down under Section 173(1) of the Companies Act, 2013 although the Applicants were willing to comply with the provisions of the Companies Act, 2013 bona fidely. Ld. Representative of the Applicant also stated that the aforestated violation was unintentional and without any wilful or mala fide intention.
6. This Bench has gone through the Application of the Applicants and the Report submitted by the Registrar of Companies, Maharashtra, Pune and also the submissions made by the Ld. Advocates for the Applicant at the time of hearing and noted that Application made by the Applicant for compounding of offence committed under Section 173(1) of the Companies Act, 2013, merits consideration.
7. Because of the above discussed factual position, the compounding of this default under the category of default is defined under Section 450 of the Companies Act, 2013, already reproduced supra, which says that, if a company or any officer of a company or any other person contravenes any of the provisions of this Act or the rules made there under, or any condition, limitation or restriction subject to which any approval, sanction, consent, confirmation, recognition, direction or exemption in relation to any matter has been accorded, given or granted, and for which no penalty or punishment is provided elsewhere in this Act, the company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to Rs. 10,000/-, and where the contravention is continuing one, with a further fine which may extend to Rs. 1000/- for every day after the first during which the contravention continues. On examination of the circumstances as discussed above a fine of Rs. 2500/- Two Thousand Five Hundred only) has been imposed on each applicant who is in default. The imposed fine totalling Rs. 7500/- Seven Thousand Five Hundred) has been remitted by the applicants through three Demand Drafts vide nos. 15205, 15206, 15207 all dated 12 January, 2017 of Rs. 2500/- each in favour of “Pay and Accounts Officer, Ministry of Corporate Affairs, Mumbai”.
8. Since the fine stood paid, as supra, this Compounding Application No. 59/441/NCLT/MB/2016 is, therefore, now compounded. Ld. RoC shall take the consequential steps to incorporate the findings of this order. Application is disposed of. Consigned to records.
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