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Parikh Enterprises Private Ltd., In Re
Factual and Procedural Background
Parikh Enterprises Private Ltd. and its two Managing Directors filed an application before the Registrar of Companies for compounding an offence under section 134(3)(o) punishable under section 134(8) of the Companies Act, 2013 for the Financial Year ending 31.03.2015. The Registrar of Companies forwarded the application to the tribunal along with a report dated 23.12.2016. The company had earned net profits in the previous financial year 2013-2014, thereby attracting the provisions of section 135 related to Corporate Social Responsibility (CSR). The company was required to constitute a CSR committee, frame a CSR policy, spend the required amount on CSR activities, and disclose any shortfall in the Board’s report as per section 134(3)(o) read with the CSR Rules, 2014. The petitioners admitted the violation for the year 2014-2015 but stated that the company constituted the CSR committee and spent substantial amounts in the subsequent year 2015-2016. They also claimed there was no malafide intention behind the non-compliance. The Registrar of Companies reported that the company was not a vanishing company and had not compounded similar offences in the last three years.
Legal Issues Presented
- Whether the tribunal has the power to compound the offence under section 134(3)(o) of the Companies Act, 2013, punishable under section 134(8), for the company and its Managing Directors?
- What is the appropriate quantum of compounding fee for the violation of section 134(3)(o) of the Companies Act, 2013?
- Whether the application for compounding of offence by the company and its Managing Directors should be allowed or dismissed?
Arguments of the Parties
Petitioners' Arguments
- Admitted the violation of section 134(3)(o) for the Financial Year ended 31.03.2015.
- Asserted that the company constituted the CSR committee from 10.06.2015 and spent substantial amounts on CSR activities in the Financial Year 2015-2016.
- Claimed non-compliance was without any malafide intention to violate the Act.
- Explained that as a new provision, the company was unable to comply fully for the relevant financial year.
Registrar of Companies' Report
- Confirmed that the company is not a vanishing company.
- Confirmed no similar offence had been compounded by the company in the last three years.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The tribunal examined the provisions of section 441 of the Companies Act, 2013, which empowers it to compound offences punishable with fine only, whether before or after prosecution. The offence under section 134(3)(o) read with section 134(8) prescribes different punishments for the company and its officers: the company faces only a fine, whereas the officers in default may face imprisonment or fine or both. Since the tribunal lacks power to compound offences involving imprisonment, it cannot compound the offence against the Managing Directors (petitioners 2 and 3). However, it can compound the offence against the company (petitioner 1). Considering the explanations given by the company regarding the newness of the CSR provisions and subsequent compliance, the tribunal found a compounding amount of Rs. 1,00,000/- appropriate for the company. The tribunal thus dismissed the petition as to the Managing Directors and allowed it as to the company with directions for payment and compliance.
Holding and Implications
DISPOSED OF
The tribunal allowed the compounding application in respect of Parikh Enterprises Private Ltd. (the company) upon payment of Rs. 1,00,000/- within three weeks and filing of the Demand Draft. The petition was dismissed with respect to the two Managing Directors, with directions to the Registrar of Companies to take appropriate action against them under the Companies Act, 2013. The decision directly affects the parties by permitting compounding of the offence for the company but not for its officers. No broader precedent was established by this ruling.
1. Parikh Enterprises Private Ltd. and its two Managing Directors filed an application before the Registrar of Companies for compounding of offence under section 134(3)(o) of the Companies Act, 2013 punishable under section 134(8) of the companies Act, 2013 for the Financial Year 31.03.2015.
2. Registrar of Companies forwarded the said application to this tribunal along with his report dated 23.12.2016 which was received by this tribunal on 27.12.2016.
3. Parikh Enterprises Private Ltd. had earned net profit of Rs. 5,35,44,880/- during the Financial Year 2013–2014. Hence the said company is covered by the provisions of the section 135 of the companies Act, 2013 and becomes eligible for Corporate Social Responsibility activities. The company was therefore required to constitute a Corporate Social Responsibility committee and frame Corporate Social Responsibility policy to carry out Corporate Social Responsibility activities. The company was required to spent required amount towards Corporate Social Responsibility activities. The company is required to disclose the reasons for not spending or part spending the Corporate Social Responsibility amount in its board report under the provisions of section 134(3)(o) of the Companies Act, 2013 read with Companies (Corporate Social Responsibility Policy) Rules, 2014.
4. Petitioners in their application admitted the violation of 134(3)(o) for the Financial Year ended on 31.03.2015. However, the company has spent substantial amount towards Corporate Social Responsibility activities in the Financial Year 2015–2016. The company has also constituted Corporate Social Responsibility Committee w.e.f. 10.06.2015.
5. Petitioners stated that noncompliance of section 134(3)(o) of the Act, was without any malafide intention to violate the provisions of the Act.
6. The ROC in its report stated that the company is not included in the list of vanishing companies and the company has not compounded similar offence during the last three years.
7. Section 441 is the relevant provision that governs the procedure for compounding of offences before this Tribunal. Section 441 says that any offence punishable under the provisions of Companies Act, 2013 committed by the company or its directors or officers if punishable with fine only may either before or after the institution of prosecution be compounded by the tribunal.
8. In view of the above said procedure contemplated under section 441 of the Companies Act, 2013, this tribunal is empowered to compound the offences that are punishable with fine only under the provisions of Companies Act, 2013 either before or after institution of prosecution.
9. In this context it is necessary to examine what is the punishment provided for violation of section 134(3)(o), which is provided under section 134(8) of the companies Act, 2013.
10. Section 134(8) provide two different kinds of punishment, One for the company and the other for its officers. The punishment provided for the company is fine, which shall not be less than Rs. 50,000/- but which may extend to Rs. 25,00,000/-. The punishment provided for the officers of the company, who is in default, is imprisonment for a term which may extent to 3 years or with fine which shall not be less than Rs. 50,000/- or with both.
11. In view of the said punishment provided for the officers of the company, this tribunal has no power to compound the offence in respect of Petitioners 2 and 3 who are the MD's of the company. However, this tribunal can compound the offence in Respect of 1 petitioner company.
12. It is stated that the company has constituted Corporate Social Responsibility committee and also spend the required amount for Corporate Social Responsibility activities in the Financial Year 2015–2016. It is also stated that it being a new provision the company was not able to comply with the provisions relating to Corporate Social Responsibility activities.
13. Considering explanation given by the Petitioner No. 1, this tribunal is of the considered view that an amount of Rs. 1,00,000/- is sufficient for compounding violation of section 134(3)(o) of the Act.
14. In the result this petition is dismissed in respect of Petitioners 2 and 3 with a direction to the Registrar of Companies to take appropriate action as per the provisions of Companies Act, 2013.
15. Petition is allowed in respect of 1st petitioner company.
16. First petitioner company shall pay an amount of Rs. 1,00,000/- by way of Demand Draft drawn on any Nationalized bank in favour of Pay and Accounts Officer, MCA, Mumbai within three weeks from the date of this order and file the original Demand Draft before the registry on or before 29.06.2017.
17. In case, 1 petitioner company fails to pay amount as ordered above, the Registrar of Companies Gujarat shall take appropriate action including prosecution, as per applicable law under intimation to this tribunal forthwith.
18. This Petition is disposed of accordingly. Sent copy of this order to 1st Petitioner for compliance and Registrar of Companies.
19. 1 petitioner shall report compliance of order on 04.07.2017. List the matter of 04.07.2017 for reporting of compliance.
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