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Whether tribunal can impose the compounding fees, less than minimum fine prescribed for the offence under the act- NCLAT

Provision Involved:

Section 165(6) of Companies act, 2013 states (before the amendment) If a person accepts an appointment as a director in contravention of sub-section (1), he shall be punishable with fine which shall not be less than five thousand rupees but which may extend to twenty-five thousand rupees for every day after the first during which the contravention continues.

Facts of the Case:

  • The Respondent was the Director, for more than 20 Companies till 31.03.2015.
  • On 27.01.2016 the Registrar of Companies, West Bengal sent show cause notice on the ground that he was the Director of more than 20 Companies at once.
  • The Respondent admitted the guilty and sent representation to the Registrar with a request to compound the offence under Section 441(1) of the Companies Act, 2013.
  • ROC forwarded the representation along with his report to the Tribunal.
  • After hearing the parties, the NCLT Kolkata Bench (Tribunal) allowed the compounding application subject to payment of compounding fees of Rs. 50,000/-.
  • Being aggrieved with this order ROC has filed this Appeal with NCLAT saying that the minimum fine prescribed for the offence is more than 50,000, Hence the compounding fees of 50,000 is not appropriate.
  • The issue for consideration is, whether Tribunal can impose the compounding fees, less than the minimum fine prescribed for the offence under the Act.

Decision:

The compounding fees has to be more than or equal to the minimum fine prescribed under the Act. Accordingly, NCLAT imposed a minimum fine at the rate of 5000 rupees for every day for the period 01.04.2015 to 21.02.2016 i.e., 272 days, which came to 13,60,000.

Our Comment:

  • The Respondent has contravened the provisions of 165(1) of the Companies Act, 2013 which is punishable under Section 165 of the Companies Act, 2013.
  • The NCLT, Kolkata Bench has failed to notice the minimum fine prescribed under Section 165 of the Companies Act, 2013 which was applicable at the relevant time. Accordingly, NCLAT imposed a minimum fine.

Ashutosh Sharma, Audit Associate, SW India

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