Chaitanya Nandlal Parekh vs Registrar of Companies Mumbai

Anil Raj Chellan, ( Member Technical)

This Company Petition is filed by Mr. Chaitanya Nandlal Parekh under Section 441 of the Companies Act for compounding of the offence committed under Section 165 of the Companies Act, 2013 (hereinafter referred to as ‘the Act’) wherein it was found that the Petitioner was holding Directorship in more than twenty companies as per the website of the Ministry of Corporate Affairs as on 01.04.2015.

A conspectus of the facts necessary for the disposal of the present Petition is as follows:

(a) The Petitioner received a show cause notice bearing No. ROC/STA (BDS) u/s 165/187854/1728 dated 23.02.2016 from the Registrar of Companies, (ROC), Mumbai for violation of Section 165(1) of the Act, whereby the Petitioner was given a period of thirty days to make good the violation, failing which necessary action under Section 165(6) of the Act may be initiated against the Petitioner. The Petitioner replied to the said notice on 01.04.2016 stating that he had resigned from five companies though those companies were yet to file the required form (DIR 12) with ROC. The said reply was found to be unsatisfactory and the ROC filed a complaint before Metropolitan Magistrate, Girgaon, Mumbai vide Complaint No: 4002602/88/2016 dated 27/5/2016. The said prosecution is still pending.

(b) In order to make the good the offence, the Petitioner tendered his resignation from the Directorship of a company named Nalanda Management Industries Private Limited which was the 21st Company in which the Petitioner was holding his Directorship as on 08/12/2016. The said company filed the necessary Form DIR 12 with ROC on 17/12/2016.

(c) The Petitioner, thereafter approached ROC, Mumbai and the Regional Director, Western Region, Mumbai for the purpose of compounding the said offence. The Petitioner was, however, directed to file the present petition with the Tribunal for the purpose of compounding as the amount of penalty exceeds the pecuniary limits specified for those Authorities.

(d) The Petitioner, therefore, filed present petition.

The ROC, Mumbai has filed its report/comments. The ROC stated that petitioner has defaulted/committed an offence by violating the provisions of Section 165 of the Act and submitted the calculation of minimum and maximum penalties that can be imposed for the violation.

This Bench has gone through the pleadings on record and the submission made by the petitioner and the ROC and is of the considered view that the petitioner has violated the provision of Section 165 of the Act and for the said violation, the punishment is provided under Section 165 (6) of the Act.

The relevant provisions relating to the offence and punishment are as follows:

Section 165- Number of directorships.-(1) “No person, after the commencement of this Act, shall hold office as a director, including any alternate directorship, in more than twenty companies at the same time”

Section 165 (6) -If a person accepts an appointment as a director in violation of the section, he shall be liable to a penalty of two thousand rupees for each day after the first during which such violation continues, subject to a maximum of two lakh rupees.

Section 165 (6) as in force from 01.04.2014 to 02.11.2018 provided for a fine of Rs 5000 to Rs. 25000/- per day during the duration of violation. By virtue of Companies (Amendment) Act, 2019, Section 165 was decriminalised and brought under the purview of the inhouse adjudication mechanism. The penalty was also reduced to Rs. 5000/- per day. Subsequently, the Companies (Amendment) Act, 2020. (w.e.f. 21.12.2020) further reduced the penalty to Rs 2000/- per day subject to a maximum of Rs 2 lakh.

It is thus observed that the quantum of penalty which was applicable during the period of violation has been drastically reduced by subsequent Amendments. Hence the point which arises for consideration is whether the petitioner can be granted the reduced penalty based on the provision as in force today. In this. connection, it is observed that the Hon'ble Supreme Court, in the case of T. Barai v. Henry Ah. Hoe and another (1983 AIR 150) held as under:

‘In so for as Central Amendment Act creates new offences or enhances punishment for a particular type of offence, person can be convicted by such ex-post facts law nor can the enhanced punishment prescribed by Amendment be applicable; but in so far as it reduces the punishment for an offence punishable under Section 16 (1) (a) of the Act, there is no reason why the accused should not have the benefit of such reduced punishment. The rule of beneficial construction requires that even ex-post facto law of such a type should be applied to mitigate the rigour of the law.’

Section 165 (6) as in force today prescribes a penalty of Rs 2000/- for each day after the first during which such violation continues, subject to a maximum of Rs 2 lakh. By applying the beneficial construction as held by the Hon'ble Supreme Court in the case of T. Barai (Supra) for the period of default i.e. 627 days, we impose a compounding fee of Rs 2 lakh. (Maximum penalty that can be imposed as per the present provision under Section 165(6) of the Act. The imposed remittance shall be paid by way of demand draft drawn in favour of ‘Pay and Accounts Officer, Ministry of Corporate Affairs, Mumbai:’ within 30 days from the receipt of this order.

This Company petition 23/441/ NCLT/ MB / MAH / 2023 is, therefore, disposed of on the terms directed above. Needless to mention, the offence shall stand compounded subject to remittance of the Compounding fee imposed. A compliance report, therefore, shall be placed on record.

Registry shall send a copy of this Order to the Registrar of Companies, Mumbai.

Ordered accordingly. File be consigned to records.