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Judgment
Justice M. Venugopal, Member (Judicial):
Introduction:
The Appellants, have preferred the instant TA No. 128 of 2021 (Comp. App (AT) No. 67 of 2019), before this `Tribunal’, as an `Aggrieved Person’, on being dissatisfied with the `impugned order’, dated 20.12.2018, in CP No. 615 / BB / 2018, passed by the `National Company Law Tribunal’, Bengaluru Bench, Bengaluru.
The `National Company Law Tribunal’, Bengaluru Bench, while passing the `impugned order’, dated 20.12.2018, in CP No. 615 / BB / 2018 (Filed by the 2nd Respondent / Petitioner), wherein, at Paragraphs 6 to 9, had observed the following:
6.``After considering the materials on record and after taking into account the submissions made by the Practicing Company Secretary appearing for Applicant that lenient view may be taken, we hereby levy compounding fee for non compliance of Section 185 of the Companies Act, 2013, on the Applicants as shown in the table given below:
Sl. No. Particulars Violation of Sec. 185 of Companies Act, 2013 for the year 2017-18 Fine for default Total Rs. 1 Applicant – Hewlett Packard Enterprise India Private Limited 10,00,000/- Rs.10,00,000/- 2 Mr. Som Prakash Satsangi, Managing Director 5,00,000/- Rs. 5,00,000/- 7.As stated in the Report vide Letter No. ROCB/MM/STA/SEC.441/79699/2018 dated 23.10.2018, two directors during the defaulting period have not made the application, namely Mr. Neelam Dhawan and Mr. Kiran Ramaswamy Belavadi. The Registrar of Companies to prosecute the said Directors who have not applied for compounding of offence as per the provisions of the Companies Act, 2013 and the rules thereunder.
8.The compounding fee levied shall be paid by the Applicants within 15 days from the date of this order in favour of the `Pay & Accounts Officer, Ministry of Corporate Affairs, Southern Region, Chennai’, payable at Chennai to be handed over to the Registrar of Companies, Karnataka.
9.Subject to the payment of the above mentioned compounding fee by way of Bank draft to the Registrar of Companies, Karnataka, the offence shall stand compounded.’’ and directed the 1st Respondent / Registrar of Companies, Karnataka, to ensure `Compliance of the Directions issued, and `Disposed of’, the `Company Petition’.
Appellants’ Submissions:
The Learned Counsel for the Appellants, contends that the `1st Appellant’, was initially appointed as an `Additional Director’, on the Board of Directors of a `2nd Respondent / Hewlett Packard Enterprise (India) Private Limited’, on 29.07.2015. Subsequently, the 1st Appellant, was appointed as `Managing Director’, of the `2nd Respondent / HPE’, from 11.08.2015 to 03.04.2017, when the 1st Appellant, had resigned from her `Directorship’, on the `Board’ of the `2nd Respondent / HPE’.
The Learned Counsel for the Appellants, points out that the 2nd Appellant, is a Professional, Non-executive Director of the 2nd Respondent / Hewlett Packard Enterprise (India) Private Limited, and he was initially appointed as a Professional, Non-executive Additional Director, on the `Board’ of the `2nd Respondent / HPE’, on 02.11.2016, and thereafter, appointed as a Professional Non-executive Director on 28.09.2017.
According to the Appellants, the `Board’ of the `2nd Respondent / HPE’, had granted an `Approval’, on 04.01.2017, for an advancement of an `Inter Corporate Loan’ of INR 3,604,000,000/- (`Loan’), to `M/s. Hewlett Packard Enterprise GlobalSoft Private Limited’ (`HPEG’), a fellow subsidiary Company of `HPE’. The `Loan’, was believed to be advanced in ordinary course of business of `2nd Respondent / HPE’, at the `rate of interest’, not less than `Bank Rate’, declared by the `Reserve Bank of India’. During the time of `Advancement of the Loan’, the `2nd Appellant’, was a `Common Non-executive Professional Director’, in `2nd Respondent / HPE and HPEG’.
The Learned Counsel for the Appellants, points out that because of the fact, that the 2nd Appellant, was a `Common Director’, in `HPE’ and `HPEG’, during the period when the `Loan was Advanced’, `HPEG’ / 2nd Respondent’, was a `Private Company’, in whom a `Director’ of `HPE’, was interested, under the `Unamended Section of 185 of the Companies Act’.
It is represented on behalf of the Learned Counsel for the Appellants that, the `Loan’, was believed to have been `Advanced’, by the `2nd Respondent’, to `HPEG’, in the `ordinary course of Business’, at an interest, not lower than the rate, prescribed by the Reserve Bank of India.
In this connection, it is pointed out on behalf of the Appellant that such a `Loan’, was not covered under the purview of the `Unamended Section 185 of the Companies Act’, in the light of proviso (b) to Section (1) of the `Unamended Section 185’, and hence, the `Advancement of Loan’, was not a `non-compliance’, by the `2nd Respondent / HPE’ of the Unamended Section 185 of the Companies Act.
The plea of the Appellants is that, even if there was a `Non-compliance’ of the `2nd Respondent / HPE’ of the Unamended Section 185 of the Companies Act, the `Appellants’, were not `liable’, for such non-compliance, since the `Directors’ or other `Officers’, of the `Defaulting Company’, cannot be held `liable’, for a non-compliance, by the `Company’, under the `Unamended Section 185 of the Companies Act’.
The Learned Counsel for the Appellants, comes out with a plea, that in around January 2018, when `HPE’, realised that the `Advancement of the Loan’, could potentially raise issues of non-compliance of the Unamended Section 185 of the Companies Act, the `Loan’, was promptly, repaid by the `HPEG’, on 09.01.2018. Moreover, the `Common Director’ on 05.01.2018, the 2nd Appellant, had `resigned’, from the `Board of HPEG’.
Therefore, because of the `Repayment’ of the `Loan’, and the discontinuance of the 2nd Appellant, as a `Common Director’ of the `Board’ of `HPEG’, any potential non-compliance by `HPE’, under the Unamended Section 185 of the Companies Act, even it had taken place, seized and was rectified.
On behalf of the Appellants, it is brought to the notice of this `Tribunal’ that on 03.01.2018, the Unamended Section 185 of the Companies Act, was amended by the Companies (Amendment), Act, 2017. However, the Amendment Act, specifically mentioned that `different dates, may be appointed for different provisions of this Act’.
The Learned Counsel for the Appellants, points out that under the Amended Section 185 of the Companies Act (which came into effect from 07.05.2018), and had not provided any `Applicability of Retrospectivity’, the `Liability’, for non-compliance , was also `imposed’ on `Every Officer of the Company’, who is in `Default’, in addition to the `Liability’ to the `Company’.
According, to the Learned Counsel for the Appellants, `No Liability’, whatsoever arose `Qua’, the `Officers of HPE’ (including the `Appellants’, as per Section 185 of the `Companies Act’ (amended Section). As such, the inadvertent potential non-compliance, committed by `HPE’, under the Unamended Section 185 of the Companies Act, `HPE’ `sou moto’ and `out of abundant caution’, in and around 28.06.2018, filed a `Petition’, under Section 441 of the Companies Act, 2013 before the `National Company Law Tribunal’, Bengaluru Bench, Bengaluru, seeking `Compounding of the Impugned Non-compliance’, if any.
The Learned Counsel for the Appellants, submits that the `National Company Law Tribunal’, Bengaluru Bench, in the `impugned order’, dated 20.12.2018, in CP No. 615 / BB / 2018 (Filed under Section 441 read with Section 185 of the Companies Act, 2013), by the `2nd Respondent / HPE’, had `imposed’ a `High Compounding Fee’ of INR 10,00,000/-, on the 2nd Respondent, a separate `Compounding Fee’ of Rs. INR 5,00,000/-, on its `Managing Director - Mr. Som Prakash Satsangi’, and directed the prosecution, against the `Appellants’ (vide Paragraphs 6 and 7 of the impugned order, Page 37 and 38 of the Appellants’ Appeal Paper Book), even though the `Appellants’, were not `liable’, under the `Applicable Section 185 of the Companies Act, and were not `Parties’ to the `Petition Proceedings’.
According to the Appellants, the 2nd Respondent, was impleaded only as a `Proforma Party’, and `no Reliefs’, have been prayed for, against it. Also, that during and after the `Petition Proceedings’, the 1st Respondent, had issued `Letters’, stating that the `Appellants’, should file a `Compounding Application’, as they were `Officers in Default’, and threatened to initiate prosecution against the `Appellants’.
In reality’, the 2nd Respondent and the Appellant’, had clarified that as per Unamended Section 185 of the Companies Act, the Appellants were not liable, for the `impugned non-compliance’, and as a result, `no Application’, for `Compounding’, were required to be filed by the `Appellants’.
The Learned Counsel for the Appellants strenuously, takes a plea that the `Tribunal’, had failed to provide any opportunity, to the `Appellants’, to project their case, in the `Petition Proceedings’, and passed the `impugned order’, by summarily accepting the submissions, made in the `Report’, submitted by the 1st Respondent (vide Paragraph 5 of Page 37 of the `impugned order’), without `applying’, its mind.
According to the Appellants, the `Loan’, was not `prohibited’, under Section 185 of the Companies Act, and was an `exception’, to the `prohibition’, in accordance with Proviso (b), to sub-section (1) of the Unamended Section 185 of the Companies Act. That apart, the `Company’s Officers’, as defined under Provisions of the Act, cannot be held `liable’, under the `Unamended Section 185 of the Companies Act’, merely by the `virtue of their Office’.
As such, the Appellants, simply on account of them, being or having been `Officers’, and / or `Directors’, cannot be held `Liable’, for the `Impugned Non-compliance’ of the `Amended Section 185 of the Companies Act’.
The Learned Counsel for the Appellants, brings it to the notice of this `Tribunal’, a `Statute’ or a `Part’ thereof, dealing with Substantive Law’, cannot be given `Retrospective Operation’, unless, the `Statute’, expressly, provides for it, as per Decision in Thirumalai Chemicals Limited v. Union of India & Ors., reported in (2011) 6 SCC 737. Besides this, a `New Law’, does not impair or take away an existence right or create a new obligation or impose a new liability that did not exist, at an earlier time, as per Decision in State of Punjab v. Bhajan Kaur, reported in (2008 ) 12 SCC 112.
The Learned Counsel for the Appellants, points out that the 1st Respondent in its Letter dated 03.01.2019, to the 2nd Respondent, had acknowledged that the period during which the `Impugned Non-compliance’, was committed or subsisted was from 04.01.2017 to 09.01.2018. In fact, as per 1st Respondent’s own understanding, the relevant section 185 Applicable, at the time of `Disbursement of the Loan’, is the `Unamended Section 185 of the Companies Act’.
According to the Appellants, by the time the `Amended Section 185 of the Companies Act’, was in effect, from 07.05.2018, as per which, `Officers who are in Default’, were held to be liable, the 2nd Respondent had rectified the potential `Impugned Non-compliance’, and as a result, no liability rests on the `Directors’ and `Officers’ of the 2nd Respondent, including the Appellants.
The Learned Counsel for the Appellants, submits that the `default’, under Section 185 of the Companies Act, is a `onetime default’, committed only, at the time of the `Advancement of Loan’. Also that, since the `Amended Section 185 of the Companies Act’, has no `Application’, the `Appellants’, cannot be held liable, for the `Impugned Non-compliance’. Moreover, there was no `cause’ for the `Appellants’, to file any `Compounding Application’, before the `National Company Law Tribunal’.
The Learned Counsel for the Appellants, points out that the `Appellants’, were not given the `Opportunity of Being Heard’, during the `Petition Proceedings’, before the `Tribunal’, and that an `Order’, passed by a `Judicial Forum’, against the `Party’, without providing a `Fair and Reasonable Opportunity’, is contrary, to the `Principles of Natural Justice’, and therefore, the `Impugned Order’, is `Bad in Law’.
The Learned Counsel for the Appellants, points out that, if an `Order’, is passed by an `Adjudicating Authority’ / `Judicial Authority’, without either taking into the `correct applicable Law’ / `relevant facts’ or `without providing sufficient reasons’, that reflect the conscious application of mind, such an `Order’, is bad in `Law’, and it is liable to be set aside.
The Learned Counsel for the Appellants, pray for setting aside the `impugned order’, dated 20.12.2018 in CP No. 615 / BB / 2018, passed by the `National Company Law Tribunal’, Bengaluru Bench, Bengaluru, to the extent it directs `Prosecution of the Appellants’.
Appellants’ Citations:
The Learned Counsel for the Appellants, adverts to the `Judgment of the Hon’ble Supreme Court of India’, dated 11.04.2011 in Thirumalai Chemicals Limited v. Union of India & Ors. (vide Civil Appeal Nos. 3191 – 94 of 2011) reported in (2011) 6 SCC 739, wherein, at Paragraphs 23 and 24, it is observed as under:
23.``Substantive law refers to a body of rules that creates, defines and regulates rights and liabilities. Right conferred on a party to prefer an appeal against an order is a substantive right conferred by a statute which remains unaffected by subsequent changes in law, unless modified expressly or by necessary implication. Procedural law establishes a mechanism for determining those rights and liabilities and a machinery for enforcing them. Right of appeal being a substantive right always acts prospectively. It is trite law that every statute prospective unless it is expressly or by necessary implication made to have retrospective operation.
24.Right of appeal may be a substantive right but the procedure for filing the appeal including the period of limitation cannot be called a substantive right, and an aggrieved person cannot claim any vested right claiming that he should be governed by the old provision pertaining to period of limitation. Procedural law is retrospective meaning thereby that it will apply even to acts or transactions under the repealed Act.’’
The Learned Counsel for the Appellants, cites the decision of Hon’ble Supreme Court of India, dated 08.05.2008, in State of Punjab & Ors. v. Bhajan Kaur & Ors. (vide Civil Appeal No. 3406 of 2008), reported in (2008), 12 SCC at Page 112, wherein, at Paragraphs, 9, 16 & 17, it is observed as under:
9.``A statute is presumed to be prospective unless held to be retrospective, either expressly or by necessary implication. A substantive law is presumed to be prospective. It is one of the facets of rule of law.
16.It is now well-settled that a change in the substantive law, as opposed to adjective law, would not affect the pending litigation unless the legislature has enacted otherwise, either expressly or by necessary implication.
17.In Garikapati v. N. Subbiah Choudhry4, the law is stated, thus: (AIR p.553, para 25)
``25. ...The golden rule of construction is that, in the absence of anything in the enactment to show that it is to have retrospective operation, it cannot be so construed as to have the effect of altering the law applicable to a claim in litigation at the time when the Act was passed..."
The Learned Counsel for the Appellants, points out the `Order of the Hon’ble Supreme Court of India’, dated 25.01.1978 (vide Writ Petition No. 231 of 1977), in Maneka Gandhi v. Union of India & Anr., reported in (1978), 1 SCC 248, wherein, at Paragraph 14, it is observed as under:
14.``Since the life of the law is not logic but experience and every legal proposition must, in the ultimate analysis, be tested on the touchstone of pragmatic realism, the audi alteram partem rule would, by the experiential test, be excluded, if importing the right to be heard has the effect of paralysing the administrative process or the need for promptitude or the urgency of the situation so demands. But the rule is sufficiently flexible to permit modifications and variations to suit the exigencies of myriad kinds of situations which may arise. It would not, therefore, be right to conclude that the rule is excluded merely because the power to impound a passport might be frustrated, if prior notice and hearing were to be given to the person concerned. The Passport Authority may impound the passport without giving any prior opportunity to the person concerned, but as soon as the order impounding the passport is made, and opportunity of hearing, remedial in aim, should be given to him so that he may present his case and controvert that of the Authority and point out why his passport should not be impounded and the order impounding should be recalled. A fair opportunity of being heard following immediately upon the order impounding the passport would satisfy the mandate of natural justice and a provision requiring giving of such an opportunity should be lead by implication into the Act. And if so read, the procedure prescribed by the Act would be right, fair and just and would not suffer from the vice of the arbitrariness or unreasonableness. Therefore, the procedure established by the Act for impounding the passport is in conformity with the requirements of Article 21 and does not fall foul of that article.’’
The Learned Counsel for the Appellants, refers to the `Judgment of the Hon’ble Supreme Court of India’, dated 26.07.2018, in Central Board of Trustees v. Indore Composite Private Limited (vide Civil Appeal No. 7240 of 2018), reported in (2018) 8 SCC 443, wherein, at Paragraphs 13 and 14, it is observed as under:
13.``Indeed, in the absence of any application of judicial mind to the factual and legal controversy involved in the appeal and without there being any discussion, appreciation, reasoning and categorical findings on the issues and why the findings impugned in the writ petition deserve to be upheld or reversed, while dealing with the arguments of the parties in the light of legal principles applicable to the case, it is difficult for this Court to sustain such order of the Division Bench. The only expression used by the Division Bench in disposing of the writ petition is “on due consideration”. It is not clear to us as to what was that due consideration which persuaded the Division Bench to dispose of the writ petition because we find that in the earlier paragraphs only facts are set out.
14.Time and again, this Court has emphasized on the Courts the need to pass reasoned order in every case which must contain the narration of the bare facts of the case of the parties to the lis, the issues arising in the case, the submissions urged by the parties, the legal principles applicable to the issues involved and the reasons in support of the findings on all the issues arising in the case and urged by the learned counsel for the parties in support of its conclusion. It is really unfortunate that the Division Bench failed to keep in mind these principles while disposing of the writ petition. Such order, in our view, has undoubtedly caused prejudice to the parties because it deprived them to know the reasons as to why one party has won and other has lost. We can never countenance the manner in which such order was passed by the High Court which has compelled us to remand the matter to the High Court for deciding the writ petition afresh on merits.’’
The Learned Counsel for the Appellants, falls back upon the `Judgment of the Hon’ble Supreme Court of India’, dated 19.04.2022 (vide Civil Appeal No. 2905 of 2022) in State of Uttarakhand and Anr. v. Mayan Pal Singh Verma, reported in (2022) SCC Online SC 469, wherein, at Paragraph Nos. 5 to 9, it is observed as under:
5.``While emphasising the necessity to pass a reasoned order, in the case of Central Board of Trustees Vs. Indore Composite Private Limited, (2018) 8 SCC 443, it was observed and held by this Court that the courts need to pass a reasoned order in every case which must contain the narration of the bare facts of the case of the parties to the lis, the issues arising in the case, the submissions urged by the parties, the legal principles applicable to the issues involved and the reasons in support of the findings on all the issues arising in the case and urged by the learned counsel for the parties in support of its conclusion. It was further observed in the said decision that an order bereft of reasoning causes prejudice to the parties because it deprives them to know the reasons as to why one party has won and other has lost.
6.In a recent decision in the case of Union Public Service Commission Vs. Bibhu Prasad Sarangi and Ors., (2021) 4 SCC 516, while emphasising that reasons ought to be given by the High Court while exercising powers under Article 226 of the Constitution of India, it was observed and held by this Court that the reasons constitute the soul of judicial decision and how Judges communicate in their judgment is a defining characteristic of judicial process since quality of justice brings legitimacy to the judiciary. It is further observed that though statistics of disposal of cases is important, of a higher value, is the intrinsic content and of a quality judgment. It is further observed that in exercise of powers under Article 226 the courts require to independently consider the issues involved.
7.Applying the law laid by this Court in the aforesaid decisions to the facts of the case on hand and the manner in which the High Court has disposed of the writ petition, in the interest of sobriety, we may only note that the order is bereft of reasoning as diverse grounds were urged/raised by the parties which ought to have been examined by the High Court in the first place and a clear finding was required to be recorded upon analysing the relevant documents.
8.Since we cannot countenance the manner in which the order has been passed by the High Court which has compelled us to remand the matter to the High Court for deciding the writ petition afresh on merits, we do so in light of the aforesaid observations.
9.In light of the foregoing discussion, we allow the present appeal and set aside the impugned order passed by the High Court and remand the matter to the Division Bench of the High Court for deciding the writ petition afresh in accordance with law, keeping in view our observations made supra. We, however, make it clear that we have refrained from making any observation on the merits of the controversy, having formed an opinion to remand the case to the High Court only for the reasons mentioned above. The High Court would, therefore, decide the writ petition, bearing in mind our observations made above and strictly in accordance with law.’’
Contentions of the 1st Respondent:
The Learned Counsel for the 1st Respondent / Registrar of Companies, submits that the amendment to Section 185 (2) of the Companies Act, 2013, does not create a new `Offence’, are wrong in the `eye of Law’. Conversely, the said Section introduced a `New Penalty’, for a previously existing wrong, thereby creating a `New Penalty’, for future cases, after 07.05.2018.
The Learned Counsel for the 1st Respondent, takes a plea that in regard to the past `Liabilities’ and `Wrongs’, are concerned, the `Companies Act, 2013, does not provide a `specific liability’, thereby requiring the `Registrar of Companies’, and the `Tribunal’, to `apply’, the `Residuary Provision’, mentioned in Section 450 of the Companies Act, 2013.
The Learned Counsel for the 1st Respondent, points out that the `Punishment’ / `Penalty’ for `Violation’, has to be borne by the `Company’, and the `Officer’ of the `Company’, who is in `Default’. The use of the word `and’, by the `Legislature’, reflects, its intention to affix liability on the `Erring Company’, and the `Officer of the Company’, being in `Default’.
According to the 1st Respondent / RoC, the `Appellants’, being the `Directors’ of the `2nd Respondent / Company’, where `Officers’, within the meaning of Section 2 (59) of the Companies Act, 2013, of the `Contravening Company’.
The other contention raised on behalf of the `1st Respondent is that, having approved, the advancing of `Loan’ to `HPEG’, in the `Board Meeting’, of the `2nd Respondent Company’, that took place on 04.01.2017 in contravention of Section 185 of the Companies Act, 2013, the `Appellants’ or `Officers in Default’, by means of Section 2 (60) of the Companies Act, 2013, therefore the `Impugned Order’, dated 20.12.2018 of the `Tribunal’, in directing `Prosecution against the `Appellants’, is legally valid and a sustainable one’.
The Learned Counsel for the 1st Respondent, adverts to the decision of the Hon’ble Supreme Court of India, in Manalal Khetan v. Kedarlal Khetan, AIR [1977] SC 536, wherein, it is observed as under:
``Section 629(A) of the Act prescribes the penalty where no specific penalty is provided elsewhere in the Act. It is a question of construction in each case whether the legislature intended to prohibit the doing of the act altogether, or merely to make the person who did it liable to pay the penalty.’’
The Learned Counsel for the 1st Respondent, contends that since the Unamended Section 185 of the Companies Act, had not provided for any `Penalty’ / `Liability’ / `Punishment’ for the `Officer in Default’ of the `Erring Company’, Section 450 of the Companies Act, 2013, empowers the `Statutory Authorities’, to affix `Liability’, on the `Officer in Default’, of the `Erring Company’. As such, a plea is taken, on behalf of the 1st Respondent / RoC that, since the `Appellants’, were liable for the `Violations’, committed by the `2nd Respondent / Company’, by means of Section 450 of the Companies Act, 2013 and no `Application’, for `Compounding of the Offences’, was submitted by them, in this regard.
The Learned Counsel for the 1st Respondent, prays for the dismissal of the instant `Appeal’, with costs, since the `impugned order’, dated 20.12.2018 in CP No. 615 / BB / 2018, passed by the `National Company Law Tribunal’, Bengaluru Bench, to the extent of directing the `1st Respondent / RoC’, to `prosecute the Appellants’, is a legally `valid’ and a `sustainable’ one.
Section 185 of the Companies Act, 2013:
The ingredients of Section 185 of the Companies Act, 2013, `applies’, not only in case of `Advance of a Loan’, but also, to any `transaction’, represented by a `Book Debt’, which is in the nature of a `Loan’ or `Advance’.
For the purpose of Section 295 (corresponding to Section 185 of the Companies Act, 2013), `no distinction’, could be made between a `Loan’, and a `Deposit’, in both cases, there is a relationship of `Debtor’ and a `Creditor’.
Loan:
A `Loan’, creates a `Debt’ Viz. an `Obligation’ to `repay money’, but there may be a `Debt’, contracted, without `contracting a Loan’.
A Loan is something lent, especially `a Sum of money lent at Interest’. When a `Loan’, is given by a `Company’, to `any Person’, through `another Person’, it would amount to giving a `Loan’, to an `Individual’. When a `Loan’, is advanced to a `Person’, it means `an act of lending together with an acceptance, by the other side’.
In case of a `Loan’, it is the `Borrower’, at whose instance and for whose requirement, the `Money’, is advanced. In respect of `Loan’, an `Obligation’, to repay the same, arises immediately, on receipt of `Loan’.
Borrowing:
`Borrowing’, is primarily for the benefit of a `Borrower’, though the `Person’, who `lends’, the `money’, may also stand to `gain’, thereby, earning `interest’, on the `amount lent’.
Compounding:
A `Discretion’, to compound an offence, under the Companies Act, ought to be considered on merits of a given case. While `Compounding’ the `Offence’, the `Financial Position of a Company’ and `Continuance of Default’, ought to be taken into account, to decide the `recovery’ of `Compounding Fee’. Whether, such a mistake was an `inadvertent’, `bona fide’ or `deliberate’ one.
Where `Fine’, is an `alternative’, to `imprisonment’ or where there are no provisions of `Punishment’, the `aspect of Compounding’, is well within the Jurisdiction of a `Tribunal’.
Discussions:
Before the `National Company Law Tribunal’, Bengaluru Bench, Bengaluru, the `2nd Respondent / Petitioner / Hewlett Packard Enterprise (India) Private Limited’, Bangalore, had filed CP No. 615 / BB / 2018, seeking to `Compound the Offence’, under Section 185 of the Companies Act, 2013, and prayed for an `Imposition of Minimum Compounding Fees’.
It comes to be known from the main CP No. 615 / BB / 2018 (Filed by the `2nd Respondent / Petitioner’), before the `Tribunal’ that the `Board’ at its `Meeting’, held on 04.01.2017, had granted an `Approval’, for an `Advancement of an Inter-Corporate Loan’, amounting to INR 360,40,00,000/- to `Hewlett Packard Enterprise GlobalSoft Pvt. Ltd.’ / a `Fellow Subsidiary’.
As a matter of fact, that the 2nd Appellant / Mr. Kiran Ramaswamy Belavadi (DIN : 01911347), was a `common Director’, on the `Boards’ of the `Company’ and `Hewlett Packard Enterprise GlobalSoft Pvt. Ltd’. In the case of the Company, there was a non-compliance, in regard to the `Loan’, as mentioned in Supra, and the `2nd Appellant’, being an interested Director in regard to the `Loan’, there was a non-compliance of Section 185 of the Companies Act, 2013.
According to the Appellants, the said `Loan Transaction’, was believed to be carried, in an ordinary course of business of the Company, at a rate not less than the Bank Rate, declared by the `Reserve Bank of India’, as prescribed under Proviso to Section 185 of the Companies Act. Furthermore, the non-compliance of the ingredients of Section 185 of the Companies Act, 2013, took place, without any `Mala fide’ or `Wilful Intention’, on the part of the `2nd Respondent / Hewlett Packard Enterprise (India) Private Limited / Company / Any of its Directors’.
It transpires that, in CP No. 615 / BB / 2018, the 2nd Respondent / Petitioner, had admitted the `Violation of Section 185 of the Companies Act, in respect to the `Inter-Corporate Loan’. Also that, the `Offence’, is no longer in existence, as Hewlett Packard Enterprise GlobalSoft Pvt. Ltd., had `repaid the entire Loan Sum on 09.01.2019’, and also that, the `Common Director’, the 2nd Appellant, had resigned from the `Board’ of `Hewlett Packard Enterprise GlobalSoft Pvt. Ltd.’, with effect from the closure working hours on 05.01.2018. Hence, the 2nd Respondent / Petitioner (Filed CP No. 615 / BB / 2018), seeking for the relief of `Compounding’, in respect of an `Offence’, under Section 185 of the Companies Act, 2013, and also sought for the `Imposition of Minimum Compounding Fee’, by the `Tribunal’.
It is brought to the notice of this `Tribunal’, that the 2nd Respondent / Company in the `Minutes of the Meeting’ of the `Board of Directors’, that took place on 04.01.2017, had mentioned that the `Consent’ of the `Board of Directors’ of the `Company’, be and was hereby accorded to `Grant an Inter-Corporate Loan’ of INR 360,40,00,000/- to M/s. Hewlett Packard Enterprise GlobalSoft Private Limited for the tenure of 12 months, effective from 09.01.2017 and repayable on or before 09.01.2018 (Maturity Date) along with Interest, due thereon, at such rate and on other terms and conditions, specified in the `Draft Loan Agreement’, tabled at the Meeting.
In fact, the 1st Respondent / Registrar of Companies, Bengaluru, had addressed a Letter dated 23.10.2018 to the `2nd Respondent / Company’, stating that the `Compounding Application’, filed for `Violation’, under Section 185 of the Companies Act, was examined and further, that Mr. Neelam Dhawan and Mr. Kiran Ramaswamy Belavadi, the `Appellants’ (in the instant Appeal), were also `Officers in Default’, for the said `Violation’, during the relevant period and they had not filed any `Application’, to `Compound the said Offence’. The 2nd Respondent was directed by the 1st Respondent, in the Letter dated 23.10.2018, to submit an `Affidavit’ and `Application’, in respect of the `Appellants’ / `Directors’, directly to the `National Company Law Tribunal’, Bengaluru Bench, within 15 days thereof, failing which, necessary `Prosecution’, will be launched, as per the `Orders’ / `Directions’ of the concerned `Compounding Authority’.
In the instant `Appeal’, the `Appellants’, have come out with a plea that the `Prohibition’, under the `Unamended Section 185 of the Companies Act’, does not get `attracted’, because of the `Loans’, falls under one of the exceptions of the `Unamended Section 185 of the Companies Act’. Further the `2nd Appellant’, had resigned from the `Board’ of `HPEG’ on 05.01.2018, and the `Loan’, was repaid by `M/s. HPEG’, on 09.01.2018.
It cannot be disputed that `HPEG’, returned the `Loan’, within 371 days of borrowing it, to `HPE’.
The contentions of the Appellants is that, the `Violation’, committed by the `2nd Respondent’, by means of `pre-amended Section 185 (2) of the Companies Act, 2013’, do not give raise to the `Liability’, on the `Officers-in-Charge’ of the `Company’.
At this juncture, this `Tribunal’, relevantly points out that the `Amendment to Section 185 (2) of the Companies Act, 2013’, has not created a `New Wrong’ or `New Offence’, but a `New Penalty’, for future cases after 07.05.2018, was introduced.
As regards, erstwhile `Liabilities’ and `Wrongs’ are concerned, it must be borne in mind that the Companies Act, 2013, has not provided a `specific liability’, thereby, the `1st Respondent’ and the `Tribunal’, to `apply the residuary provisions’, envisaged in Section 450 of the Companies Act, 2013.
It is pointed out by this `Tribunal’, that the word `and’, employed by the `Legislature’, exhibits its intention to fix `Liability’ on the `Erring Company’, and the `Officer of the Company’, who is in `Default’.
Going by the definition of the term `Officer’ and `Officer’, who is in `Default’, as mentioned in Sub-section 59 and 60 (2) of the Companies Act, 2013, unerringly, points out that the `Appellants’, as `Directors’ of the `2nd Respondent / Company’, were coming within the ambit of `Officers’, as per Section 2 (59) of the Companies Act, 2013, of the `2nd Respondent / Company’.
The very `Approval’, in respect of `Advancing of Loan’, to `HPEG’, in the `Board Meeting’ of the `2nd Respondent / Company’, that took place on 04.01.2017, is in `Violation’ of Section 185 of the Companies Act, 2013, in the considered opinion of this `Tribunal’.
It cannot be brushed aside that Section 450 of the Companies Act, 2013, enjoins the `Statutory Authorities’, to fix `Liability’ of the `Officer in Default’ of the `Offending Company’.
A `Violation’ of a `Provision’ is a `continuing’ one, but it is `continuous’ till it is set-right / rectified, in the manner known to `Law’ and in accordance with `Law’. In fact, Section 450 of the Companies Act, 2013, is a reproduction of Section 629A of the Companies Act, except as regards the `Quantum of Fine’.
In the present case, the `Appellants’, have not filed a `Petition’ for `Compounding’, and in this regard, the `direction’, issued by the `Tribunal’, to prosecute the `Appellants’, cannot be found fault with, as opined by this `Tribunal’.
A mere glance of the contents of CP No. 615 / BB / 2018 (Filed by the `2nd Respondent / Petitioner’, before the `Tribunal’), shows that the `2nd Respondent / Company’, had admitted that it `Violated the Provisions of Section 185 of the Companies Act, 2013’ (vide Page 43 of the `Appellants’ Appeal Paper Book). As such, the contention of the `Appellants’ that they were not provided with an `opportunity’, to present their case, before the `Tribunal’, and in responding to the pleas, raised by the `1st Respondent / Registrar of Companies’, in respect of the `Appellants Liability’, for the `Impugned Non-compliance’ of Section 185 of the Companies Act, is negatived, by this `Tribunal’.
This `Tribunal’, on going through the `impugned order’, dated 20.12.2018 in CP No. 615 / BB / 2018 (Filed by the 2nd Respondent / Petitioner), before the `Tribunal’, opines that the `2nd Respondent / Petitioner’, in respect of `Breach of Section 185 of the Companies Act, 2013’ for the year 2017-18, was fastened with a fine of Rs.10,00,000/-and the Managing Director Mr. Som Prakash Satsangi, was imposed with a fine of Rs.5,00,000/- and they are `Valid’, `Legally Tenable’, and `Justified’.
As per the Letter of the `1st Respondent / RoC’, Bengaluru, dated 23.10.2018, the `Two Directors’, have not filed the `Application’, during the `Defaulting Period’, and they are the `Appellants’, in the instant TA No. 128 of 2021 (Comp. App (AT) No. 67 of 2019, on the file of the Principal Bench). Therefore, the direction issued by the `Tribunal’, in the `impugned order’, dated 20.12.2018 in CP No. 615 / BB / 2018, to `Prosecute’ the `Appellants’ / `Directors’, for not applying for `Compounding of an Offence’, in terms of the `Provisions of the Companies Act, 2013’, and the `Rules’, made thereunder, is free from any `Legal Infirmities’. Accordingly, the instant `Appeal’ fails.
Disposition:
In fine, the instant TA No. 128 of 2021 (Comp. App (AT) No. 67 of 2019) is `Dismissed’. No costs.