ORDER
K.K. Balu, Vice-Chairman
1. The above application filed by the applicants herein under Section 621A of the Companies Act, 1956 (hereinafter referred to as ‘the Act’) has been forwarded to this Bench by, the Registrar of Companies, Andhra Pradesh. Hyderabad for composition of the offence as provided under Section 621A(4)(a) of The Act. The applicants seek composition of the offence relating to contravention of Section 370(1) of the Act, while availing inter-corporate deposit (loan) from Daewoo Motors (India) Limited (DMIL) which is punishable in the manner provided under Sections 371 of the Act.
2. Besides M/s. Sanglii Industries Limited (“the Company’), applicant No. 2, Managing Director, applicant No. 3, Chairman and the applicant Nos. 4 to 8 directors of the applicant Company have also tiled the application.
3. The facts in brief are that the company availed inter-corporate deposit (loan) of Rs. 2 crores in the month of 1995 and DMIL disbursed the loan amount on 03/11/1995. Though the Company reports that it repaid a sum of Rs. 2,42,16,576/- with interest in settlement of the entire loan, as per the books of DMIL a sum of Rs. 4.30 lakhs is outstanding as at 30.11.1997. The Serious Fraud Investigation Office (SFIO) which conducted the investigation found that DMIL while giving the inter-corporate deposits during the years 1993-1994, 1994-1995 and 1995-1996 violated the conditions namely (a) the loanee company should have made profits for three continuous years preceding the date of giving ICD; (b) the loanee company should have declared dividends above 10% in the preceding years; and (c) the loanee company should have positive net worth, imposed by the central government, hi terms of Section 371 of the Act every person who is knowingly a party to contravention of the Section 370(1) of the Act including in particular any person to whom the loan is made shall be punishable in the manner as mentioned therein. The SFIO filed complaints before Additional Chief Metropolitan Magistrate Court, Delhi, wherein, the applicants herein also have been arrayed as respondents. In these circumstances, the. applicants have come forward with the compounding application with a prayer that the offence may be compounded by taking a lenient view and same has been forwarded to the Bench
4. According to Shri. R.Snmvasan, Authorised Representative of the applicants, the applicant Company availed an amount of Rs. 2 crores as inter-corporate deposit in the month of October 1995 for a period of 120 days from DMIL and it had repaid the entire loan amount along with interest. The SFIO had investigated the affairs of DMIL and filed complaints before the Additional Chief Metropolitan Magistrate Court, Delhi against various persons including the applicants herein who availed inter-corporate deposits in violation of Section 370 of the Act. The applicants herein were not aware of the contravention of Section 370 of the Act by DML while borrowing the inter-corporate deposit. The Additional Metropolitan Magistrate Court, Delhi had dropped criminal proceedings against respondent Nos. 75 to 78 (M/s Unitech India Private Limited and its three directors) on the compounding of offences committed under Section 370(1) of the Act. in support of which he submitted a copy of the order made on 26.11.2005 by the Additional Metropolitan Magistrate Court, Delhi. With regard to the repayment of loan, he submitted that the Company repaid Rs. 2,42,16,576/- in settlement of the entire loan with interest. DMEL has also tiled a winding up petition against the applicant Company under Section 433 r/w 439 of the Act before High Court of Andhra Pradesh and the same has been dismissed on 15.02.2001 as the Company had repaid the entire loan along with interest. With regard to the objection of the SFIO that the offence cannot be compounded as because, DMIL has gone into liquidation, he submitted that DM1L has only gone into liquidation and not the Company and the compounding of offences will not affect the winding up proceedings in any manner. Therefore, he prayed that the offence may be compounded by taking a lenient view under the principle of “equality before law” as enshrined in the Article 14 of the Constitution of India, as the complaint has been dismissed against some of die respondents by the Additional Metropolitan Magistrate Court. Delhi.
5. According to SFIO, it had taken up the matter with the Ministry of Company Affairs (MCA) and the MCA has conveyed instructions stating that the offence under Section 370 of the Act could not be made good/rectified in view of DMIL being under liquidation and compounding in such a situation is unsustainable.
6. Shri. P.C. Nandakumar, Assistant Registrar of Companies, Andhra Pradesh reiterated the instructions given by the MCA in its letter 12.04.2006 and prayed that the Bench may pass appropriate orders on merits.
7. I have considered the arguments advanced on behalf of the applicants and objections raised by the SFIO and the Registrar of Companies. On the pleadings of the parties and submission of the authorized representatives, the issue that arises for my consideration is whether the offence committed by the applicants (borrowers) can be compounded on the facts and in the circumstances of the present case. SMO is opposing the application only on the ground that the offence under Section 370 of the Act could not be rectified in view of DMIL is under liquidation. In terms of Section 446(1) of the Act, when a winding up order has been made or the Official Liquidator has been appointed as provisional liquidator, no suit or other legal proceeding shall be commenced, or if pending at the date of winding up order, shall be proceeded with, against the Company, except by leave of the Court and subject to such terms as the Court may impose. In the instant case, DML is under liquidation and not the Company. The permission envisaged under Section 446(1) of the Act would apply only when a suit or legal proceeding is commenced or proceeded against DM1L under liquidation and not otherwise. Hence, the plea that the offence cannot be made good as DMIL under liquidation is devoid of merits for the simple reason that the Official Liquidator has every right to realise the amount, if any, due to DMIL from the applicants. Furthermore the winding up petition dismissed by the Hon’ble High Court, Hyderabad against the Company reveal that the balance amount of Rs. 7,86,322.91 as on 25.04.1998 is bonafide disputed. At this juncture it shall be borne in mind that the very same offence has already been compounded by certain other borrowers namely, M/s. Unitech India Private Limited and its directors, in terms of the order of the Regional Director, (Ministry of Company Affairs), Northern Region upon which the criminal proceedings launched by SF1O came to be dropped. For these reasons, the plea of SFIO that the compounding application is not sustainable does not withstand the scrutiny of law. Hence, I am inclined to compound the offence committed by the applicants. Accordingly, the Company shall pay a sum of Rs. 50000/- and the officers in default each Rs. 10,000/- towards compounding fee by 15.10.2006. The officers in default shall pay the tee from their personal sources. This order shall be without prejudice to the right of the Official Liquidator in recovering the amount due if any. from the applicants.