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REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2102 OF 2004

V.L.S. FINANCE LTD.      …APPELLANT  

VERSUS

UNION OF INDIA & ORS.     …RESPONDENTS  

JUDGMENT

CHANDRAMAULI KR. PRASAD,J.

This appeal by special leave arises out of an  

order  dated  5th of  November,  2003  passed  by  the  

Company Judge, Delhi High Court in Company Appeal  

(B)  No.  1  of  2001  whereby  it  has  dismissed  the  

appeal assailing the order of the Company Law Board  

allowing the compounding of offence under Section  

211(7) of the Companies Act.

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Short facts giving rise to the present appeal  

are that the Registrar of Companies, NCT of Delhi  

and Haryana laid complaint in the Court of Chief  

Metropolitan  Magistrate,  Tis  Hazari,  inter  alia  

alleging that during the course of inspection it  

was  noticed  in  the  balance  sheet  of  1995-96  

Schedule of the fixed assets included land worth  

Rs.  21  crores.   According  to  the  complaint,  

M/s. Sunair Hotels Ltd., for short ‘the Company”,  

had  taken  this  land  from  New  Delhi  Municipal  

Corporation on licence and the Company only pays  

the yearly licence fee thereof.  Thus, according to  

the complainant, without any right land has been  

shown  as  land  in  the  Schedule  of  fixed  assets,  

which is not a true and fair view and punishable  

under  Section  211(7)  of  the  Companies  Act,  

hereinafter referred to as “the Act”.  The Company  

and its Chairman-cum-Managing Director, S.P. Gupta  

were arrayed as accused.

However, before the court in seisin of the case  

could proceed with the complaint, the Company and  

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its Managing Director jointly filed an application  

before the Company Law Board for compounding the  

offence.  The Northern Region Bench of the Company  

Law Board, by its order dated 9th of August, 2000  

acceded to the prayer and compounded the offence  

against  the  Managing  Director  on  payment  of  

Rs. 1000/- for each offence each year.  While doing  

so, the Company Law Board has held as follows:

“…The  exercise  of  powers  by  the  Company  Law  Board  under  621A(1)  is  independent of exercise of powers by  the  court  under  sub-section  (7)  and  all  offences  other  than  those  which  are punishable with imprisonment only  or  with  imprisonment  and  also  fine,  can be compounded by Company Law Board  without  any  reference  to  sub-section  (7), even in cases where prosecution  is pending in a criminal court.  Thus,  it is clear that Company Law Board if  so  approached  can  compound  offences  and in such case no prior permission  of the Court is necessary.”

Aggrieved  by  the  same,  appellant  preferred  

Company Appeal before the High Court, inter alia,  

contending that the power of compounding could be  

exercised  by  the  criminal  court  and  not  by  the  

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Company Law Board.  Said submission has not found  

favour and the Company Judge, in this connection,  

observed as follows:

“18.  In  the  light  of  the  aforesaid  discussions,  it  is  held  that  the  person  seeking  compounding  of  an  offence  in  accordance  with  the  procedure  laid  down  in  the  Criminal  Procedure  Code  can do so before  the  criminal Court with the permission of  the  Court  under  sub-section  (7)  of  Section  621A  of  the  Act,  which  normally  cannot  be  done  under  the  provisions  of  the  Criminal  Procedure  Code.   Such  compounding  of  offence  would  always  be  relatable  to  the  offence  punishable  with  imprisonment  or with fine or with both as is made  clear  under  clauses  (a)  and  (b)  of  sub-section (7).  Under the aforesaid  sub-section  the  offence  punishable  with imprisonment or with fine or both  shall  be  compoundable  with  the  permission of the Court and for such  compounding  the  procedure  laid  down  under the Criminal Procedure Code is  to be followed in that regard provided  the  prosecution  is  pending  in  that  Court.  I also hold the Company Law  Board can compound an offence of the  nature  prescribed  under  sub-section  (1) either before the institution of  the criminal proceeding or even after  institution of the criminal proceeding  and the said power is not subject to  the  provisions  of  sub-section  (7).  Both  are  parallel  powers  to  be  exercised  by  the  prescribed  

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authorities  who  have  been  empowered  under the statute and one power is not  dependent on the other……”

Accordingly, the Company Judge dismissed the  

appeal.  

That is how the appellant is before us.   

We have heard Mr. R. Shankaranarayanan, for the  

appellant, Ms. Binu Tamta, for the respondent-Union  

of India and Mr. Jayant Bhushan, Senior Advocate  

for the Company and its Managing Director.   

It is an admitted position that the allegations  

made exposed the accused to an offence punishable  

under Section 211(7) of the Act.  The same reads as  

under:

“211.  Form  and  contents  of  balance- sheet and profit and loss account.—

xxx xxx xxx

(7) If any such person as is referred  to in sub-section (6) of section 209  fails to take all reasonable steps to  secure compliance by the company, as  respects any accounts laid before the  company in general meeting, with the  

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provisions  of  this  section  and  with  the other requirements of this Act as  to  the  matters  to  be  stated  in  the  accounts, he shall, in respect of each  offence,  be  punishable  with  imprisonment  for  a  term  which  may  extend  to  six  months,  or  with  fine  which  may  extend  to  ten  thousand  rupees, or with both:

Provided that  in any proceedings  against  a  person  in  respect  of  an  offence under this section, it shall  be a defence to prove that a competent  and reliable person was charged with  the duty of seeing that the provisions  of  this  section  and  the  other  requirements  aforesaid  were  complied  with  and  was  in  a  position  to  discharge that duty:

Provided  further  that  no  person  shall be sentenced to imprisonment for  any  such  offence  unless  it  was  committed wilfully.

xxx xxx xxx”

Thus, the offence alleged is punishable with  

imprisonment for a term which may extend to six  

months  or  with  fine  which  may  extend  to  

Rs. 10,000/- or with both.   

Mr.  Shankaranarayanan  has  taken  an  extreme  

stand  before  this  Court  and  contends  that  the  

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Company Law Board has no jurisdiction to compound  

an offence punishable under Section 211(7) of the  

Act  as  the  punishment  provided  is  imprisonment  

also.   Mr.  Bhushan,  however,  submits  that  

imprisonment  is  not  mandatory  punishment  under  

Section 211(7) of the Act and, hence, the Company  

Law Board has the authority to compound the same.  

He also points out that this submission was not at  

all  advanced  before  the  Company  Law  Board  and,  

therefore,  the  appellant  cannot  be  permitted  to  

raise this question for the first time before this  

Court.  We are not in agreement with Mr. Bhushan in  

regard to his plea that this question cannot be  

gone into by this Court at the first instance.  In  

our opinion, in a case in which the facts pleaded  

give rise to a pure question of law going to the  

root of the matter, this Court possesses discretion  

to  go  into  that.   The  position  would  have  been  

different  had  the  appellant  for  the  first  time  

prayed  before  this  Court  for  adjudication  on  an  

issue of fact and then to apply the law and hold  

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that  Company  Law  Board  had  no  jurisdiction  to  

compound the offence.   

Here,  it  is  an  admitted  position  that  the  

allegation  made  exposed  the  Company  and  its  

Managing  Director  for  punishment  under  Section  

211(7) of the Act which provides for imprisonment  

or fine or with both.  In the face of the same, no  

fact needs to be adjudicated and the point being a  

pure  question  of  law  going  to  the  root  of  the  

matter, same can be permitted to be raised before  

this Court for the first time.  But that does not  

help the appellant as we are inclined to accept the  

submission of Mr. Bhushan on merit.  Section 621A  

was inserted by the Companies Amendment Act, 1988  

on the recommendation of the Sachar Committee.  It  

was  felt  that  leniency  is  required  in  the  

administration  of  the  provisions  of  the  Act  

particularly  penalty  provisions  because  a  large  

number  of  defaults  are  of  technical  nature  and  

arise out of ignorance on account of bewildering  

complexity of the provisions.  Section 621A of the  

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Act; as stood at the relevant time and relevant for  

our purpose reads as follows:

“621A.  Composition  of  certain  offences.- (1) Notwithstanding anything  contained  in  the  Code  of  Criminal  Procedure,  1973  (2  of  1974),  any  offence  punishable  under  this  Act  whether committed by a company or any  officer thereof, not being an offence  punishable  with  imprisonment  only,  or  with imprisonment and also with fine,  may,  either  before  or  after  the  institution  of  any  prosecution,  be  compounded by-

(a) the Company Law Board; or

(b)  where  the  maximum  amount  of  fine which may be imposed for such  offence  does  not  exceed  five  thousand  rupees,  by  the  Regional  Director, on payment or credit, by  the company or the officer, as the  case  may  be,  to  the  Central  Government  of  such  sum  as  that  Board or the Regional Director, as  the case may be, may specify:

Provided  that  the  sum  so  specified shall not, in any case,  exceed  the  maximum  amount  of  the  fine which may be imposed for the  offence so compounded:

Provided  further  that  in  specifying the sum required to be  paid  or  credited  for  the  compounding  of  an  offence  under  this sub-section, the sum, if any,  

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paid by way of additional fee under  Sub-section  (2)  of  Section  611  shall be taken into account.

xx xx xx

(4)(a)  Every  application  for  the  compounding of an offence shall be  made  to  the  Registrar  who  shall  forward the same, together with his  comments  thereon,  to  the  Company  Law Board or the Regional Director,  as the case may be.

(b) Where any offence is compounded  under this section, whether before  or  after  the  institution  of  any  prosecution, an intimation thereof  shall be given by the company to  the  Registrar  within  seven  days  from the date on which the offence  is so compounded.

(c) Where any offence is compounded  before  the  institution  of  any  prosecution,  no  prosecution  shall  be instituted in relation to such  offence, either by the Registrar or  by any shareholder of the company  or by any person authorised by the  Central  Government  against  the  offender  in  relation  to  whom  the  offence is so compounded.

(d)  Where  the  composition of  any  offence  is  made  after  the  institution  of  any  prosecution,  such composition  shall  be  brought  by the Registrar in writing, to the  notice of the Court in which the  prosecution is pending and on such  

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notice  of  the composition  of  the  offence being given, the company or  its officer in relation to whom the  offence is so compounded shall be  discharged.

xx xx xx

(7) Notwithstanding anything contained  in  the  Code  of  Criminal  Procedure,  1973,-

(a) any offence which is punishable  under this Act with imprisonment or  with fine, or with both, shall be  compoundable with the permission of  the Court, in accordance with the  procedure laid down in that Act for  compounding of offences;

(b) any offence which is punishable  under  this  Act  with  imprisonment  only or with imprisonment and also  with  fine  shall  not  be  compoundable.

(8)  No  offence  specified  in  this  section  shall  be  compounded  except  under  and  in  accordance  with  the  provisions of this section.”

From a plain reading of Section 621A(1) it is  

evident that any offence punishable under the Act,  

not being an offence punishable with imprisonment  

only or with imprisonment and also with fine, may  

be  compounded  either  before  or  after  the  

institution of the prosecution by the Company Law  

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Board and in case, the minimum amount of fine which  

may be imposed for such offence does not exceed  

Rs. 5000/-, by the Regional Director on payment of  

certain  fine.   The  penal  provisions  of  the  Act  

provide  for  different  kinds  of  punishments  for  

variety  of  offences  and  can  be  categorised  as  

follows:

(i) offences punishable with fine only,

(ii)  offences  punishable  with  imprisonment  only,

(ii) offences  punishable  with  fine  and  imprisonment,

(iv)  offences  punishable  with  fine  or  imprisonment,

(v)  offences  punishable  with  fine  or  imprisonment or both.

Section  211(7)  of  the  Act  provides  for  

punishment with imprisonment for a term which may  

extend to six months or with fine or with both.  

Therefore,  an  accused  charged  with  the  offence  

under Section 211(7) of the Act has not necessarily  

to be visited with imprisonment or imprisonment and  

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also fine but can be let off by imposition of fine  

only.   Therefore,  the  punishment  provided  under  

Section 211(7) of the Act comes under category (v)  

aforesaid.  Section 621A(1) excludes such offences  

which are punishable with imprisonment only or with  

imprisonment  and  also  with  fine.   As  we  have  

observed above, the nature of offence for which the  

accused  has  been  charged  necessarily  does  not  

invite imprisonment or imprisonment and also fine.  

Hence, we are of the opinion that the nature of the  

offence  is  such  that  it  was  possible  to  be  

compounded by the Company Law Board.

Mr. Shankaranarayanan, then submits that sub-

section (7) of Section 621A confers jurisdiction on  

the court to accord permission for compounding of  

the  offence  punishable with  imprisonment  or with  

fine or with both, the jurisdiction of the Company  

Law Board is excluded and, therefore, the Company  

Law Board erred in acceding to the request of the  

accused  for  compounding  of  the  offence.  

Sub-section (1) of Section 621A and sub-section (7)  

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thereof are differently worded but on their close  

reading it is evident that both cover such offences  

depending  upon  the  nature  of  punishment.  

Sub-section  (1)  of Section  621A excludes  offence  

punishable  with  imprisonment  only  or  with  

imprisonment and also fine and includes the residue  

offences  which  will  obviously  include  offence  

punishable with imprisonment or with fine or with  

both whereas sub-section (7) specifically include  

those and excludes, like sub-section (1), offences  

punishable  with  imprisonment  only  or  with  

imprisonment and also fine.  Therefore, both cover  

similar nature of offences.  Hence, the power for  

compounding  can  be  exercised  in  relation  to  the  

same nature of offences by the Company Law Board or  

the  court  in  seisin  of  the  matter  with  the  

difference that the Company Law Board can proceed  

to compound such offence either before or after the  

institution  of  any  prosecution.   In  this  

connection,  it  shall  be  relevant  to  refer  to  

Section 621A(4)b) of the Act, which provides that  

where any offence is compounded under this section,  

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whether  before  or  after  the  institution  of  any  

prosecution, an intimation thereof shall be given  

by the Company to the Registrar within 7 days from  

the  date  on  which  the  offence  is  compounded.  

Section  621A(4)d)  mandates  that  where  the  

composition  of  any  offence  is  made  after  the  

institution  of  any  prosecution,  such  composition  

would be brought by the Registrar in writing to the  

notice of the court in which the prosecution is  

pending and on such notice of the composition of  

the offence being given, the accused in relation to  

whom  the  offence  is  so  compounded  shall  be  

discharged.   

From the conspectus of what we have observed  

above,  it  is  more  than  clear  that  an  offence  

committed by an accused under the Act, not being an  

offence  punishable  with  imprisonment  only  or  

imprisonment and also with fine, is permissible to  

be  compounded  by  the  Company  Law  Board  either  

before or after the institution of any prosecution.  

In view of sub-section (7) of Section 621A, the  

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criminal  court  also  possesses  similar  power  to  

compound  an  offence  after  institution  of  the  

prosecution.   

Now the question is whether in the aforesaid  

circumstances  the  Company  Law Board can compound  

offence  punishable  with  fine  or  imprisonment  or  

both  without  permission  of  the  court.   It  is  

pointed  out  that  when  the  prosecution  has  been  

laid, it is the criminal court which is in seisin  

of the matter and it is only the magistrate or the  

court  in  seisin  of  the  matter  who  can  accord  

permission to compound the offence.  In any view of  

the matter, according to the learned counsel, the  

Company Law Board has to seek permission of the  

court and it cannot compound the offence without  

such permission.  This line of reasoning does not  

commend us.  Both sub-section (1) and sub-section  

(7)  of  Section  621A  of  the  Act  start  with  a  

non-obstante  clause.   As  is  well  known,  a  

non-obstante clause is used as a legislative device  

to give the enacting part of the section, in case  

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of  conflict,  an  overriding  effect  over  the  

provisions of the Act mentioned in the non-obstante  

clause.   

Ordinarily, the offence is compounded under the  

provisions of the Code of Criminal Procedure and  

the power to accord permission is conferred on the  

court  excepting  those  offences  for  which  the  

permission is not required.  However, in view of  

the non-obstante clause, the power of composition  

can be exercised by the court or the Company Law  

Board.   The  legislature  has  conferred  the  same  

power to the Company Law Board which can exercise  

its power either before or after the institution of  

any prosecution whereas the criminal court has no  

power to accord permission for composition of an  

offence before the institution of the proceeding.  

The legislature in its wisdom has not put the rider  

of prior permission of the court before compounding  

the offence by the Company Law Board  and in case  

the contention of the appellant is accepted, same  

would amount to addition of the words “with the  

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prior permission of the court” in the Act, which is  

not permissible.   

As  is  well  settled,  while  interpreting  the  

provisions of a statute, the court avoids rejection  

or addition of words and resort to that only in  

exceptional circumstances to achieve the purpose of  

Act  or  give  purposeful  meaning.   It  is  also  a  

cardinal rule of interpretation that words, phrases  

and sentences are to be given their natural, plain  

and clear meaning.  When the language is clear and  

unambiguous, it must be interpreted in an ordinary  

sense and no addition or alteration of the words or  

expressions  used  is  permissible.   As  observed  

earlier,  the  aforesaid  enactment  was  brought  in  

view of the need of leniency in the administration  

of the Act because a large number of defaults are  

of  technical  nature  and  many  defaults  occurred  

because of the complex nature of the provision.

From what we have observed above, we are of the  

opinion that the power under sub-section (1) and  

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sub-section (7) of Section 621A are parallel powers  

to be exercised by the Company Law Board or the  

authorities mentioned therein and prior permission  

of  Court  is  not  necessary  for  compounding  the  

offence, when power of compounding is exercised by  

the  Company  Law  Board.  In  view  of  what  we  have  

observed above, the order impugned does not require  

any interference by this Court.

In the result, we do not find any merit in the  

appeal and it is dismissed accordingly but without  

any order as to costs.

………………………………………………………………J   (CHANDRAMAULI KR. PRASAD)

………..……….………………………………..J                  (V.GOPALA GOWDA)

NEW DELHI, MAY 10, 2013.  

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