Case: Capital Small Finance Bank limited v. Registrar of Companies
Petitioner: Capital Small Finance Bank
Facts: Capital Small Finance Bank Limited (“Company”) had undertaken 14 allotments of 47,71,575 equity shares of ₹10/- each.
The employees, directors and existing shareholders were issued at the price of ₹13/- equity share and₹15/- per equity share to the other
allottees. This aggregated to 402 allottees during the Financial Year 2004-05. The allotments were made to the persons who were friends, relatives and associates of the promoters.
The Company did not breach the limit individually, however on advice of a legal consultant, the Company realized that it has breached
the limits of Section 67(3) of Companies Act, 1956. Hence the Company had erroneously, inadvertently and under bonafide mistake breached the thresholds provided under Section 67(3) of the Companies Act, 1956.
The Company also gave an exit option in the year 2020 to the existing shareholders to whom shares were allotted in 2004-05. This was given
in reference to the press release by SEBI dated November 30th, 2015, along with a Circular dated December 31st, 2015 as amended by
Circular dated May 03rd, 2016. The Circular allowed that in respect of the cases concerning the issuance of securities to more than 49 persons
but up to 200 persons in a financial year, the companies may evade penal action if they provide the investors with an option to surrender
the securities and get the refund amount at a price not less than the amount of subscription money paid along with 15% interest per annum thereon.
Later the Company filed petition for the compounding of offenses and payment of the compounding fee as the company had erroneously
contravened the thresholds provided under Section 67(3) of the Companies Act, 1956. Further, it was noted that the offense relating to
default under Section 67(3) of Companies Act, 1956 was the first offense and at that time company did not apply for writ petition, suit, or initiate any other legal proceeding before any court of law or other authorities or any other Bench of the NCLT.
Provision:
Section 67 (3) of the Companies Act, 1956: Construction of references to offering shares or debentures to the public, etc
No offer or invitation shall be treated as made to the public by virtue of sub-section (1) or sub-section (2), as the
(a) as not being calculated to result, directly or indirectly, in the shares or debentures becoming available for subscription or purchase by persons other
than those receiving the offer or invitation ; or
(b) otherwise as being a domestic concern of the persons making and receiving the offer or invitation :
Provided that nothing contained in this sub-section shall apply in a case where the offer or invitation to subscribe for shares or debentures is made to
fifty persons or more :
Provided further that nothing contained in the first proviso shall apply to the non-banking financial companies or public financial institutions specified in
section 4A of the Companies Act, 1956
Section 441 of Companies Act 2013: Compounding of certain offences
441(1): Notwithstanding anything contained in the Code of Criminal Procedure, 1973, any offence punishable under this Act (whether committed
by a company or any officer thereof) not being an offence punishable with imprisonment only, or punishable with imprisonment and also with fine, may,
either before or after the institution of any prosecution, be compounded by—
(a) the Tribunal; or
(b) where the maximum amount of fine which may be imposed for such offence does not exceed twenty-five lakh rupees, by the Regional Director or
any officer authorised by the Central Government, on payment or credit, by the company or, as the case may be, the officer, to the Central Government of such sum as that Tribunal or the Regional Director or any officer authorised by the Central Government, 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, paid by way of additional fee under sub-section (2) of section 403 shall be taken into account:
Provided also that any offence covered under this sub-section by any company or its officer shall not be compounded if the investigation against
such company has been initiated or is pending under this Act.
441(6): Notwithstanding anything contained in the Code of Criminal Procedure, 1973, any offence which is punishable under this Act with
imprisonment only or with imprisonment and also with fine shall not be compoundable.
Analysis: In the present case, the company has made an application by its own and has stated that the offense committed under Section 67(3) has not
been compounded during the last three years.
The total amount of penalty is ₹32,00,000/- [₹31,87,000/- (upto 31.10.2021) + ₹13,000/- (from 01.11.2021 to 26.11.2021)] = Taking into consideration the
above facts and circumstances of the present case, it is reasonable to compound the offense under Section 67(3) of the Companies Act, 1956 in the
case of Capital Small Finance Bank Limited on payment of a compounding fee of ₹8,00,000.
The amount of the compounding fee should be deposited with the ‘Pay and Accounts Officer’ Ministry of Corporate Affairs, New Delhi within a period of
one month from the date of receipt of order.
NCLTs Order
In the present case, the company has made an application on its own and has stated that this or similar offenses have not been compounded
during the last three years. It is also seen that the company has availed of exit opportunities.
Given aforesaid, NCLT considered it was reasonable to compound the offense under Section 67(3) of the Companies Act, 1956.
About the Author
