Patna HC Quashes Auditor’s Prosecution After Registrar Failed To Notify Trial Court Of 2022 Compounding

The petitioner, a chartered accountant and statutory auditor of M/s Geeta Steels Tubes Pvt. Ltd., was prosecuted under Section 233 of the Companies Act, 1956, for allegedly failing to report accounts that did not comply with Section 227(2), Section 211 and Schedule VI.

The Special Judge, Economic Offences, Patna, took cognizance and issued summons on 15 September 2016.

While the prosecution was pending, the petitioner applied for compounding under Section 441 of the Companies Act, 2013. The Regional Director compounded the contravention of Section 227 of the 1956 Act on 19 October 2022, after payment of ₹1,20,000; the Registrar of Companies had forwarded the application without objection and was sent a copy of the compounding order. The Registrar did not notify the trial court, and the prosecution remained pending under a stay granted by the High Court.

Section 441(3)(d) of the Companies Act, 2013 requires the Registrar, where an offence is compounded after prosecution has commenced, to notify the court in which the prosecution is pending in writing; upon that notice, the company or officer in relation to whom the offence was compounded “shall be discharged”.

The Registrar, not the accused, bears the statutory duty to give that notice, and the provision leaves no further determination for the trial court once notice is given.

Section 233 of the Companies Act, 1956 prescribes punishment for an auditor’s report made otherwise than in conformity with Section 227.

Section 482 CrPC permits the High Court to quash proceedings where their continuation would amount to an abuse of the process of the court.

The Regional Director’s order compounded the Section 227 contravention underlying the complaint, and the Registrar’s own report to the Regional Director identified the pending prosecution as concerning the auditor’s alleged contravention of Section 227(2), punishable under Section 233. The court therefore treated the compounded contravention and the offence charged as one and the same.

The Registrar had received the compounding order but failed to notify the trial court as Section 441(3)(d) required; the order was undisputed, and the Registrar had filed no response to the supplementary affidavit placing it before the High Court. The petitioner should not be made to face continued prosecution because of the Registrar’s failure to perform that statutory duty. In those circumstances, requiring him to return to the trial court to seek discharge would serve no purpose, and continuation of the case would be an abuse of process.

Exercising its power under Section 482 CrPC, it quashed the cognizance order dated 15 September 2016 and the entire criminal proceeding against the petitioner; the petition was allowed.

The Court directed that a copy of the judgment be sent to the trial court and to the Central Government Counsel for communication to the Registrar, who was directed to ensure that courts are notified in writing of compounding in pending prosecutions as required by Section 441(3)(d).