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Compounding of offences –A simple way to avoid litigation

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Compounding of offences –A simple way to avoid litigation

Compounding of offences –A simple way to avoid litigation

The Compounding of offences is a tool to bypass the lengthy litigation process for any offences committed under law of the land. For example if anybody has committed any offence under motor vehicle Act by not wearing a seatbelt while driving a car , for such offence the offender is liable to be prosecuted in the court of law , but one can avoid the litigation by compounding this offence with authorities, in this case by paying some fine.

The concept of compounding of offences in Companies Act 2013 was incorporated as a measure to avoid the long drawn process of prosecution, which would save both cost and time in exchange of payment of a penalty under Companies Act 2013,

The meaning of word compounding of offence is not defined under Companies Act, 1956/2013. However if we try to analyze the section 621A of erstwhile companies Act 1956, we can draw one interpretation i.e. “admission of guilt” In the process of compounding, the person may either Suo Moto or on receipt of notice of default/initiation of prosecution, admits the commission of default and make an application for compounding of the offence. The defaulters agree to pay penalty which may be ordered by the Central Government.

When compounding is done, the prosecution is converted into fine i.e. condonation of prosecution by imposing penalty. It enables the offender company and the director / officer-in- default to avail peace and honorable discharge and avoid cumbersome trial.

The companies Act 2013 provides a detailed procedure for Compounding of offences including directions as to which offences are compoundable under the said act.

The provisions relating to compounding are enshrined in Section 441 of Companies Act which are reproduced below:-

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) with fine only, 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 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.

(2) Nothing in sub-section (1) shall apply to an offence committed by a company or its officer within a period of three years from the date on which a similar offence committed by it or him was compounded under this section.

(3) (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 Tribunal or the Regional Director or any officer authorised by the Central Government, 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 compounding of any offence is made after the institution of any prosecution, such compounding shall 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 compounding of the offence being given, the company or its officer in relation to whom the offence is so compounded shall be discharged.

(4) The Tribunal or the Regional Director or any officer authorised by the Central Government, as the case may be, while dealing with a proposal for the compounding of an offence for a default in compliance with any provision of this Act which requires a company or its officer to file or register with, or deliver or send to, the Registrar any return, account or other document, may direct, by an order, if it or he thinks fit to do so, any officer or other employee of the company to file or register with, or on payment of the fee, and the additional fee, required to be paid under section 403, such return,
account or other document within such time as may be specified in the order.

(5) Any officer or other employee of the company who fails to comply with any order made by the Tribunal or the Regional Director or any officer authorised by the Central Government under sub-section (4) shall be punishable with imprisonment for a term which may extend to six months, or with fine not exceeding one lakh rupees, or with
both.

(6) Notwithstanding anything contained in the Code of Criminal Procedure, 1973,—

(a) any offence which is punishable under this Act, with imprisonment or fine, or with imprisonment or fine or with both, shall be compoundable with the permission of the Special 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.

Procedural Aspects for Compounding

  1. Check whether the offence is compoundable or not as per the provisions of section 441 of Companies Act.
  2. Make good the default committed by company / director/officer of company
  3. Prepare and file an application to Registrar of Companies In prescribe form GNL 1 with prescribed fee.
  4. ROC will approve the form and forward the application with his comments to concerned person/ Authority depending on the maximum amount of fine which may be imposed for such offence under the relevant section of the act.
    Based on the amount of maximum amount of fine prescribed above two possibilities arise

    a) If the maximum amount of fine
    prescribed for default under
    the relevant section does not
    exceed 5 lakh rupees
    the ROC will forward the application
    to RD or a person authorized by
    Central Government for
    compounding .
    b) If the maximum amount of fine
    prescribed for default under
    the relevant section is greater
    than 5 lakh rupees,
    the ROC will forward the application
    to NCLT for compounding.

     

  5. The NCLT/RD/person authorized by Central government as the case may be will pass the order of compounding and direct the company to pay the fine levied under such order.
  6. The Tribunal or the Regional Director or any officer authorized by the Central Government, as the case may be, while dealing with a proposal for the compounding of an offence for a default in compliance with any provision of this Act which requires a company to file with, the Registrar any return, account or other document, may direct,
    by an order, the company to file.
  7. Where the compounding of any offence is made after the institution of any prosecution such compounding shall 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 compounding of the offence being given, the company or its officer in relation to whom the offence is so compounded shall be discharged.
  8. The NCLT or the RD cannot reject a compounding application without due consideration.
  9. Offences compoundable with the permission of the Special Court
    Any offence which is punishable under this Acwith imprisonment or fine, or with imprisonment or fine or with both, shall be compoundable with the permission of the Special Court, in accordance with the procedure laid down in that Act for compounding of offences.
  10. Non compoundable offences
    Any offence which is punishable under this Act with imprisonment only or with imprisonment
    and also with fine shall not be compoundable.

Compoundable offences under Companies Act.

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