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    Compounding Of Offences Under Companies Act, 1956& 2013

    To err is human: 

    It is very human, to make a mistake or to do something which should have not been done or not doing something which should have been done in time, so as to be compliant with the law of the land. 

    But, Ignorantia juris non excusat/ignorantia Legis non excusat!!! 

    Which simply means, ignorance of any law/legislation is no excuse, and if ignorance is considered an excuse, a person responsible of doing a particular thing or not doing a particular thing under a law/legislation, would merely claim that he was not aware of the law or provision in question to avoid liability thereunder. 

    The act of doing something wrong or not doing something which ought to have been done, under a particular law constitut es an offence under the law. 

    Let us see the definition of the word Offence: 

    Definition of the word Offence: 

    “Offence” shall mean any act or omission made punishable by any law for the time being in force. [Section 3(38) of General Clauses Act, 1897]; 

    "Offence" means any act or omission made punishable by any law for the time being in force and includes any act in respect of which a complaint may be made under section 20 of the Cattle-trespass Act, 1871( 1 of 1871); [As per Section 2(n) of the Code of Criminal Procedure, 1973]; 

    So, a person guilty of commit ting an offence is liable to be prosecuted under the relevant provisions of law. 

    Now, is getting prosecuted under the relevant provision is the lone remedy available to the person guilty of committing an offence or is there an alternate resolution available to him, is where the concept of Compounding comes in the picture. [the scope of this article is restricted to the provisions of the Companies Act] 

    As per Black’s Law Dictionary “Compounding” means to settle a matter by money payment in lieu of other payments. 

    Further, it is to noted that not all the offences under the Companies Act, are compoundable and some are non-compoundable offences. The types of offences that are eligible for composition under the act, are discussed in the Article. 

    What is Compounding of an Offence ? 

    Having seen the words “Offence” and “Compounding ”, now we need to understand as what is ”Compounding of an Offence(s)”.

    The concept of “Compounding of an offence(s)” in legal parlance generally means, a process to settle the matter(charge/ offence) amicably before the respective adjudicating authority, by paying the fine as imposed by the respective authority, thereby avoiding prosecution under the relevant provision, attending court hearing and undergoing mental tensions/pressure. 

    Provisions under Companies Act, 1956 and 2013. Under Companies Act, 1956:

    Section 621 A of the Companies Act, 1956 deals with Compounding of offences under the Act. Vide the Companies (Second Amendment) Act, 2002, the effective date of which is not yet notified, some changes to the section were proposed. Since the said changes are not notified, the provisions of Section 621-A, as inserted by the Companies (Amendment) Act, 1988, and amended by the Companies (Amendment) Act, 2000, are still in force. 

    Based on the language used in Section 621-A, offences under the Act, may be classified as below: 

    Offences Punishable: 

    (I) with Fine only;

    • with imprisonment or with Fine;
    • with imprisonment or with Fine or both;
    • with imprisonment only;
    • with imprisonment and also with 

    Compoundable offences: 

    Of the list above, an Offences punishable 

    • with Fine only, and
    • with Imprisonment or with Fine 

    CAN be compounded. 

    Offences punishable with Imprisonment or with Fine or both, can also be compounded with the permission of the Court.

     

    Non-compoundable offences:

    Offences punishable 

    • with Imprisonment only, and
    • with Imprisonment and also with

    CANNOT be compounded.

    Compounding Authority: 

    The Authority for Compounding offences under Section 621-A of the Companies Act, 1956, depends upon the maximum amount of fine which may be imposed for such offence under the relevant provisions of the Act, as below:

    Compounding Authority

    Maximum aamount of fine which may be imposed for such offence, as mentionedin the Section/provision

    Hon’ble Company Law Board

    Exceeding Rs.50,000/-

    Regional Director concerned

    Not exceeding Rs.50,000/-

    Compounding Procedure:

    • A Company and or any officer of the company who has committed

      a offence

      , may either before or after the institution of any prosecution under the relevant section, can apply for compounding;

    • The compounding authority shall impose amounts

      t o

      be paid for compounding of the offence, and the amount directed by the authority to be paid by the Company or any officer of the company, shall not exceed the maximum fine payable under the relevant section for

      offence

      under composition;

    • The fees for compounding of offences as per the directions of the compounding authority, are to be paid by the respective applicant i.e., in case of Company, then from the funds of the company, and in case of Directors, the fees

      is

      to be paid by the Directors from their own pocket and not from the company funds; 

    • Any amounts paid as additional fees under section 611(2) shall be deducted from the amount specified for compounding of

      offence

    • Compounding  Application  shall  be  made  to  the  Registrar  concerned,  who  shall  forward  such compounding application along with his comments to the compounding authority; 

    • If an offence is compounded before or after the institution of prosecution, intimation  thereof is to be given to the Registrar within 7 days from the date on which the offence is so compounded;

    • If the offence under composition involves filing of any return, form by the Company or any officer of the company, then the Compounding authority, while compounding the offence, in his order may direct, the Company or the officer to file such return, form, with such fees required to be paid under the Act, within such time as may be specified in the order; and any failure on the part of the Company or any of its officer shall be punishable with imprisonment

      upto

      6 months or with fine not exceeding Rs.50,000/- or with both.

    • Any second or subsequent offence committed after the expiry of a period of 03 (Three) years from the date on which the offence was previously compounded shall be deemed to be

      a first

      offence. So, in case an offence is committed within 03 (Three)years period, then the same is not compoundable.

    Compounding Application and Prosecution: Composition of offence: 

    • before Initiation of Prosecution under the relevant section:

    In case the Compounding application is filed and the offence is compounded by the Authority, before the initiation of prosecution against an offence, then no prosecution shall be initiated either by the Registrar or any Shareholder of the Company or any person authorized by the Central Government, against the Company or any officer of the Company. 

    • after Initiation of Prosecution under the relevant section:

    In case the Compounding application is filed after the initiation of prosecution against an offence, and the offence is compounded by the Authority, then the composition shall be informed by the Registrar in writing to the concerned Court, in which the prosecution is pending, and on such notice of the composition of the offence being given, the Company or the officer, in relation to whom the offence is so compounded shall be discharged.

    Provisions under Companies Act, 2013: 

    Section 441 of the Companies Act, 2013, deals with the Compounding of offences. The said section is yet to be notified, and accordingly, the provisions of Section 621-A of the Companies Act, 1956, are applicable, till the notification of Section 441 of the Companies, 2013. 

    The structure of the Section 441 is similar to that of Section 621-A, except for some changes and limits as to authority. 

    Offences Punishable: 

    • with Fine only;

    • with imprisonment or with Fine;

    • with imprisonment or with Fine or both;

    • with imprisonment only;

    • with imprisonment and also with

     

    Compoundable offences: 

    Offences punishable with Fine only CAN be compounded. 

    Offences punishable (a) with Imprisonment or with Fine, or (b) with Imprisonment or with Fine or both, can also be compounded, but with the permission of the Special Court. 

    Non-compoundable offences:

    Offences punishable

    • with Imprisonment only, and

    (ii) with Imprisonment and also with Fine; and

    CANNOT be compounded. 

    Investigation initiated/pendingagainst an offence – Matter cannot be compounded: 

    Apart from the above, any offence by any company or its officer cannot be compounded, if any investigation against such company has been initiated or is pending under this Act. 

    Compounding Authority: 

    The Authority for Compounding offences under Section 441 of the Companies Act, 2013, depends upon the maximum amount of fine which may be imposed for such offence under the relevant provisions of the Act, as below:

    Compounding Authority

    Maximum amount of fine which may be imposed for such offence, as mentionedin the Section/provision

    National Company Law Tribunal

    Exceeding Rs.5,00,000/-

    Regional Director or any officer authorised by the Central Government

    Not exceeding Rs.5,00,000/-

    Compounding procedure: 

    The procedure for composition of offence under Section 441 of the Companies Act, 2013, is similar to that of Section 621-A of the Companies Act, 1956 

    Details of the relevant Sections/Offences under both the Acts:

    Since the aim of the article is bring out the provisions as to composition of offences, the details of the sections/ offences, both under the Companies Act, 1956 and the Companies Act, 2013, that can be/ cannot be compounded, are not being listed.

     

    Discussion Point:

     

    • The main point of discussions is that the provisions of Section 441, of Companies Act, 2013, are not yet notified, so provisions of Section 621-A of the Companies Act, 1956 will be applicable for the compounding proceedings, which again bring lot of confusion as to the following: 
    • Matters that can be compounded:

    Under Companies Act, 1956

    Under Companies Act, 2013

    With Fine only, and with Imprisonment or with Fine

    with permission of court:

    With Imprisonment or with Fine or both

    With Fine only

    With permission of Special Court:

    with Imprisonment or with Fine, or

    with Imprisonment or with Fine or with both

     

    [Offence cannot be compounded in investigations is initiated or pending against the particular offence]

    What would be the position of an offence under the Companies Act, 2013, which is punishable with Imprisonment or with Fine ?

    Whether the same can be directly compounded under 621-A or whether permission of Special Court, is required to be obtained[as prescribed under Section 441 of CA, 2013], is not clear. 

    • Decision of the Compounding Authority:

    As discussed in the beginning of the Article, the threshold limit of the deciding upon the Compounding Authority, as applicable under 621-A [i.e., maximum fine less than Rs.50,000/- then the concerned RD and if Maximum fine more than Rs.50,000/- then Hon’ble CLB], will be applicable for offences under the Companies Act, 2013, also, which some what seems to be improper, because everybody is aware that there are hardly any sections under Companies Act, 2013, which provide for a maximum fine of Rs.50,000/-, thereby all the offences under Companies Act, 2013, will come under the purview of the Hon’ble Company Law Board, by virtue of Section 621-A. 

    While appreciating the efforts made by all the concerned in bring the new Companies Act, in to force, the practical difficulty is that not all the provisions have come in to force, thereby, the 1956 Act, also needs to be referred, in the instant case, for an offence committed under the New act, the compounding procedure under the 1956 Act, is to be referred, thereby creating differences of opinion on interpretation of the provisions and giving way to confusions. Hope these confusions are sorted at the earliest.

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