Ministry of Companies Affairs (“MCA”) vide its notification dated 1st June, 2016 has notified 29 sections of the Companies Act, 2013 (“the Act”). National Company Law Tribunal (“NCLT”) and National Company Law Appellate Tribunal (“NCLAT”) have been constituted on 1st June, 2016 which replaced the existing Company Law Board.
Section 441 of the Act deals with Compounding of certain offences also been notified on 1st June, 2016.
The concept of compounding of offences is not new under the Act. Under the Companies Act, 1956 (“1956 Act”) the concept was there. Section 621A of 1956 Act dealt with the compounding of offences.
What is the meaning of compounding?
The word compounding is not defined anywhere in the Act. As per the Black’s Law Dictionary, “Compound” means “to settle a matter by a money payment, in lieu of other liability”. The Oxford Dictionary defines the word Compound as “Settle (a debt or other matter) in exchange for money or other consideration”.
The word is “offences” is also not defined in the Act. Section 3(38) of the General Clauses Act, 1897 defines the word offence as "Offence" shall mean any act or omission made punishable by any law for the time being in force. In simple words anything punishable under the Act is an offence under the Act.
As per Section 320 of Code of Criminal Procedure, compounding means to combine the two rival parties by compromise. Compounding of an offence means, in order to restore harmony between the victim and accused, they resolve their disputes amicably and peacefully.
In simple words, Compounding of offence means to give an option to offender to pay money instead of lengthy prosecution procedure to avoid time of courts/tribunals.
Section 441 starts with non-obstacle clause and overrides the provision of Code of Criminal Procedure relating to Compounding of offence.
Background of Compounding:
Ministry of Law, Justice and Company Affairs - Department of Company Affairs (Now Ministry of Corporate Affairs) have constituted Sachar Committee headed by Justice Rajindar Sachar to give report on what changes are necessary in the Companies Act, 1956. The Committee recommended that compounding provision should be inserted in the Companies Act. On the recommendation of Sachar Committee Section 621A relating to compounding provision inserted by the Companies Amendment Act, 1988. Section 621A was further amended by the Companies (Amendment) Act, 2000.
Similarly, the provisions relating to Compounding of certain offences inserted in the Companies Act, 2013 also. Section 441 of the Act enumerates the procedure for Compounding of certain offences.
Compoundable and Non-compoundable Offences:
Section 441 (1) of the Act provides that any offence punishable under the Act (whether committed by a company or any officer thereof) WITH FINE ONLY may be compounded, either before or after the institution of any prosecution by Regional Director or officer authorized by Central Government or NCLT as the case may be on payment of such sum as may be decided by RD/NCLT/ officer authorized by Central Government.
The compounded amount should not exceed the maximum amount of the fine which may be imposed for that offence. Any additional fees paid under section 403 (2) of the Act should be taken into account - {First and Second Proviso to Section 441(1)}.
Offences cannot be compounded in the following cases:
i. Where the investigation against the company has been initiated or is pending - {Third Proviso to Section 441(1)}
ii. Where similar offence is committed by the company within a period of three years {Section 441(2)}
iii. Offence punishable with imprisonment only or with imprisonment and fine - {Section 441(6)(b)}
Authority to Compound the offence:
Regional Director or officer authorized by Central Government – Any offence where the amount of fine does not exceed Rs. 5,00,000.
NCLT – Any offence where the amount of fine exceeds Rs. 5,00,000.
With the permission of Special Court – Any offence which is punishable with imprisonment or fine, OR with imprisonment or fine or with both.
Effect of Compounding:
Where the offence is compounded before the institution of any prosecution, no prosecution shall be instituted in relation to such offence.
Where the offence is compounded after the institution of the prosecution, the Registrar shall bring to notice to the court about the compounding and officer and/or the company shall be discharged from the compounded offence.
Whether any other statutory authority can prosecute for office which is compounded?
If any offence is compounded under the Act, can other statutory authority like SEBI etc. initiate the prosecution against the company for the same offence?
Clause (c) of Sub-section 1 of Section 441 provides that “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.”
Prosecution cannot be initiated by the Registrar, shareholders or any other person authorised by central government. Nowhere in the said section it is specified that any other statutory authority also cannot initiate the prosecution.
It appears that other statutory authorities may initiate the prosecution even if the offence is compounded, if they have jurisdiction to the company.
What is new in Section 441 viz-a-viz Section 621A :
Third proviso to Section 441 of Companies Act, 2013 provided that where either the investigation has been initiated or is pending, the offence cannot be compounded. However, under the 1956 Act, no such provision was there. The offence could have been compounded during the investigation also.
Procedure for making application:
As per Section 441 (3) of the Act, every application of compounding of offence shall be made to the Registrar of Companies in Form GNL-1.
The following documents should be attached to the compounding application:
- Detailed petition.
- Affidavit verifying the petition.
- Memorandum of appearance or vakalatnama as the case may be along with Board resolution giving authority to appear.
- Memorandum and Articles of Association of the Company.
- Board Resolution giving authority to sign the application/petition.
- Evidence showing the offence is being made good.
- ROC/RD notice in case received any.
- Any other relevant documents depend upon the matter of the compounding application.
On the receipt of the application, the ROC shall forward the application along with his comments to the NCLT or RD or any other officers, as may be authorized by the Central Government for the purpose, as the case may be.
Wherein the offence has been compounded, either before or after the institution of any prosecution, an intimation shall be given to the Registrar of Companies within seven days from the date on which, the offence is so compounded.
NCLT or RD or any other officers, as may be authorized by the Central Government may direct, by an order, to the company to file or register or deliver or send any return, account or other document to the Registrar of Companies. - {Section 441(4)}
Conclusion:
Most of the offence under the Companies Act are technical nature. For example filing of return with ROC, transfer of shares etc. Objective of compounding provision is to avoid cumbersome and costly litigation on such technical grounds. Offences which are serious in nature and that attract mandatory imprisonment are not compoundable. At the same it should not forget that the compounding provisions are not a license to commit the offence. It is specifically provided in the Act that in case same offence is committed within a period of three years from the date on which a similar offence committed, the offence shall not be compounded.
Disclaimer: Kindly note that the entire content of this Article have been developed on the basis of relevant statutory provisions and as per the information existing at the time of preparation of i.e Act, Rules, notification, clarification, circulars, issued by MCA, SEBI or any other statutory authority. Though I have made upmost efforts to provide authentic information, however, I do not undertake any liability in any way whatsoever, to any person in respect of anything arising by reliance upon the content of this article. It shall not be used as a legal opinion and not to be used for rendering any professional advice.
The author can also be reached at csshashikant.sharma@gmail.com
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