Key Takeaways on Compounding Offences
- Compounding is a remedy to address statutory defaults by paying a fee, avoiding lengthy litigation.
- Only offences punishable by fine (and not those involving imprisonment) are eligible for compounding.
- Jurisdiction depends on the fine amount: up to INR 25 lakhs by the Regional Director/authorized officer, above that by the NCLT.
- An officer in default, appointed by a Board resolution with written consent, can file for compounding.
- The process involves strict pre- and post-compounding obligations, including timely ROC notifications and potential penalties for non-compliance.
Introduction
This article provides a detailed legal analysis of the compounding of offences as contemplated under Section 441 of the Companies Act, 2013. It outlines the concept of compounding, its advantages, the categorization of compoundable and non-compoundable offences, the applicable jurisdiction, and the procedural obligations involved. The objective is to offer clarity on this mechanism, which serves as an expedient alternative to litigation for resolving instances of non-compliance by a company or its officers.
Definition and Rationale for Compounding
Compounding refers to the process whereby a company or its officer in default may rectify a breach of statutory compliance by remitting a composition fee. Although the Companies Act, 2013 does not expressly define “compounding,” it is generally understood to signify the remedy for rectifying defaults or non-compliance. This approach is considered a preliminary and practical measure to obviate protracted litigation and to facilitate the early resolution of legal non-compliances.
Advantages of Compounding
The compounding process offers several distinct benefits:
• Avoidance of Personal Appearance: The officer in default is not required to appear personally in a criminal court.
• Expedited Proceedings: The process is conducted on summary proceedings, thereby reducing the time involved.
• Financial Relief: The defaulter may be discharged upon payment of a composition fee, which is capped at an amount not exceeding the maximum fine prescribed under the relevant provision.
• No Adverse Impact on Directorship: Fees paid under compounding are not considered as a penalty, and thus do not trigger disqualification of directors.
Compoundable Versus Non-Compoundable Offences
Under Section 441 of the Companies Act, 2013, only those offences that attract a fine alone are eligible for compounding. Offences that are punishable solely by imprisonment or by both imprisonment and fine cannot be compounded. Consequently, the ambit of compounding is limited to non-imprisonable offences.
Jurisdiction for Filing a Compounding Petition
The authority to compound an offence is determined by the quantum of the fine imposed:
• For fines not exceeding INR 25 lakhs: The jurisdiction resides with the Regional Director (RD) or any other officer duly authorized by the Central Government.
• For fines exceeding INR 25 lakhs: The matter is under the purview of the respective Bench of the National Company Law Tribunal (NCLT).
It is imperative to note that offences attractable solely to imprisonment, or to both imprisonment and fine, remain non-compoundable notwithstanding any provisions under the Code of Criminal Procedure, 1973.
Eligibility of the Applicant: Officer in Default
The term “officer in default” is defined under Section 2(60) of the Companies Act, 2013. An officer becomes an “officer in default” when such designation is made by the Board and confirmed in writing by the officer. The appointment must be executed through a formal Board resolution, and subsequent to the appointment, the details are to be reported to the Registrar of Companies (ROC) via Form GNL-3 within 30 days.
Procedure for Compounding of Offence under the Companies Act, 2013:
Pre-compounding obligation:
- Call a Board Meeting in accordance with the provisions of the Companies Act, 2013 and Secretarial Standard-1 (SS1).
- The Board shall then calculate the total amount of offence and the amount of penalty as per the relevant Section of the Companies Act, 2013.
- Conduct a Board meeting and pass a resolution to file an application with authority for compounding of offence and authorize the director of the Company to prepare and signing of documents including the application.
- The Company shall prepare the application for compounding of offence along with the relevant documents.
- The Application of compounding shall be submitted electronically in e-Form GNL-1 with ROC. This e-form will be forwarded by ROC together with their comments thereon, to NCLT / Regional Director or any officer authorized by the Central Government, as the case may be.
- There is no specific provision in the Act, normally, the NCLT/Regional Director will give personal hearing and then pass a speaking order giving reasons. The hearing can be attended by the Director/secretary/ officer of Company or by authorized representative like an advocate or a practicing CA/ CMA/ CA.
Post-compounding obligation:
As per Section 441 3(b) of the Companies Act, 2013:
- Where any of the offence has been compounded, either before or after the institution of any prosecution, intimation shall be given to the Registrar of Companies (ROC) within 7(seven) days from the date on which, the offence is so compounded.
- In case the offence has been compounded before the institution of any prosecution, no prosecution shall be filed either by ROC or by any shareholder or by any person authorized by the Central Government.
- It is needless to point out that the period of seven days shall be reckoned from the date, the order is made available to the petitioner/applicant.
- 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.
- 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.
Penalty for non – compliance of order:
- NCLT or RD, while dealing with a compounding application for an offence of non-filing with ROC of any return or other documents, may order any officer or other employees of the company to file or register such return or document.
- Penalty for non-compliance: to comply with the order made by Tribunal/RD/Officer authorized by the Central Govt
- Non-compliance regarding the filing of Order: punishable with imprisonment for a term which may extend to six months, or with fine not exceeding one lakh rupee or both.
Conclusion
The compounding of offences under Section 441 of the Companies Act, 2013, serves as an expedient legal remedy designed to resolve non-compliances without recourse to lengthy litigation. By understanding the detailed process and the underlying benefits, companies can effectively mitigate the adverse consequences of statutory defaults.
Should you have any queries or require further legal assistance, please do not hesitate to contact me for professional legal services.
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