Introduction: In the intricate landscape of legal frameworks, the concept of “Compounding” offers a unique resolution for those accused of offences under various laws, fostering ease of doing business. This article dives into the specifics of compounding as it pertains to the Companies Act, 2013. While the Act doesn’t explicitly mention compounding, it provides crucial insights into compoundable offences, non-compoundable offences, compounding authority, procedures, and the effects of compounding.
The word “Compounding” which means a person (Person includes Individuals/Companies, etc.) accused of any offence under any law for the time being in force agrees not to be prosecuted under any criminal charges in exchange of a compounding fees as decided and agreed by both the parties i.e., Accused Person and the Compounding Authority.
Compounding of offences is not directly mentioned in the Companies Act, 2013 but the Act contains some provisions which speaks about the compoundable offences, non-compoundable offences, compounding authority, compounding procedures, effects of compounding, etc.
Provisions of Compounding under the Companies Act, 2013
Compoundable offences
Pursuant to Section 441(1) of the Companies Act, 2013, any offence under this Act (whether committed by a Company or any officer thereof) where the punishment prescribed is either Fine only or Imprisonment or Fine can be compounded by the appropriate authority, either before or after the institution of any prosecutions.
Non-Compoundable offences
- Where the punishment is “Imprisonment only”
- Where the punishment is “Imprisonment and Fine”
- Where the investigation has been initiated orb has been pending against the Company
- where 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.
Hence, the benefit of the Compounding cannot be enjoyed where 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. {Refer to Section 441(2)}.
It is clearly from the above provision that any second or subsequent offence committed after the expiry of a period of three years from the date on which the offence was previously compounded, shall be deemed to be a first offence.
Compounding Authority
The appropriate authority in reference to compounding of offences is:
- National Company Law Tribunal (“Tribunal”) – When the maximum amount of fine which may be imposed exceeds Rs. Twenty-Five Lakhs.
- Regional Director or any officer authorized by the Central Government: When the maximum amount of fine which may be imposed exceeds Rs. Twenty-Five Lakhs
Further, it should be noted that the Tribunal can also be an appropriate authority for compounding of such offences where maximum amount of fine which may be imposed does not exceeds Rs. Twenty-Five Lakhs as the law had set the bar only on Regional Director or any officer authorized by the Central Government to not compound any offences exceeds the prescribed limit.
Clarifications
A question on this provisions lies that where the prescribed limit of fine i.e., Rs. Twenty-Five Lakhs is to be calculated individually or as whole (Company, Officer in Default as defined under Section 2(60))? – Here the law does not clear it but as per general rule of interpretation, it is to be calculated individually.
For example, ABC Ltd has committed a default against which the punishment prescribed is fine only i.e., 20 Lakhs on Company and Rs. 15 Lakhs on each director or officer in default. In this case, as the fine while calculating as whole exceeds the prescribed limit but since the fine to be levied individually is within the limit therefore the compounding power can be exercised by the Regional Director or any officer authorized by the Central Government.
Compounding Procedures
- Need to check if such offences are compoundable or not
- Conduct a Board Meeting and pass the following board resolutions;
1. For filing an application for compounding
2. Authorization to any director/officer of the company to take necessary actions in this behalf
3. Appointment of professionals to appear before the authority in this behalf
- File GNL-1 Form with ROC along with fees of Rs. 1000 and other required documents
- ROC shall forward the same along with his own comments to the appropriate authority, the appropriate authority will decide a compounding fees which is to be paid by the applicant.
- Once the compounding order is received, intimate the same to ROC within 7 days
Question– When can we say that the offences are compounded?
Answer: “It can be stated that once a party/applicant make the payment of compounding fees as decided by the appropriate authority, the appropriate authority is satisfied about the receiving of the payment, it will issue an order stating that the offence is compounded.”
An important point is that the appropriate authority has no jurisdiction to reduce the fine to less than the minimum prescribed for the offence.
Effects of Compounding
1. When compounding order is received before or after the institution of any prosecution, applicant will intimate the same to Registrar within 7 days of receiving the same.
2. When compounding order is received after the institution of any prosecution, the Registrar shall inform the same to the court where the prosecution is pending, thereafter the accused person shall be discharged from all the further prosecutions.
3. Where any offence is compounded before the institution of any prosecution, thereafter no prosecution shall be instituted by any of the parties for the same offence.
ANOTHER QUESTITION CAN BE RAISED HERE THAT IF THE COMPANY MADE THE PAYMENT OF COMPOUNDING FEES HAVE COMPLIED TO ALL THE NON-COMPLIANCES AGAINST WHICH COMPOUNDING ORDER IS RECEIVED?
Answer – No, the company or the applicant has to make good the non-compliances by submitting or filing the required returns, forms, etc. along with the additional fees as may be prescribed in that behalf along with the payment of compounding fees.
“It is important to note that the amount already paid by way of additional fees as required under Section 403(2) shall also be taken into account while specifying the sum required to be paid for Compounding order.”
Finally, if anyone fails to comply the order of Compounding authorities?
Reply – The maximum amount of the fine that can be imposed for such offence will be twice as per section 441(5).
Conclusion: Compounding could not be a solution for every non-compliance, it just paved the way for the parties to make the good the default and instead of long prosecutions, to put reputation of the company on risk, the applicant and compounding authority can avoid this by being on the same page and fixing a compounding amount to be paid by the accused which.
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