Compounding of Offences – Section 441 of Companies Act, 2013 – Analysis

Compounding of offences under Section 441 of the Companies Act, 2013, offers a settlement mechanism where the officer in default can avoid prosecution by paying a prescribed amount to the competent authority. This article explores the types of offences eligible for compounding, clarifies the difference between fines and penalties, and outlines the authorities designated for handling compounding cases. We also provide a detailed procedure for compounding offences, highlighting the benefits and key points to consider.

The literal meaning of compounding: – Compounding is a settlement mechanism under which the officer in default pays some prescribed amount of money to the competent authority in lieu of getting prosecuted by the authority.

First let’s talk about types of offences under Companies Act 2013 in relation to compounding of offences: –

– Offences punishable with imprisonment only, or punishable with imprisonment and with fine (i.e. non compliances which leads to mandatory imprisonment of officer in default)

– Offences punishable with fine only, imprisonment or fine, (e. non-compliance which leads to either imprisonment or fine)

Now, the word which is used above is fine and not penalty, People often misunderstood both the word and use them as synonyms, however there is a major difference between fine and penalty.

Fine can be imposed only by court of law whereas penalty doesn’t involve any court proceeding and will be imposed by statutory authorities.

Compounding can only be done for offence involving fine and not penalty, for penalty there is adjudication which will be done by adjudicating authorities (ROC, SEBI)

The second type of offences are eligible to be compounded before the competent authority.

There are 2 authorities designated under companies act for compounding of offences

1. National Company Law tribunal – For the offences involving fine of 25 lakhs or more

2. Regional Director – For the offences involving fine of less than 25 lakhs.

Some Additional points which are worth noting are: –

1. There is no Appeal against compounding order (i.e. Once the offence is compounded, neither department nor the officer in default can file appeal against the order)

• • Relevant Case Law – P P Varkey V. STO – Once an offence is compounded, penalty or prosecution proceedings cannot be taken for the same offence.

2. Similar offences within a period of 3 years cannot be compounded.

3. Offences cannot be compounded if investigation is already pending against the non-compliance.

Why to go for compounding: –

1. The officer in default need not to present personally for making the default good.

2. Less time consuming

3. The defaulter can be discharged from its liability on payment of certain fees which cannot be more than the fees prescribed under the act and also cannot be treated as penalty.

Procedure For Compounding of offences: –

1. Convene Board Meeting and pass resolutions for: –

• • Filing application for compounding of offences
  • To authorize director to sign and submit the application on behalf of company
  • To appoint professionals (Advocate/ CS/ CA) to appear before the authority.

2. Draft Compounding application in triplicate. Application to be annexed with: –

• • Affidavit
  • Memorandum of appearance or Power of Attorney

3. File GNL-1 along with the prescribed fee of 10,000

4. Based on the amount of fine, ROC forwards the application to the NCLT or Regional Director with his comments

5. Hearing before RD or NCLT

6. Payment of fees for compounding

7. NCLT/ RD will pass the compounding order.

8. Intimation of compounding order to ROC in INC-28.

Conclusion: In summary, the compounding of offences under Section 441 of the Companies Act, 2013, provides a practical alternative to prosecution, offering a quicker and less burdensome resolution for companies and their officers. By understanding the types of offences that can be compounded, the role of the National Company Law Tribunal and the Regional Director, and following the correct procedure, companies can effectively navigate this settlement process. Compounding not only saves time but also mitigates the personal involvement of officers, ensuring compliance in a more streamlined manner.