Adjudication of Penalties under Companies Act 2013- Analysis

What is an Offence?

The term ‘Offence’ is not defined under the Companies Act 2013 (the ‘Act’).

Sec 3(38) of the General Clauses Act, 1897 ‘Offence’ means any act or omission made punishable by any law for the time being in force.

Section 2(n) of the Criminal Procedure Code ‘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.

Thus, for treating an act as an offense, the following are the prerequisites:

i. There must be an act or omission, i.e., an act done or an act not done;

ii. The act done or not done must be punishable under any prevalent law.

Hence, it can be concluded that any contravention, breach, default, failure or violation of any provisions of the Companies Act, 2013, which gives rise to punishment, is an offence under the Companies Act, 2013.

Punishment under the Act

The Companies Act, 2013 has prescribed punishment for the offences committed/non-compliance under the Companies Act, 2013 under the following three modes:

• Fine
• Imprisonment
• Penalty

Difference between Fine and Penalty

Fine is imposed in a court of law while Penalty can be imposed by the adjudicator.

Types of Offences under the Act

Offences in Companies Act 2013 are basically of two types, Compoundable and Non-Compoundable. According to Section 441 of the Act, any offence can be compounded other than those offences punishable with imprisonment only or with fine and imprisonment both.

Continuing Offence

Continuing Offence means ss long as the default continues, the offence is deemed to be continuing.

Adjudication of Penalties

Pursuant to the Companies (Amendment) Act, 2019, some of the provisions have been amended by substituting the word ‘fines’ with ‘penalties’ which can be directly imposed without any prosecution. Adjudication of penalties is governed by Section 454 of the Companies Act 2013. The central government may appoint any of its officers, not below the rank of Registrar, as adjudicating officers for adjudging penalty under the provisions of the Act

Power of Adjudicating Officer

The adjudicating officer shall exercise the following powers, namely: –

a. to summon and enforce the attendance of any person acquainted with the facts and circumstances of the case after recording reasons in writing;

b. to order for evidence or to produce any document, which in the opinion of the adjudicating officer, may be relevant to the subject matter

While adjudging quantum of penalty, the adjudicating officer shall have due regard to the following factors, namely: –

a. size of the company;

b. nature of business carried on by the company;

c. injury to public interest;

d. nature of the default;

e. repetition of the default;

f. the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; and

g. the amount of loss caused to an investor or group of investors or creditors as a result of the default:

Procedure for Adjudication

i. The Adjudging officer (AO) shall issue a Show Cause notice, to the company, the officer who is in default or any other person, as the case may be, to show cause within not less than 15 days and not extending more than 30 days why penalty should not impose.

ii. The reply to such notice shall be filed electronically.

iii. AO can extend for further 15 days if he satisfied that there is sufficient cause.

vi. If AO is of the opinion that physical appearance is required then he shall issue notice within 10 working days from the date of receipt of reply for fixing a date for hearing which can be attended, either personally or through authorised representative.

v. The person to whom notice is issues can also make oral representation provided the same is mentioned in the reply

vi. On the completion of the hearing, AO may, pass any order in writing as he thinks fit including as order for adjournment:

vii. The AO shall pass order after expiry of last date of submission of reply

• In case of physical appearance not required within 30 days
• In case physical appearance required within 90 days

viii. Every order of the AO shall be duly dated and signed by him and shall clearly state the reasons for requiring the physical appearance.

ix. The adjudicating officer shall send a copy of the order passed by him to the concerned company, officer who is in default or any other person or all of them and to the Central Government and a copy of the order shall also be uploaded on the website.

x. If any person fails to reply or neglects or refuses to appear before the AO, the AO may pass an order imposing the penalty, in the absence of such person after recording the reasons for doing so.

xi. Provided that, in no case, the penalty imposed shall be less than the minimum penalty prescribed, if any, under the relevant section of the Act.

xii. In case a fixed sum of penalty is provided for default of a provision, the adjudicating officer shall impose that fixed sum, in case of any default therein.

Appeal

Any person aggrieved by an order made by the AO may prefer an appeal to the concerned Regional Director within a period of 60 days from the date on which the copy of the order made by the adjudicating officer is received by the aggrieved person.

The Regional Director may, after giving the parties to the appeal an opportunity of being heard, pass such order as he thinks fit, confirming, modifying or setting aside the order appealed against.

Consequences of non-compliance with the order of AO/RD

Failure to comply with the order made by the AO or the RD, as the case may be within a period of 90 days from the date of the receipt of the copy of the order shall be as follows:

Company: shall be punishable with fine which shall not be less than RS.25,000/- but which may extend to RS.500,000/-

Officer of a company or any other person: shall be punishable with imprisonment which may extend to six months or with fine which shall not be less than Rs. 25000/- but which may extend to Rs. 100,000/- or with both.

Offences for Adjudication:

The following offences are subjected to adjudication: