Section 441 of the Companies Act, 2013 (CA, 2013) deals with Compounding of offence. Compounding of offences is not new under the Company Law; similar provisions were also present in Section 621A of the Companies Act 1956 (erstwhile Act).

According to Section 441(1) of the CA, 2013, as amended by the Companies (Amendment) Act, 2017 w.e.f. 09.02.2018 and the Companies (Amendment) Ordinance, 2018 which is also carried in Companies (Amendment) Act, 2019, effective from 02.11.2018.

“(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), any offence punishable under this Act (whether committed by a company or any officer thereof) not being an offence punishable with imprisonment only, or punishable with imprisonment and also with fine, may, “either before or after the institution of any prosecution, be compounded by- 

(a) the Tribunal; or

(b) where the maximum amount of fine which may be imposed for such offence does not exceed twenty-five lakh rupees, by the Regional Director or any officer authorised by the Central Government.

on payment or credit, by the company or, as the case may be, the officer, to the Central Government of such sum as that Tribunal or the Regional Director or any officer authorised by the Central Government, as the case may be, may specify. 

Provided that the sum so specified shall not, in any case, exceed the maximum amount of the fine which may be imposed for the offence so compounded.  

Provided further that in specifying the sum required to be paid or credited for the compounding of an offence under this sub-section, the sum, if any, paid by was of additional fee under sub-section (2) of section 403 shall be taken into account.  

Provided also that any offence covered under this sub-section by any company or its officer shall not be compounded if the investigation against such company has been initiated or is pending under this Act.”

It is submitted that this section begins with the clause “Notwithstanding anything contained in Cr.P.C., 1973”, since the criteria for compounding under Section 320 of Cr. P.C. is very different compared with CA, 2013, therefore, this clause has been added to remove any inconsistencies.

Offences Not Compoundable:

There are five types of penalties that can be levied on the commission of the offences that have been contemplated under the CA, 2013.

  1. Fine only;
  2. Imprisonment or Fine;
  3. Imprisonment or Fine or Both;
  4. Imprisonment and Fine;
  5. Imprisonment

Further, according to sub-section (6) of Section 441(1) of CA, 2013, any offence which is punishable under this Act with imprisonment only or with imprisonment and also with fine shall not be compoundable. Now amended sub-section (6) of Section 441(1) of CA, 2013 by Companies (Amendment) Act, 2019, effective from 2nd November, 2018, may be read as under-

“(6) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), any offence which is punishable under this Act with imprisonment only or with imprisonment and also with fine shall not be compoundable.”

Thus, the following offences under the Companies Act cannot be compounding by the Tribunal (‘NCLT’) or the Regional Director:

  • An offence which is punishable with imprisonment only.
  • An offence which is punishable with imprisonment and also with fine.

Any offence covered under Section 441(1) of CA, 2013 by any company or its officer shall not be compounded if the investigation against such company has been initiated or is pending under this Act.

Restriction on Compounding: 

The third proviso to sub-section (1) of Section 441 of CA, 2013 says that the offence cannot be compounded either by the Company or its officer in case either the investigation has been initiated or is pending. (Pl see above). It is stated that in old Section 621A of erstwhile Act, there was no such embargo. In other words, offence could have been compounded notwithstanding the fact that either the investigation has been ordered or is pending against the company.

Further, it is also provided in sub-section (2) of Section 441 of CA, 2013 that the offence cannot be compounded in case similar offence committed by it has been compounded and period of three years has not expired. After the expiry of three years from the date of compounding of offence, if the second or subsequent offence had been committed, the same shall be treated as the first offence.

Sub-section (2) provides that –

“Nothing in sub-section (1) shall apply to 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.

Explanation: -for the purpose of this section-

  • 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 eb a first offence.”

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Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the authors whatsoever and the content is to be used strictly for educative purposes only.

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