Compounding of offences under Company Law

Meaning of offence

The term offence is not defined under Companies Act 2013 but in general parlance an ‘OFFENCE’ means  a breach of rule or law. However as per Section 3(38) of General Clauses Act 1897, an ‘offence’ shall mean any act or omission made punishable by any law for the time being in force. Offences are generally classified into  Civil or Criminal offences which are further classified as  COMPOUNDABLE OR NON COMPOUNDABLE OFFENCES. 

Meaning of compounding

Compounding of any offence is a process where a person or Company committed  default files an application to the concerned compounding authority for accepting the default and request to condone.  There is no specific meaning of the word “compounding” given under the Companies Act 2013 but in legal sense “compounding ” means making good of a default.

Advantages of compounding

1) The officer in default need not personally present for making good the default as in case of prosecution under the criminal cases the defaulter has to appear before the Magistrate.

2) Compounding is a less time consuming process.

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.

Compoundable of offences

Not all offences under Section 441 of the the Companies Act 2013 can be compounded. As per 441(1) as amended by the Companies (Amendment Ordinance) 2018 dated 02.11.2018 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.

As per Section 441(6) , any offence which is punishable under this act with imprisonment only or with imprisonment and also with fine shall not be compoundable.

Jurisdiction for filing petition of compounding 

Amount of fine upto Rupees 25 lakhs – Regional Director or any officer authorized by Central Government.

Amount of fine exceeds Rupees 25 lakhs-    By National Company Law Appellate Tribunal.

Who can file the application of compounding

1) Company,or,

2) Officer in Default

“Officer in default” for the purpose of any provision in this Act which enacts that an officer of the Company who is in default shall be liable to any penalty or punishment  by way of imprisonment, fine or otherwise. Officer in default means any of the following officers of company, namely

• Whole Time Director;
• Key Managerial Personnel;
• When there is no key managerial personnel, such director as specified by the Board and who has or have given his or their consent in writing to the Board to such specification, or all the directors, if no director is so specified;
• any person, who under the immediate authority of the Board,or any key managerial personnel ,is charged with any responsibility including maintenance, filing or distribution of records, authorities, actively participants in, knowingly permits, or knowingly fails to take active steps to prevent any default;
• any person in accordance with whose advice, directions or instructions the Board of Directors of the Company is accustomed to act, other than a person who gives advice to the Board in a professional capacity;
• every director, in respect of contravention of any provision of this Act, who is aware of such contravention by virtue of the receipt by him of any proceedings of the Board or participation in such proceedings without objecting to the same , or where such contravention had taken place with his consent or connivance;
• in respect of the issue or transfer of any shares of a company, the share , transfer agents, registrars and merchant bankers to the issue or transfer;

Procedure to compound an offence under companies act 2013

1. Call a Board Meeting and make good of a default.

2. Pass Board Resolution to file an application to concerned compounding authority and authorizing any person to file and sign compounding application.

3. File Application in E -Form GNL-1 with Registrar of Companies electronically. This e-form will be forwarded to Regional Director/NCLT or any officer authorized by Central Government, as the case may be.

4. The concerned authority will pass appropriate speaking orders.

Post compounding of an offence

Where any offence has been compounded before or after institution of any offence, intimation shall be given to ROC  with in seven days from the date such offence is so compounded.

Where any offence has been compounded before institution of any offence, no prosecution shall be filed either by ROC or by any shareholders or by any person authorized by the Central Government.

Where any offence has been compounded after institution of any offence, such compounding shall be brought to the notice of the court where such prosecution of such offence.

Penal provisions for Compounding

Any officer or employee of company , who has failed to comply with the order made by the Tribunal or Regional Director or any person authorized by Central Government , shall be punishable with imprisonment which may extend to six months, or fine not exceeding six months or with both.

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