There is always confusion between ‘Fine and Penalties’.  Through, this editorial author made an attempt to elaborate the difference and basic meaning of between ‘Fine & Penalties’. Let’s first see the meaning as per dictionary:

Fine Penalty
As per Oxford Dictionary:

Fine is “a sum of money exacted as a penalty by a court of law or other authority.”

As per Oxford Dictionary:

Penalty is “a punishment imposed for breaking a law, rule, or contract.”

In General words, Fine imposed when any application/ petition filed with any court (like: NCLT, High Court) and penalty imposed when company made any non compliance and authority directly can impose penalty on them.

Quick Bites:

i. Many people having doubt whether ‘Additional Fees’ paid on filing of form is penalty or fine?

As per Rule 12 of The Companies (The Registered offices and Fees) Rules, 2014.

Additional fees is only a fees paid by Company for filing of form it Is neither Fine nor Penalty.

Example: Section 92- Annual Return

Sub section 4: States about filing of Annual Return and additional fees in case of non filing with in prescribed period of 60 days from AGM.

Sub Section 5: States about fine in case of company fails to file annual return within time prescribed under sub section 4.

Therefore, one can observe that for one form Annual Return MGT-7 Company is paying additional fees and fine both in case company make any non compliance for filing of same.

Therefore, Additional fees is neither fine nor penalty.

The Companies (Amendment) Ordinance, 2018

The main maxim of writing of this article is, The Companies (Amendment) Ordinance, 2018 has re categorized certain offence from Fine to Penalty. Thus, Registrar of Companies (ROC) and Regional Director (RD) can now impose penalties directly after issuing SCN, instead of going to judiciary for imposing fines or for following procedure for composition of offences.

There are as many as 16 sections amended via Ordinance, whereby the punishment for non-compliance to be levied under the Companies Act, 2013 is re-categorized from “FINE” to “PENALTY”

S. No. Section Section Description
1. 53(3) Prohibition of Issue of shares at a discount
2. 64(2) Notice to be given to Registrar for alteration of share capital
3. 92(5) Annual Return
4. 102(5) Statement to be annexed to Notice
5. 105 Proxies
6. 117(2) Resolutions and Agreements to be filed
7. 121(3) Report on annual general meeting
8. 137(3) Copy of financial statement to be filed with Registrar
9. 140(3) Removal, resignation of auditor and giving of special notice
10. 157(2) Company to inform Director Identification Number to Registrar
11. 159 Punishment for Contravention – in respect of DIN
12. 165(6) Number of Directorships
13. 191(5) Payment to Director for Loss of Office
14. 197(15) Overall maximum managerial remuneration and managerial remuneration in case of absence or inadequacy of profits
15. 203(5) Appointment of Key Managerial Personnel
16. 238(3) Registration of the offer of scheme involving transfer of shares

Example- Discussion on one of above section:

ii. Section 117(2) – Resolutions and Agreements to be Filed: As per this section Companies are required to file e-form MGT-14 with ROC for passing of resolutions mentioned u/s 117(3) within 30 days of passing of resolution.

S. No. Fine Penalty
 

 

Company

Company shall be punishable with FINE which shall not be less than 5,00,000 rupees but which may extend to 25,00,000 rupees Liable to PENALTY of 1,00,000 rupees and incase of continuing failure futher penalty of 500 rupees for each day upto maximum 25,00,000 rupees
Director punishable with FINE which shall not be less than 1,00,000 rupees but which may extend to 5,00,000. PENALTY of 50,000 and Incase of continuing failure with further penalty of 500 rupees for each day up to 5,00,000

Thus, before ordinance section 117(2) states about Fine and after ordinance section states about Penalty.

Therefore, before ordinance default can be make good by petition in NCLT by filing compounding application Suo Moto or after receipt of notice form ROC/ MCA.

And, After Ordinance ROC may start levying penalty by issuing ‘Show Cause Notice’ without any petition to NCLT or any other authorities.

Conclusion

This is a welcoming step from the government as it will reduce the burden of NCLT as after this re-categorisation, 24 offenses will not be looked after by NCLT.

 The Ordinance has decriminalized certain offences and has given scope to companies to settle such offences through in house mechanism, where a penalty could be levied in instances of violations.

(Author – CS Divesh Goyal, ACS is a Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com)

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