Clarification regarding the confusion between the words Punishable with Fine and Liable to Penalty

There is always confusion between the word fine and penalty So,Let us first understand the basic meaning of Fine and Penalty and the difference, if any, between the two.

Definition of Fine

As per the definition provided in Oxford Dictionary: Fine is “a sum of money exacted as a penalty by a court of law or other authority.”

Definition of Penalty

As per the definition provided in Oxford Dictionary: Penalty is “a punishment imposed for breaking a law, rule, or contract.”

In general language a penalty is imposed by an appropriate authority when a person have not complied with the law but have not committed any offence.

In other words, Fine is the amount of the money that a court can order to pay for an offence after a successful prosecution in a matter. Penalties do not require court proceedings and are imposed on failing to comply with a provision of an Act. In the context of Companies Act, 2013, with the re-categorisation of Fine to Penalty, ROC or MCA or any other authority as may be prescribed; may start levying penalty directly on the defaulting companies rather than filing application with NCLT and getting an order for payment of Fine by the defaulting companies.

Why this amendment or re-categorisation from Fine to Penalty is a major change?

Re-categorisation of certain ‘acts’ punishable as compoundable offences to ‘acts’ carrying civil liabilities i.e. Re-categorisation from fine to penalty. There are as many as 16 different sections amended whereby the punishment for non-compliance to be levied under the Companies Act, 2013 is re-categorised from “FINE” to “PENALTY”.

Let us analyse some of such amendments of the Companies Act, 2013.

1. Section 86(1) of Companies Act,2013, Punishment for Contravention

Prior to this ordinance, section says that

“If any company contravenes any provision of this Chapter, the company shall be punishable with FINE which shall not be less than one lakh rupees but which may extend to ten lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees, or with both.”

After this amendment section says that

“If any company is in default in complying with any of the provisions of this Chapter, the company shall be liable to a penalty of five lakh rupees and every officer of the company who is in default shall be liable to a PENALTY of fifty thousand rupees.”

2. Prior to this amendment, when a Company does not file its eform MGT-7 (Annual Return) within the prescribed time limit, the Company was liable to pay a FINE ranging from Rs. 50,000 to Rs. 5,00,000. This fine was levied by the NCLT after hearing all the parties. With the re-categorisation of this offence to PENALTY, now ROC/MCA, can levy PENALTY upto Rs. 50,000 directly without issuing notice or moving to NCLT for the same.

Conclusion:

This is a welcoming step from the government as it may reduce the burden of NCLT as after this re-categorisation, many will not be looked after by NCLT. Hence for various non compliances a Company may need not to go to NCLT with compounding applications and can settle such offences through inhouse mechanism,where a penalty could be levied in instance of violations.

Offences which are liable to penalty becomes non compoundable offences u/s 441of the Companies Act,2013 but it is compoundable by the appropriate authority not below the rank of ROC in the manner as specified under section 454 of the companies act,2013

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