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INTRODUCTION

In today’s era, we observe that companies, due to factors such as lack of awareness, insufficient professional guidance, and frequent regulation changes, sometimes fail to comply with the Companies Act, 2013 provisions and the associated rules. When such non-compliance comes to the attention of relevant authorities, it can result in substantial penalties for both the company and its officers in default.

Therefore, it has become essential for companies to take proactive measures such as going adequately with the respective provision before doing any act, appointing professionals to ensure compliance with the Companies Act, 2013, or conducting due diligence of their records to identify and rectify any non-compliance issues promptly.

When a company identifies any instance of non-compliance, it must take suo-moto action to address the issue which could prevent the Company from significant penalties, and other adverse consequences.

BECAUSE SELF-CORRECTION IS A MORE FAVORABLE AND PROACTIVE APPROACH, ALLOWING COMPANIES TO RESOLVE PROBLEMS BEFORE THE REGULATORY AUTHORITIES INITIATE ANY ACTION.

HOW DOES THE COMPANY SUO-MOTO APPLY FOR ADDRESSING NON-COMPLIANCE UNDER THE COMPANIES ACT, 2013

Whenever, the Company non-complied with any provisions of the Companies Act, 2013, either it will be termed as Civil Non-Compliance/ Offence or Criminal Non-Compliance/ Offence, and accordingly, the procedure is completely based on the type of non-compliance under the Companies Act, 2013.

Type of Non-Compliance

  • Civil Non-Compliance: If the Company non-complied with any provisions of the Companies Act, 2013 which is subject liable to penalty shall be termed as Civil Non-Compliance/ Offence.
  • Criminal Non-Compliance: If the Company non-complied with any provisions of the Companies Act, 2013 which is subject to punishable with a fine shall be termed as Criminal Non-Compliance/ Offence.

HOW TO MAKE GOOD NON-COMPLIANCE

Adjudication u/s 454 for Civil Non-Compliance

If the Company fails to comply with any provisions of the Companies Act, 2013 which falls under Civil Non-Compliance then, the Company has an option to suo-moto apply to the Registrar of Companies u/s 454 of the Companies Act, 2013 read with the rules made thereunder for adjudication of Non-Compliance.

Compounding u/s 441 for Criminal Non-Compliance

If the Company fails to comply with any provisions of the Companies Act, 2013 that falls under Criminal Non-Compliance, it has the option to suo-moto apply to the Registrar of Companies under Section 441 of the Companies Act, 2013. After processing the application, the Registrar will forward it to the appropriate authority, either the Regional Director or the National Company Law Tribunal, depending on the quantum of the fine.

BENEFITS OF SUO-MOTO ACTIONS ON NON-COMPLIANCE

When a company takes suo-moto (self-initiated) action on non-compliance issues, it can experience several benefits. These benefits inter-alia include the following:-

  • Reduced Penalties;
  • Mitigation of Legal Risks;
  • Prevent itself from Goodwill/ Reputational Damage;
  • Increased Stakeholder Confidence/Trust.

GLANCE OVER RECENT CASE LAW

Accordingly, it has been consistently seen that there are many companies, after identification of non-compliance, are self-applying to the respective authorities to make good the non-compliance such as

“Ambium Finserve Private Limited” is the Company that violated Section 42(5) of the Companies Act,  2013, and accordingly, suo-moto applied to the Registrar of Companies for adjudication.

In this instance, the Registrar of Companies weighed various factors in determining the penalty. Notably, the ROC considers one significant factor i.e. Suo-Moto application submitted by the Company which indicates the Company’s acknowledgment of its actions and its commitment to rectify the non-compliance.

CONCLUSION

In conclusion, the company’s proactive approach to addressing non-compliance through suo-moto action is pivotal in maintaining integrity, trust, and adherence to regulations. By taking proactive measures to identify and rectify areas of non-compliance before they escalate, the company demonstrates its commitment to ethical business practices and regulatory compliance. This not only mitigates potential risks and liabilities but also fosters a culture of accountability and responsibility within the organization. Moving forward, it is imperative for the company to continue its vigilant monitoring and swift action in addressing non-compliance to safeguard its reputation, stakeholders’ interests, and long-term sustainability.

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