A) Introduction:
Compounding of offence is a mechanism by which an offence done is settled in lieu of compounding fees to the respective authority. It is mechanism through which the offender agrees to pay certain amount of fees so that no prosecution will be done against him on such settlement.
B) Compounding under the provisions of the Companies Act, 2013:
The Section 441 of the Companies Act, 2013 deals with the Compounding of offence. As per Section 441(1) of the Companies Act, 2013 notwithstanding anything contained in the Code of Criminal Procedure, 1973, 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 way 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.
As per Section 441(2) of the Companies Act, 2013 nothing in Section 441(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. (i.e. we can conclude that the same offence cannot be compounded within a period of three years from date on which similar offence was committed)
As per Section 441(3) every application for the compounding of an offence shall be made to the Registrar who shall forward the same, together with his comments thereon, to the Tribunal or the Regional Director or any officer authorised by the Central Government, as the case may be.
(b) Where any offence is compounded under this section, whether before or after the institution of any prosecution, an intimation thereof shall be given by the company to the Registrar within seven days from the date on which the offence is so compounded.
(c) Where any offence is compounded before the institution of any prosecution, no prosecution shall be instituted in relation to such offence, either by the Registrar or by any shareholder of the company or by any person authorised by the Central Government against the offender in relation to whom the offence is so compounded.
(d) Where the compounding of any offence is made after the institution of any prosecution, such compounding shall be brought by the Registrar in writing, to the notice of the court in which the prosecution is pending and on such notice of the compounding of the offence being given, the company or its officer in relation to whom the offence is so compounded shall be discharged.
As per Section 441(5) The Tribunal or the Regional Director or any officer authorised by the Central Government, as the case may be, while dealing with a proposal for the compounding of an offence for a default in compliance with any provision of this Act which requires a company or its officer to file or register with, or deliver or send to, the Registrar any return, account or other document, may direct, by an order, if it or he thinks fit to do so, any officer or other employee of the company to file or register with, or on payment of the fee, and the additional fee, required to be paid under section 403, such return, account or other document within such time as may be specified in the order.
As per Section 441(6) notwithstanding anything contained in the Code of Criminal Procedure, 1973, any offence which is punishable under this Act with imprisonment only or with imprisonment and also with fine shall not be compoundable.
C) PROCEDURE FOR COMPOUNDING OF LATE HOLDING OF ANNUAL GENERAL MEETING OF A COMPANY:
| Steps | Explanations | Points to kept in mind |
| 1. Making the offence good | Before filing of an application for compounding of offence of late holding of annual general meeting it is required that the offence shall be made good. I.e. the company shall conduct its AGM before going forward with the application. | Hold the AGM as soon as possible. |
| 3. Holding of board meeting and passing of board resolution for authorising the company to file an application for compounding of offence | Once offence has been made good the board of directors of the Company is required to hold a board meeting and pass board resolutions for following purposes:
1. To authorise the directors to file an application for compounding and to grant the necessary authorities in this regard. 2. To grant authority to professional to appear before the respective authorities and to take all necessary actions such as filing of forms etc. in this regard. |
While drafting the resolution the names of the professional who are authorised shall be duly mentioned. As during the hearing the authorities consider the names of the professional and not name of the firm they are representing.
For e.g. write CS Sneha Shirke, partner of SSS and Associates instead of SSS and Associates Further, the Board which has committed the offence shall grant this authority. If the board is dissolved afterwards, we must have authority from the Board which has committed the offence as well as fresh authority from the new Board formed. |
| 3. Drafting of the application for compounding of offence under Section 441 and Section 96 of the Companies Act, 2013 | For the purpose of Compounding of offence, the company is required to draft a detailed application along with the relief to be sought. Following points must be covered in the said application:
1. Who are the applicants 2. Basic details of company such as Capital structure, situation of registered office, main object, etc. 3. Admission of offence 4. Reasons for default 5. Offence is made good 6. Prayer etc. |
Following annexures shall be attached to the application for compounding of late holding of AGM:
1. Affidavits verifying the contents of the application from all the applicants including the Company 2. Board resolution passed for authorizing the making of application for compounding. 3. Proof that AGM has been conducted- Notice of AGM and other relevant documents. 4. Power of attorney by Company and directors given to the professional. 5. Copies of Challan of Form MGT-7, AOC-4 6. Copy of financial statements along with the Auditors report thereon. 7. Copy of memorandum and articles of association of the Company. 8. Any other attachment if required. |
| 4. Filing of application with the registrar of companies in Form GNL- 1 | The Company is required to file the said application with the ROC in Form GNL-1 along with the fees as prescribed. (Currently fees of Rs. 1000/- has been prescribed) | Form GNL-1 can be used for compounding of maximum 8 persons excluding the company. If number of persons is greater than 8, then additional details can be provided in optional attachment. |
| 5. Delivery of sufficient number of hard copies to the ROC and respective authority | After filing of the online application the Company shall file 2 hard copies of the said application with the respective ROC and the respective authority such as Regional Director | It shall be given with the covering letter and acknowledgement shall be taken from the authority |
| 6. Receiving of information for personal hearing and attending the same | The Company will receive information for personal hearing and the professional will attend the same for representing the company and the defaulting directors.
Even applicant himself may attend such hearing and represent. |
During the personal hearing keep following points in mind:
1. Carry the original copy of the application along with one copy in loose form so that copies can be given to authorities as and when asked for. 2. Carry the court fee stamp 3. Carry proof of ID, power of attorney, copy of board resolution authorising the professional to appear. 4. Calculate the penalty well in advance so that same can be discussed for compounding with the officers. |
| 7. Payment of the Compounding fees levied by the authority | During the hearing itself the authority orders the compounding fees to be paid by all the applicants.
The compounding fees has to be paid in following manner: 1. Got to Pay Miscellaneous Fees 2. Select the option of “Individual” 3. Fill all the details 4. Enter amount of the Compounding for respective person 5. Pay fees, save the Challan |
Following points shall be kept in mind while doing the same:
1. The fees shall be paid from the respective bank accounts of the parties. For e.g. Compounding fees for Company will be paid from account of company and for directors it shall be paid from the personal account of the director. 2. While making the payment in the details enter the date on which the order for payment has been passed along with details of the authority who has passed the order and the amount to be paid. |
| 8. Submission of the proof of payment to the Regional Director and waiting for order of the authority | Once all the payments have been made as ordered by the regional director, the proof of payment i.e. the Challan have to be submitted with the Regional Director along with a covering letter. | We can submit this online by sending an email to the respective authority or even physically by visiting the office of Regional Director. |
| 9. Filing of Form INC- 28 | As per Section 441(3) of the Companies Act, 2013 Where any offence is compounded under said section, whether before or after the institution of any prosecution, an intimation thereof shall be given by the company to the Registrar within seven days from the date on which the offence is so compounded.
The said intimation is required to be given in the Form INC-28 within 7 days of passing of the said order by the authority. |
While filing the Form INC-28 along with the Order of the respective authority attach the proof of payment of compounding fees ordered by the authority. |
| The process of compounding comes to an end after approval of the Form INC-28 by the Registrar of Companies and no authority has any right to initiate action against the applicants for the offence which has been duly compounded. | ||
Author Bio
Very detailed and informative article. Thanks for the same.