Compounding of Offences under Company Act

A company is formed with some benefits as well as some of the legal duties. Companies some time comply with all the regulations and some time they fail to comply which leads to huge penalties. The provisions under Companies Act are formulated in a way to create a clear image. Few of the non-compliance are compoundable while few are not. If they are violated against either by the company or any officer, it leads to heavy duties or in some cases imprisonment. Compounding can be done for the offences which are penalized with fine. The Companies Act, 2013 provides for Compounding of Offence under Section 441.

What is an Offence?

Offence in layman’s language refers to an illegal act or crime. Offence means any act or omission made punishable by the law. The offences which are punishable with imprisonment only or with both imprisonment and fine cannot be compounded under the Act.

Only following types Offences can be compounded under Companies Act, 2013:

1. Offence punishable with “fine only”- by NCLT/ RD /any officer authorised by Central Government, as the case may be.

2. Offence punishable with “fine or imprisonment or both” or “fine or imprisonment” by Special Court.

Example of Offences which can be compounded:

1. Section 56 (6) – Related to transfer and transmission of securities

2. Section 99 – Related to default in convening Annual General Meeting

3. Section 102(5) – Related to Explanatory Statement to notice

4. Section 117(2) – failure in filing of MGT-14 for Resolutions and Agreements

5. Section 203(5) – Failure in appointing Key Managerial Personnel

What is Compounding?

1. As per the law states, Compounding is a matter of settlement via money. These definition practically explains Compounding as a “Settlement Mechanism”, a settlement where the lieu pays money of facing the prosecution. These penalties are ordered by the Central Government.

2. Section 3 (38) of General Clauses Act, 1987 describes an offence is an act or omission which is considered to be punishable under an existing laws.

Why should a Company go for Compounding?

1. No personal appearance for officer in default, as in case of prosecution for an offence in a criminal court;

2. No further prosecution shall be initiated either by registrar or any authority after compounding;

3. Summary proceeding, less time consuming;

4. The Compounding fee cannot be more than the maximum fine levied under the relevant provision;

5. No disqualification for Directors, since fees payable on compounding are not treated as penalty;