Compounding Application - Why and When?

In today's corporate world for maintaining a Brand it is very important to have a Good Corporate Governance and for good governance it is very essential to comply with all the provisions of Corporate Laws. Non compliance will attract penalties or/ and penalties with imprisonment. The Companies Act, 2013 and even Companies Amendment Act, 2017 has come up with stringent penal provisions. But in this era where changes are happening very frequently is it possible to comply all the provisions?

In practical scenario it is seen that sometimes default committed by Company was either due to omission or was technical in nature but as we know 'Ignorance of Law, No excuse' which means that one cannot defend their action by claiming that they didn't knew the Law. An offence is a clear violation of law and it attracts penal provisions. Offence can be classified as Civil or Criminal and further be classified as Compoundable and Non-Compoundable.

Now the question arise can we make the default good without going into litigation…? The answer is yes. Compounding is the Solution of the same. In legal terms Compounding means 'doing the default good'. It is basically a settlement of offence committed by a Company or any other officer. It was basically introduced for speedy recovery of cases and to reduce the burden of punishment on the defaulter. It also saves time and cost by payment of money in lieu of the prosecution.

Following are the details of Compounding:

1. Pre-requisite for Compounding

• Offences which are punishable with fine only, can be compounded either by Regional Director (RD) or by National Company Law Tribunal (NCLT).
• Offence which are punishable with imprisonment or fine, or offence punishable with imprisonment or fine or both shall be Compoundable with permission of Special Court.
• Offence which are punishable with imprisonment only or imprisonment and fine can not be Compounded.

2. Application of Compounding to be filed with Whom?

• If the fine does not exceed Rupees Five Lakh, application is to be filed with RD.
• If the fine exceeds Rupees Five Lakh, application is to be filed with NCLT.

3. Limitation of Compounding

• Offences cannot be compounded by Company or its officer in case the Investigation has been initiated or pending.
• Offences cannot be compounded in case similar offence committed by it has been compounded and period of three years has not expired.

4. Procedure of making Compounding Application

•  An application for compounding of offence shall be made before the Registrar of Companies (ROC) where the registered office of the company is situated. A Form GNL-1 has to be filed.
• The Registrar of Companies (ROC) shall, after going through the contents of the application forward the application to Regional Director (RD) or National Company Law Tribunal (NCLT) as the case may be.
• Office of RD/ CLB/Tribunal shall fix the date and time of personal hearing for the company or officer of the company who is seeking compounding of offence.
•  After hearing the matter, RD/NCLT shall pass an order compounding the offence.

I hope you will find the same useful.

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