Compounding of offence in Company Law 1956

621. OFFENCES AGAINST ACT TO BE COGNISABLE ONLY ON COMPLAINT BY REGISTRAR, SHAREHOLDER OR GOVERNMENT

(1) No Court shall take cognizance of any offence against this Act, which is alleged to have been committed by any company or any officer thereof, except on the complaint in writing of the Registrar, or of a shareholder of the company, or of a person authorized by the Central Government in that behalf:  Provided that nothing in this sub-section shall apply to a prosecution by a company of any of its officers; Provided further that the court may take cognizance of offence relating to issue and transfer of securities and nonpayment of dividend on a complaint in writing by a person authorized by the Securities Exchange Board of India (1A) notwithstanding anything contained in the Code of Criminal Procedure, 1898 (5 of 1898), where the complainant under sub-section (1) is the Registrar or a person authorized by the Central Government, the personal attendance of the complainant before the Court trying the offence shall not be necessary unless the Court for reasons to be recorded in writing requires his personal attendance at the trial.

(2) Sub-section (1) shall not apply to any action taken by the liquidator of a company in respect of any offence alleged to have been committed in respect of any of the matters included in Part VII (sections 425 to 560) or in any other provisions of this Act relating to the winding up of companies.

(3) A liquidator of a company shall not be deemed to be an officer of the company, within the meaning of sub-section (1)

This is a disabling section as compared to the court because it restricts court to take any cognizance of the any offence committed by the company. The right to act against the company in this act is reserved to the Share holders or the registrar of the companies. It also allows central government to appoint a person in this regards.

It also provides that the action taken by any company against its officers shall not come under the ambit of this section. This section provides further that in case the company has done any breach regarding issue or transfer of shares or any other security or if there are any unpaid dividends then in such a case the court can intervene on application by the person authorised by SEBI.

In section 1A protects the complainant i.e. the person authorised by SEBI or central government, may not attained the court as against the act Cr.P.C. (order 5 of 1898) which enforces such attendance of complainant in the court.

His attendance can be only if there is a written reason is enforced.  

Section 621(2) and (3) states that the liquidator of companies is not bound to be an officer of the company and such will not attract any liability under matters included in part VII of the companies act.

621A. COMPOSITION OF CERTAIN OFFENCES

Section 621A (1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), any offence punishable under this Act (whether committed by a company or any officer thereof) not being an offence punishable with imprisonment only, or with imprisonment and also with fine, may, either before or after the institution of any prosecution, be compounded by the Central Government on payment or credit, by the company or the officer, as the case may be, to the Central Government of such sums as that Government may prescribe :

Provided that the sum prescribed 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 prescribing 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 611 shall be taken into account.

(2) Nothing in sub-section (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. Explanation- For the purposes of this section, any second or subsequent offence committed after the expiry of a period of three years from the date on which the offence was previously compounded, shall be deemed to be a first offence.

(3) (A) 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 Central Government.

(b) Where any offence is compounded under this section, whether before or after the institution of any prosecution, 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 authorized by the Central Government against the offender in relation to whom the offence is so compounded.

(d) Where the composition of any offence is made after the institution of any prosecution, such composition 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 composition of the offence being given, the company or its officer in relation to whom the offence is so compounded shall be discharged.

(4) The Central Government 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 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 611, such return, account or other document within such time as may be specified in the order.

(5) Any officer or other employee of the company who fails to comply with any order made by the Central Government under sub-section (4) shall be punishable with imprisonment for a term which may extend to six months, or with fine not exceeding (fifty thousand rupees or with both.

(6) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974) -

(a) any offence which is punishable under this act with imprisonment or with fine, or with both, shall be compoundable with the permission of the Court, in accordance with the procedure laid down in that Act for compounding of offences ;

(b) Any offence which is punishable under this Act with imprisonment only or with imprisonment and also with fine shall not be compoundable.

(7) No offence specified in this section shall be compounded except under and in accordance with the provisions of this section.

This section 621A explains the foremost provisions of compounding of an offence this states that compounding is not available for offence which are punishable only by imprisonment or by fine and imprisonment. Let us analyze the different cases to see different compounding available.

Here we can see that the situation in which imprisonment is unavoidable in such a case compounding is not available. The central governments compounds the offence/s committed by the company or any related officer on application in new form e-form 61 (notification no.GSR 56 (E), DT: 10/02/2006). For separate offences separate application has to be made by the officer or the company regarding this matter. Compounding of an offence can be opted after or before the institution of prosecution. The fees paid are prescribed in the Companies (Fees on application) 1999.

This section provides that the compounding order shall not have any sum which will be more than the maximum limit of the fine prescribed by Companies (Fees on application) 1999 for the corresponding offence.

This section provides further that if any sum paid on account of additional fees (i.e. interest, late fee etc) then the same shall not be considered to be the amount to be paid under the compounding of order.

Section 621A (2) states that the compounding of an offence is not allowed if the company or the officer in default has or had filled an application for the similar offence within three years after the compounding order.

Section 621A (3) (a) is regarding the approach; the accused under this act has to approach to the registrar or respond to the show cause notice issued by the registrar. The Registrar approaches the central government with the proposal of compounding. As per section (3) (b) whenever any offence is compounded then such company or officer must apply to the registrar within seven days of receiving the order in the e-form21. Section (3) (c) prevents any authorized person from launching any prosecution any matters where the compounding of the same offense is resorted for before the institution of prosecution. Section (3) (d), states that the registrar should write to the court, in any case where the compounding is applied after the onset of prosecution. On application to the court in writing by ROC about compounding, then the company or officer in default shall be discharged from prosecution.

622. JURISDICTION TO TRY OFFENCES

No Court inferior to that of a Presidency Magistrate or a Magistrate of the first class shall try any offence against this Act.

Here no court lower then that of presidency magistrate or a Magistrate of the first class shall try any offence against this act.

623. CERTAIN OFFENCES TRIABLE SUMMARILY IN PRESIDENCY TOWNS

Such person may be tried summarily and punished by any Presidency Magistrate of that Presidency town.

This section allows the presidency Magistrate to try any offence under this act in summary trial i.e. following the procedure laid down by the section 362 of Cr.P.C and the sentence is not for any offence with fine and imprisonment not exceeding three year as per the sections incidental to the summary trial.

624. OFFENCES TO BE NON-COGNISABLE

Notwithstanding anything in the Code of Criminal Procedure, 1898 (5 of 1898), every offence against this Act shall be deemed to be non-cognizable within the meaning of the said Code.

Offences in which the police officer can arrest any person subject to the Ist  schedule of Cr.P.C are called as cognizable offences. Section 624 justifies that all the offences except those given in Section 58A or 58AA shall be considered to be non cognizable offences. Hence we can say that the court shall not have the right to act suo motto in case of any offence by any company. It has to act in only on complain by shareholders, the Registrar or the person authorised by central government in this behalf.

624A. POWER OF CENTRAL GOVERNMENT TO APPOINT COMPANY PROSECUTORS

Notwithstanding anything contained in the Code of Criminal Procedure, 1898 (5 of 1898), the Central Government may appoint generally, or in any case, or for any specified class of cases in any local area, one or more persons, as company prosecutors for the conduct of prosecutions arising out of this Act ; and the persons so appointed as company prosecutors shall have all the powers and privileges conferred by that Code on public prosecutors, appointed by a State Government under section 492 of that Code.

The Central government according to section 624A appoints any person to be company prosecutor to represent the cases in company law to prosecute against the company or officers in default. In the same manner as prosecutor is appointed by the state under Section 24 and 25 of Cr.P.C. against the accused.

624B. APPEAL AGAINST ACQUITTAL

Notwithstanding anything contained in the Code of Criminal Procedure, 1898 (5 of 1898), the Central Government may, in any case arising out of this Act, direct any company prosecutor or authorize any other person either by name or by virtue of his office, to present an appeal from an order of acquittal passed by any Court other than a High Court and an appeal presented by such prosecutor or other person shall be deemed to have been validly presented to the appellate Court.

The Companies act empowers the Central government present appeal through persons as mentioned above. He can present an appeal from any order passed by any court below high court against any offence arising in this act.

625. PAYMENT OF COMPENSATION IN CASES OF FRIVOLOUS OR VEXATIOUS PROSECUTION

(1) In respect of any case instituted upon the complaint of a shareholder against the company or any officer thereof in pursuance of section 621, the provisions of section 250 of the Code of Criminal Procedure, 1898 (5 of 1898), shall not apply ; and the following provisions shall apply instead.

(2) If the Magistrate by whom any such case is heard discharges or acquits all or any of the accused and is of opinion that the accusation against them or any of them was false and either frivolous or vexatious, the Magistrate may, by his order of discharge or acquittal, if the shareholder upon whose complaint the accusation was made is present, call upon him forthwith to show cause why he should not pay compensation to such accused, or to each or any of such accused when there is more than one, or if such shareholder is not present, direct the issue of a summons to him to appear and show cause as aforesaid.

(3) The Magistrate shall record and consider any cause which such shareholder may show; and if the Magistrate is satisfied that the accusation was false and either frivolous or vexatious, he may, for reasons to be recorded, direct that compensation to such amount as he may determine be paid by such shareholder to the accused or to each or any of them, not exceeding one thousand rupees in all.

(4) The Magistrate may, by the order directing payment of the compensation under sub-section (3), further order that, in default of payment, the shareholder ordered to pay such compensation shall suffer simple imprisonment for a term not exceeding two months.

(5) When any person is imprisoned under sub-section (4), the provisions of sections 68 and 69 of the Indian Penal Code (45 of 1860) shall, so far as may be, apply.*

* (section 68 imprisonment to terminate on payment of fine. Section 69 termination of imprisonment on payment of proportional part of fine)

(6) No person who has been directed to pay compensation under this section shall, by reason of such order, be exempted from any civil or criminal liability in respect of the complaint made by him:

Provided that any amount paid to an accused person under this section shall be taken into account in awarding compensation to such person in any subsequent civil suit relating to the same matter.

(7) A complainant who has been ordered to pay compensation under sub-section (3) by a Magistrate may appeal from the order, insofar as it relates to the payment of compensation, as if such complainant had been convicted on a trial held by such Magistrate.

(8) Where an order for payment of compensation to an accused person is made, the compensation shall not be paid to him before the period allowed for the presentation of the appeal under sub-section (7) has elapsed; or, if an appeal is presented, before the appeal has been decided.

Section 250 of the criminal procedural code 1973 explains the provision of receiving compensation for accusation without reasonable cause. However in Companies act section 625 states that the Court Shall in any such case which it has heard, discharged or has acquitted all or any of the accused and is of opinion that the accusation against them or any of them was false and either frolicsome or vexatious, the Magistrate may, by his order of discharge or acquits all or any of the accused. The shareholder upon whose complaint the accusation was made may, call upon him immediately and show cause is given as to ‘why he should not pay compensation to such accused, or to each or any of such accused’, or if such shareholder is not present, direct the issue of a summons to him to appear and show cause as aforesaid. In such circumstances the Magistrate shall record and consider any cause on which the shareholder has shown. If the Magistrate is satisfied that the accusation was false; either frivolous or vexatious, the magistrate, after recording his opinion, direct the shareholder to pay compensation of such amount as he may determine be paid to the accused or to each or any of them. Such compensation should not exceeding one thousand rupees in all. If in case of default by shareholder the magistrate may order for a simple imprisonment for a term not exceeding two months. When any person is imprisoned under sub-section (4), the provisions of sections 68 and 69 of the Indian Penal Code 1860 will apply. Section 68 of the penal code 1860 states that the term of imprisonment for non payment of compensation shall terminate on payment of such compensation and Section 69 of the penal code 1860 states that the term of imprisonment for partial payment of compensation shall terminate on payment of such partial pending compensation. If there is any other civil or criminal offence pending due to complain it shall not be discharged by such compensation. However the amount paid by the shareholder has to be considered before the order for payment of any further compensation. The person who has to pay compensation may appeal against the compensation order as if it has been against him in any other case where he was accused. The payment of compensation shall not be done until the period for appeal is not elapsed or till the time it has not been decided.

626. APPLICATION OF FINES

The Court [or Tribunal] imposing any fine under this Act may direct that the whole or any part thereof shall be applied in or towards payment of the costs of the proceedings, or in or towards the rewarding of the person on whose information or at whose instance the fine is recovered (1) If, on an application made to a Judge of a High Court in chambers [or Tribunal, as the case may be] by the Public

Prosecutor of the State or by the Central Government, or by a company prosecutor appointed under section 624A, it is shown that there is reasonable cause to believe that any person has, while he was an officer of a company, committed an offence in connection with the management of the company's affairs, and that evidence of the commission of the offence is to be found in any books or papers of or under the control of the company, an order may be made-

(i) Authorizing any person named therein to inspect the said books or papers or any of them for the purpose of investigating, and obtaining evidence of the commission of, the offence; or (ii) requiring the manager of the company or such other officer thereof as may be named in the order, to produce the said books or papers or any of them to a person, and at a place and time, named in the order.

(2) Sub-section (1) shall apply also in relation to any books or papers of a person carrying on the business of banking so far as they relate to the company's affairs, as it applies to any books or papers of or under the control of the company, except that no such order as is referred to in clause (ii) thereof shall be made by virtue of this sub-section.

(3) No appeal shall lie from the decision of a Judge of the High Court 3[or Tribunal] under this section.

628. PENALTY FOR FALSE STATEMENTS

If in any return, report, certificate, balance sheet, prospectus, statement or other document required by or for the purposes of any of the provisions of this Act, any person makes a statement -

(a) Which is false in any material particular, knowing it to be false; or

(b) Which omits any material fact, knowing it to be material; he shall, save as otherwise expressly provided in this Act, be punishable with imprisonment for a term which may extend to two years, and shall also be liable to fine.

629. PENALTY FOR FALSE EVIDENCE

If any person intentionally gives false evidence -

(a) Upon any examination upon oath or solemn affirmation, authorized under this Act; or

(b) In any affidavit, deposition or solemn affirmation, in or about the winding up of any company under this Act, or otherwise in or about any matter arising under this Act; he shall be punishable with imprisonment for a term which may extend to seven years, and shall also be liable to fine.

629A. PENALTY WHERE NO SPECIFIC PENALTY IS PROVIDED ELSEWHERE IN THE ACT

If a company or any other person contravenes any provision of this Act for which no punishment is provided elsewhere in this Act or any condition, limitation or restriction subject to which any approval, sanction, consent, confirmation, recognition, direction or exemption in relation to any matter has been accorded, given or granted, the company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to 1[five thousand] rupees, and where the contravention is a continuing one, with a further fine which may extend to 2[five hundred] rupees for every day after the first during which the contravention continues. Fine this may extend to Rs. 500 for everyday during which the contravention continues. Any offence covered by this section is compoundable.