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The Companies Act, 1956 provides certain procedures to be adopted by the corporate while carrying out certain corporate actions. In today’s corporate world, good governance means to comply all  provisions of Corporate laws Non compliance of the above procedures will result In penalties or penalties with imprisonment.

Corporate offences are classified into civil and criminal offences. Further it has been classified as Compoundable and Non compoundable offences  Section 621 A  of the Companies Act,1956 provides compounding of offences. The compounding of offences is a short cut method to avoid litigation.

The following offences are compoundable

a. Offences punishable with fine only;

b. Offences punishable with fine or imprisonment;

c. Offences punishable with fine or imprisonment or both.

Further Section 621A of the Companies Act, 1956 provides any offences which is already compounded and a period of 3 years are not elapsed  from earlier compounding of same offence, then it is non compoundable offence.  Moreover an offence where punishment is  imprisonment cannot be compounded.

Sections 11, 22,25, 39,40,44, 49,56,59,60,69, 70, 72, 73,75, 76 of the Companies Act, 1956  are some of the sections violations  will be compoundable.

Non compoundable offences  -  The following are some of the non compoundable offences.

Section  68A (1)  of the Companies Act, 2956 personation of acquisition etc  of shares  - penalty – 5 years of imprisonment

Section 541 (1) of the Companies Act, 1956 - Failure to maintain  proper books of account by a company throughout the period of 2 years  immediately preceding commencement of  the winding up or the period between  incorporation of the company and  commencement of the business  whichever is shorter  - Penalty   imprisonment upto 1 year

Section 625 (4) of the Companies Act, 1956  -  Failure on the part of the shareholder  to pay compensation – imprisonment upto 2 months.

In case of non compoundable offences, if the offences are proved then  ultimately the Directors or officers are held liable for punishment i.e imprisonment.

In case of officials or Directors are arrested, we need to understand  rights of arrested person as per Article 21 of the Constitution Article 22 (1) and (2) confers four following fundamental rights upon a person who has been arrested:

i) Right to be informed, as soon as may be, of the grounds for such arrest.

ii) Right to consult and to be defended by a legal practitioner of his choice.

iii) Right to be produced before the nearest magistrate within twenty-four hours of his arrest excluding the time necessary for the journey from the place of arrest to the Court of Magistrate.

iv) Right not to be detained in custody beyond the period of twenty four hours without the authority of the Magistrate.

In  Madhu Limaye  case -  Hon’ble Supreme court observed that Article 22 (1) embodies a rule which has always been regarded as vital and fundamental for safeguarding personal liberty in all legal systems where the Rule of Law prevails.

Field Marshal late Manekshaw  received a summon  from Economic offence  court for non compliance of provisions of Companies Act, 1956 in one of the companies in which he was a Director.

Conclusion: We need to understand non compliances of various provisions of corporate laws and consequences thereof.  It is suggested to prepare check list to comply various provisions of corporate laws to avoid such penalties and offences.

Corporate prefer to compound the offence mainly to avoid going to Economic offence Court where personal appearance at least once is a must.   Conviction by this Court will attract Part I of Schedule XIII of the Act.   

Published by

cs A Rengarajan
(Company Secretary)
Category Corporate Law   Report

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