Compounding of Offence

DIVESH GOYAL Mob: +918130757966 Practicing Company Secretary csdiveshgoyal@gmail.com GOYAL DIVESH& ASSOCIATES Twitter: @DiveshGoyal04 WhatsApp: 8130757966 FB: csdiveshgoyal@gmail.com Gmail Id: csdiveshgoyal@gmail.com 1 COMPOUNDING COMPOUNDING COMPOUNDING COMPOUNDING under companies act under companies actunder companies act under companies act- -- - 2013 2013 2013 2013 Compounding of offences is yet regularized by Secti on 621A of Companies Act, 1956 as new section 441 under Companies Act, 2013 is not yet no tified. . Brief background: The compounding provision in the Act were inserted by the Companies Amendment Act, 1988 on the recommendation of the 1SACHAR COMMITTEE as amended by the Companies (Amendment) Act, 2000. It was felt that leniency is required in the administration of the provisions of the Act particularly penalty provisions because a large number of defaults are of technical nature and arise out of ignorance on account of bewildering complexity of the provisions 2. The concept of compounding of offences was incorpor ated as a measure to avoid the long drawn process of prosecution, which would save both cost and time in exchange of payment of a penalty to the aggrieved. In criminal law, the power to compound the offence is at the discretion of the victim. The perpetrator cannot de mand for compounding of the offence. But in corporate law, compounding is at the discret ion of the offender/offending company. When compounding is done, the prosecution is conver ted into fine i.e. condonation of prosecution by imposing penalty. It enables the off ender company and the director / officer- in-default to avail peace and honorable discharge a nd avoid cumbersome trial 1 Sachar Committee had suggested substitution of the existing provisions for realization of fines through Court proceedings by a system of penalty as provided in t he Income-tax Act, and also the Registrar, and the Company Law Board, including the Regional Benches, should b e clothed with power of a court so as to empower th em to take cognizance of and to impose penalties for any infraction of certain specified provisions of the Act. 2 An example is the decision in Bradford Investments Plc. (No.2), Re, 1991 BCLC 688. In this case, four persons transferred their business to a company which allot ted them shares in consideration of the price. They did not know that sec 103 of 1985 Act required an independe nt report on the value of the business. For this statutory violation they become liable to pay a fine of more then 1 Million Euro though they had relied on the advice of their solicitors, practitioners and the Company’s account ants. CONTENT OF ARTICLES A. Brief Background B. Provision under Companies Act, 2013/1956 C. Benefits D. Process of compounding E. FAQ’s F. List of Power to compound to RD/NCLT section wise. Series- 120 DIVESH GOYAL Mob: +918130757966 Practicing Company Secretary csdiveshgoyal@gmail.com GOYAL DIVESH& ASSOCIATES Twitter: @DiveshGoyal04 WhatsApp: 8130757966 FB: csdiveshgoyal@gmail.com Gmail Id: csdiveshgoyal@gmail.com 2 Benefits: Prosecution Compounding In case of prosecution for an offence in a criminal court, the accused has to appear before the Magistr ate at every hearing and an advocate needs to be engage d for appearing before the criminal court. Further c ourt proceedings are time consuming and expensive. in case of compounding under the Companies Act , th e accused need not appear personally and can be discharged on payment of composition fee which cannot be more than the maximum fine leviable under the relevant provision. Meaning of Compounding: What is Compounding? As per the Black’s Law Dictionary, to “Compound” me ans “to settle a matter by a money payment, in lieu of other liability.” This definition thoughtfully represents the concept of Compounding as a Settlement Mechanism , a settlement by paying the penalty in lieu of facing the prosecution for the offence committed. The meaning of word compounding of offence is not d efined under Companies Act, 1956/2013. However if we try to analyze the section 621A, we can draw one clear interpretation i.e. “It`s nothing but admission of guilt” In the process of compounding, the person may either Suo Moto or on receipt of notice of default/initiation of prosecution, admits the commission of default and make an applic ation for compounding of the concern offence. The defaulters agree to pay penalty which may be ordered by the Central Government. Compounding is essentially a compromise or arrangem ent between administrator of the enactment and person committing an offence. Compoun ding crime consists of receipt of some consideration (termed as compounding fees) in return for an agreement not to prosecute one who has committed an offence 3. 4Compounding Of 5Offence Under Companies Act: 3 - Reliance Industries, in re-(1997) 24 CLA 214 (CLB ) 4 In today's Corporate world, good governance means to comply with all the provisions of Corporate laws. Non compliance 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 offence. An accused committing an offence is liable to be pr osecuted as per relevant provisions of law. Compou nding is a settlement process by which the accused pays compou nding charges in lieu of undergoing consequences of lengthy prosecution DIVESH GOYAL Mob: +918130757966 Practicing Company Secretary csdiveshgoyal@gmail.com GOYAL DIVESH& ASSOCIATES Twitter: @DiveshGoyal04 WhatsApp: 8130757966 FB: csdiveshgoyal@gmail.com Gmail Id: csdiveshgoyal@gmail.com 3 There is great need of leniency in the administrati on of the Act particularly its penalty provisions not only because a large number of defau lts are of technical nature but also because they arise out of ignorance of the lengthy and bewildering complexity of the provisions of the Act.