Compounding of Offences - Section 441 Under Companies Act, 2013 By CS Shubham Katyal


Offence: As per section 3(38) of General Clauses Act, 1897 "Offence" shall mean any act or omission made punishable by any law for the time being in force.

Compounding of offence: 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

The Compounding of offences is a short cut method to avoid litigation.

Section 441: The provisions pertaining to compounding of offences under Companies Act, 2013 ("the Act") are set forth under Section 441 of Act. The offences, which are punishable with fine, only can be compounded either by Regional Director (hereinafter called "RD") or by the National Company Law Tribunal (hereinafter called NCLT). In other words, the offences, which are punishable with imprisonment only or imprisonment and fine, cannot be compounded. 

Under whose authority shall a petition lie:

• If the fine does not exceed Rs. 5 lakhs, the offence can be compounded by the RD or any other officer as may be authorized by the Central Government.
• If the offence is punishable with fine exceeding Rs 5 lakhs, the same can be compounded by the NCLT.
• Any offence punishable with imprisonment or fine or with imprisonment or fine or with both shall be compoundable with the permission of Special Court; 

A detailed "Table" indicating the sections, subject matter, amount of fine imposable by the Authority, Tribunal and Special Court before whom the petition shall lie is given separately as per ANNEXURE-I.

Permission of Special Court: Section- 441(6) of Companies Act, 2013: Any offence which is punishable under this Act, with imprisonment or fine, or with imprisonment or fine or with both, shall be compoundable with the permission of the Special Court, in accordance with the procedure laid down in that Act for compounding of offence.

Restriction on compounding: The third proviso to sub-section (1) of Section 441 says that

(a) The offence cannot be compounded either by the Company or its officer in case either the investigation has been initiated or is pending.
(b) The offence cannot be compounded in case similar offence committed by it has been compounded and period of three years has not expired.
(c) Any offence which is punishable under this Act with imprisonment only or with imprisonment and also with the fine; cannot be compounded.

What is new in Section 441: The "Third" proviso to Section 441 of Companies Act, 2013 says that in case where either the investigation has been initiated or is pending, the offence cannot be compounded. However, in old Section 621A of Companies Act, 1956, there was no such embargo. In other words, offence could have been compounded notwithstanding the fact that either the investigation has been ordered or is pending against the company.

Explanation: After the expiry of three years from the date of compounding of offence, if the second or subsequent offence had been committed, the same shall be treated as the first offence.

Procedure for compounding of offences under the Companies Act, 2013:

As per Section 403 read with Rule 12 of Companies (Registration Offices and Fees) Rules, 2014, the compounding application has to be made to ROC by filing e-Form GNL-1.



Post compounding obligation: Wherein the offence has been compounded, either before or after the institution of any prosecution, an intimation shall be given to the Registrar of Companies within seven days from the date on which, the offence is so compounded. In case the offence has been compounded before the institution of any prosecution, no prosecution shall be filed either by ROC or by any shareholder or by any person authorized by the Central Government. It is needless to point out that the period of seven days shall be reckoned from the date, the order is made available to the petitioner/applicant.

ANNEXURE-I LIST OF COMPOUNDABLE OFFENCES UNDER THE COMPANIES ACT, 2013

Offences compoundable by Regional Director

Offences compoundable by the NCLT

11(2)-  Failure complying with the requirements relating to Commencement of business.

8(11)- default in complying with the requirements relating to formation of companies with charitable objects etc.

16(3)-  Default in complying with the directions issued under sub-section (1) relating to rectification of name of company

40(5)- Default in complying with the provisions of this section relation to securities to be dealt with in stock exchanges

26(9)- Contravention of provisions relating to issue of a prospectus

46(5)- Fraudulently issuing duplicate share certificates by a company

53(3)-  Violation of provisions relating to issue of shares at discount

66(11)- Default in publishing the order of confirmation of the reduction of share capital by the Tribunal

56(6)- Failure to comply with the provision relating transfer and transmission of securities under sub- section (1) to (5)

67(5)-  Default in provisions relating to purchase by company or loans by       company for purchase of its own shares

59(5)-  Default in complying with the order of Tribunal relating to rectification of register of members

74(3)- Failure to repay the deposit or part thereof or any interest thereon within the time specified or such further time as may be allowed by the Tribunal

64(2)- Default in filing a notice  related to alteration, increase or redemption of share capital along with the altered memorandum with the Registrar

117(2)- Failure in filing with the Registrar the copy of notice or agreement within stipulated time

67(5)-  Contravening provisions relating to purchase by company or loans by company for purchase of its own shares

124(7)- Default in transfer of  amount of accumulated profits to unpaid dividend account and violating other provisions of section 124

68(11)- Failure in complying with the provisions of this section or any regulation made by the Securities and Exchange Board relating

143(15)- Failure of auditor to intimate to Central Government regarding fraud against the company by officers or employees

86- Contravention of any provision relating to Registration of Charges (Chapter VI)

185(2)- Contravention of the provisions of sub- section 1 relating to loans, guarantee or security

88(5)-Failure to maintain register of members/debenture-holders/other security holders as prescribed

245(7)- Committing default in complying with the order of Tribunal under this section.

89(5)-Failure to file declaration not holding beneficial interest in any share

314(8)- Default in complying with the provisions of this Section except sub-section (5).

89(7)-Failure to file return relating to beneficial interest in any share before the expiry of the time specified UIS 403(1)(i) proviso

316(2) - Failure to send quarterly report on winding up and call meeting by company liquidator.

92(6)-  If a company secretary in practice certifies the annual return otherwise than in conformity with the requirements of this section or the rules made there under

 

99-Default in holding a meeting of the company as u/s 96, I97, I98 or in complying with any directions of the Tribunal

 

102(5)- Default in complying with the provisions of this section relating to statement to be annexed to notice

 

105(3)- If default is made in complying with sub-section (2) relating to proxies

 

105(5)- If invitations to appoint as proxy a person

 

or one of a number of persons specified in the invitations are issued

 

121(3)-Failure to file Report on annual General meeting.

 

124(7)- Failure to transfer the amount of accumulated profits to unpaid dividend account and violating other provisions of section 124

 

137(3)-Failure to file financial statements with the Registrar

 

140(3)-Non-Compliance by auditor of sub-section (2) relating to filing of resignation information

 

147(1)-Failure of company to comply with provisions of sections 139 to 146 with regard to auditors

 

157(2)-Failure to furnish DIN to Registrar

 

165(6)- Acting as a director of more than 20 companies

 

166(7)- Default in complying with the provisions of this section

 

relating to directors duties

 

172- Contravention of then provisions of Chapter XI relating to appointment and qualifications of directors

 

178(8)- Default in complying with the provisions of section 177 & of this section relating to Committees like Nomination, Remuneration  and Stakeholders Relationship Committee

 

188(5)(ii)- Related party transaction in case of other company

 

186(13)- Contravention of the provisions of this section relating to loans and investment

 

187(4)- Contravention of the  provisions of this section relating to investment of company held in its name

 

191(5)- Contravention of the  provisions of this section relating to payment to director for loss of office in connection with transfer of property

 

197(15)- Contravention of the provisions of this

 

section relating to managerial remuneration in case of absence or inadequacy of profits.

 

203(5)- Contravention of the  provisions of this section relating to appointment of Key Managerial personnel

 

204(4)- Contravention of the  provisions of this section relating to Secretarial Audit for bigger companies.

 

206(7)- Failure to furnish any information during inspection or inquiry

 

221(2)- Any removal, transfer or disposal of funds, assets, or properties of the company in contravention of the order of the Tribunal under sub-section (1)

 

222(2)- securities in any company are issued/ transferred/acted upon in contravention of an order of the Tribunal under sub- section (1)

 

232(8)- Contravention of the  provisions by the transfer and transferee company in case of merger or amalgamation

 

238(3)-Failure to register the offer of Schemes involving transfer of shares.

 

242(8)- Contravention of

 

the order of Tribunal relating to alterations in memorandum or articles

 

247(3)(Proviso)- Contravention of the provisions of this section by the valuer

 

249(2)- Filing of application in restricted cases for removal of name

 

302(4)- default by official liquidator in forwarding a copy of the order of dissolution of company by tribunal within the period specified in sub-section (3)

 

306(5)- Default in calling the meeting of the creditors; to prepare a statement of the position of the company's affairs along with a list of creditors, estimated amount of claim and filing the resolution with Registrar

 

307(2)- Default in publication of resolution to wind up voluntarily

 

312(2)- Failure to give notice of appointment of Company Liquidator to Registrar

 

314(5)-Failure to prepare quarter statement of accounts by company liquidator in voluntary winding up and file with the Registrar under sub-section (5).

 

318(8)- Failure to complying with the provisions of this section relating to final meeting and dissolution of company

 

342(6)- Failure or neglect to give assistance required under sub-section (5)

 

344(2)- Failure to give statement that the company is in liquidation

 

348(6)- Contravention of the provisions of information as to pending liquidation

 

356(2)- Failure to file certified copy of the order of Tribunal relating to dissolution of company void with the Registrar

 

392- Contravention of the provisions of Chapter XXII by a foreign company

 

405(4)- Failure to furnish information or statistics etc. by the companies required by the Central Government

 

No specific penalty or punishment is provided in the Act

 

Repeated default within 3 years

 

452(1)- Punishment for wrongful withholding of property

 

453- Improper use of the words "limited" and "private limited"

 

454(8)- Failure to pay the penalty imposed by the adjudicating officer or Regional Director

 

464(3)- Being a member of a company formed exceeding certain numbers

 

469(3)- Contravention of the Rules framed by Central Government

   


CONCLUSION

As evident from the table above, majority of the offence under Act, 2013 can be compounded by the Regional Director and few extreme cases by the NCLT. Some of the offences can be compounded by any of the concerned authorities as some of it involves the case of additional or further fine where there is no possibility of assumption on the maximum amount of fine as it depends on the period of default of the defaulter.

DISCLAIMER: 

This
write up is based on the understanding and interpretation of author and the same is not intended to be a professional advice.

Author
CS Shubham Katyal
E-mail: shubhamkatyal37@gmail.com

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