Compounding

The Companies (Amendment) Act 2017 increased importance of compounding of offence manifold. Section 90 of the Companies (Amendment) Act, 2017 read with notification Notification S. O. 630(E) dated 9th February 2018 amended law related to compounding with effect from that date. However, provision of Section 441, as amended, of the Companies Act, 2013 gain momentum with notification Notification S.O. 1833(E) dated 7th May 2018. This notification notified amendment in Section 403. Most compounding application comes due to the late filing of forms constituting the violation of Section 403.

The amendment in Section 441 of the Companies Act, 2013 in effect restores the position of law related to compounding as it exists under the Companies Act, 1956.

Power to compound

According to Section 441(1), any offence punishable under this Act (whether committed by a company or any officer thereof) with fine only not being an offence punishable with imprisonment only, or punishable with imprisonment and also with fine, may, either before or after the institution of any prosecution, be compounded by—

(a) the Tribunal; or

(b) where the maximum amount of fine which may be imposed for such offence does not exceed five lakh rupees, by the Regional Director or any officer authorised by the Central Government.

The compounding shall be complete on payment or credit, by the company or, as the case may be, the officer, to the Central Government of such sum as that Tribunal or the Regional Director or any officer authorised by the Central Government, as the case may be, may specify.

Like most other compounding provisions, this section also has notwithstanding clause for anything contained in the Code of Criminal Procedure, 1973.

Compounding Amount

According to the First proviso to section 441(1), the maximum amount of the compounding amount shall not exceed the maximum amount of the fine which may be imposed.

According to the second Proviso, in specifying the sum required to be paid or credited for the compounding of an offence under this subsection, the sum, if any, paid by way of additional fee under sub-section (2) of section 403 shall be taken into account.

The Second proviso offers slight relief for companies in case of default. Penalty amount under section 403(2) shall be taken into account.

However, use of the word “additional fee” in the proviso suggests that it intended to refer to subsection (1) of Section 403 not subsection (2) thereof. It seems to be a remaining drafting error.

Restriction on compounding

According to the third proviso to section 441(1), any offence covered under this subsection by any company or its officer shall not be compounded if the investigation against such company has been initiated or is pending under this Act.

Once in three year

According to subsection (2) of Section 441, sub-section (1) shall not 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.

This means a similar offence cannot be compounded within three of earlier compounding of an offence. Thereafter another similar offence shall be considered a first offence for the purpose of this section. As the explanation to subsection (2) say, “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 the first offence.”

Procedure of Compounding Application

According to clause (a) of subsection (3) of section 441, every compounding application shall be made to the Registrar. The Registrar shall forward it to the Tribunal or the Regional Director or any officer authorised by the Central Government, as the case may be. The Registrar shall also make his comments thereon.

As per clause (b) of section 441(3), an intimation of compounding shall be given by the company to the Registrar within seven days from the date on which the offence is so compounded. Such intimidation shall be made whether the offence was compounded before or after the institution of any prosecution.

According to Section 441(3)(c), where any offence is compounded before the institution of any prosecution, no prosecution shall be instituted in relation to such offence against the offender in relation to whom the offence is so compounded.

This restriction is applicable on

• the Registrar,
• any shareholder of the company, and
• any person authorised by the Central Government.

Where the compounding of any offence is made after the institution of any Prosecution, such compounding shall be brought by the Registrar in writing to the notice of the court in which the prosecution is pending. On such notice of the compounding of the offence being given, the company or its officer in relation to whom the offence is so compounded shall be discharged.

Additional requirement to file and register

According to subsection (4) of Section 441, it may be required for a company or its officer to file or register with, or deliver or send to, the Registrar any return, account or other documents as directed, by an order. The Tribunal or the Regional Director or any officer authorised by the Central Government, as the case may be, while dealing with a proposal for the compounding of an offence for a default in compliance with any provision of this Act which requires. Such return, account or other documents within such time as may be specified in the order on payment of the fee, and the additional fee, required to be paid under section 403.

According to subsection (5), any failure to comply the order given under subsection (4) shall be punishable with imprisonment for a term which may extend to six months, or with fine not exceeding one lakh rupees, or with both.

Compounding by Special Court

According to clause (a) of subsection (6) of section 441, 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.

Non-compoundable offence

According to clause (b) of subsection (6) of section 441, any offence which is punishable under this Act

• with imprisonment only or
• with imprisonment and also with fine

shall not be compoundable.

Compounding of offence committed in this Section itself

According to subsection (7) of section 441, no offence specified in this section shall be compounded except under and in accordance with the provisions of this section.