Offences Compoundable under the Companies Act, 2013 – A brief Analysis

Amiya Nayak | December 2013

The Companies Act, 2013 (“Act”) provides for certain compliances to be complied by the corporate entities while carrying out certain corporate actions. In recent corporate world, good governance means complying with the provisions of corporate laws and non-compliance of the provisions will result in penalties or penalties with imprisonment.

Corporate offences are classified into civil and criminal offences; and further classified as Compoundable and Non- Compoundable offences. Section 441 of the Act provides for compounding of offences. The offences which are punishable with fines are compoundable under the Act. The compounding of offences allows the accused not only to avoid the lengthy process of litigation but also save cost, time, mental agony, etc.

Section 441 of the Act provides for compounding of various offences in the following manner:

Any offence punishable (whether committed by a company or any officer thereof) with fine only and where the maximum amount of fine which may be imposed for such offence does not exceed five lakh rupees, may, be compounded by the Regional Director;
Any offence punishable under the Act (whether committed by a company or any officer thereof) with fine only and where the maximum amount of fine which may be imposed for such offence exceeds five lakh rupees, may, be compounded by the Tribunal; and
The offences which are punishable with imprisonment or fine, or with imprisonment or fine or with both may be compoundable with the permission of Special Court.

However, there are two exceptions which do not qualify for compounding and they are (i) in the case of a company in respect of which investigation has already been initiated or is pending; and (ii) any offence committed by a company or its officers within a period of three years from the date on which a similar offence was compounded. After the expiry of three years such an offence is treated as a fresh offence.

A simplified procedure is laid down for giving effect to the compounding of an offence. Every application is required to be made to the Registrar who shall forward the same, together with his comments, to the Tribunal or the Regional Director as the case may be. Where an offence has been compounded before institution of prosecution, no such prosecution will be instituted. However, where compounding is made after institution of prosecution, such compounding should be brought to the notice of the court by the Registrar in writing. On filing of such notice, the company and its officers shall be discharged from the prosecution. This is subject to the company or its officers filing any document or return as the case may be in fulfilment of legal obligation.

In the case of an offence punishable with imprisonment or fine or with both, compounding may be permitted by the Special Court. However, an offence punishable with imprisonment only or with imprisonment and fine is not compoundable, as they are serious offences.

List of offences non-compoundable in nature:

Section 46(5): Fraudulently issuing of duplicate share certificates by a company;
Section 56(7): If the depository or depository participant with an intention to defraud a person, has transferred the shares;
Section 57: Deceitfully personating as an owner of any shares or interest in a company;
Section 58(6): Contravention of an order of the Tribunal regarding the refusal of registration and appeal against refusal;
Section 67(5): Contravening provisions relating to purchase by company or loans by company for purchase of its own shares;
Section 118(12): Tampering with the minutes of the proceedings of meeting;
Section 127 (Proviso): Failure to distribute dividend within thirty days;
Section 140(5): Final order of Tribunal in relation to fraudulent behavior of auditor;
Section 147(2) (Proviso): Failure of auditor to comply with the provisions of sections 139, 143, 144 and 145;
Section 182(4): Political contribution made in contravention of section 182;
Section 186(13): Contravention of the provisions of section 186 relating to loans and investment;
Section 207(4): Disobeys the direction issued by the Registrar or inspector under section 207 in relation to conduct of inspection and inquiry;
Section 217(6): Disobeys the direction issued by the Registrar or inspector under section 217 in relation to investigation;
Section 217(8): Failure to provide information, books or papers etc. To inspector during investigation;
Section 245(7): Committing default in complying with the order of Tribunal under section 245;
Section 247(3) (Proviso): Contravention of the provisions of section 247 by the valuer with the intentions to defraud the company or its members;
Section 267: Contravention of the provisions of Chapter XIX, or any order of Tribunal or Appellate Tribunal or makes a false statement or gives false evidence before the Tribunal or the Appellate Tribunal, etc;
Section 336(1): Offences by officers of companies in liquidation;
Section 336(2): Offences by officers of companies in liquidation covered under sub-clause (viii) of clause (d) of sub-section (1) of section 336;
Section 337: Frauds by officers;
Section 338(1): Failure to keep proper books of account before winding up;
Section 447: (Proviso) Punishment for fraud;
Section 449: Intentionally gives false evidence; and
Section 452(2): Wrongful withholding of property.
All the offences mentioned in the Act except as enlisted above are compoundable.

About Author

Amiya Nayak

Amiya Ranjan Nayak is a Partner with Kaden Boriss, Legal and Business Strategists. As a Corporate and Commercial Lawyer, he handles Regulatory, Advisory, Compliance & Documentation services pertaining to Real Estate laws like due-diligence, development, acquisition, disposition, leasing, financing, zoning and land use, etc. besides the services relating to Corporate, Commercial and Cross boarder investment laws.