Offences under

Companies Act, 2013

& Compounding

CS Ranjeet Pandey - FCS, LL.B.

Central Council Member, ICSI
Ranjeet Pandey & Associates
Company Secretaries
Tel: 09810558049, 011 – 46074119
e-mail: [email protected]
What is the meaning of Offence ??

 Term “Offence” not defined in Companies Act.

 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.

 Offence may be “Compoundable” or “Non-

Compoundable”

CS Ranjeet Pandey, Central Council Member, ICSI

Categories of Default / Non-compliances

 Non- maintenance of Statutory Registers /Books;

 Default/delay in filing of statutory documents;
 Non holding/delayed holding of meetings;
 Non-issuance of notices, defective resolutions, agreements;
 Non – adherence of Corporate Governance Norms;
 Not-maintaining RO or change without intimation;
 Non-adherence of Accounting principles, polices, Standards;
 Financial Statements not prepared on the prescribed format;
 Non- adherence of Audit , Cost Audit Rules;
 Incomplete/no prescribed disclosures given;
 Un-approved Financial or Non-financial transaction;

CS Ranjeet Pandey, Central Council Member, ICSI

Offence under Act are non-cognizable (Section 439)

 Every offence under the Act, except the offences referred to in

sub-section (6) of Section 212 shall be deemed to be non-
cognizable.

 Court to take Cognizance of offence – on written complaint by

Registrar, Shareholder of the company of a person authorized
by the Central Govt. in that behalf.

 In case of offence relating to issue and transfer of securities

and non payment of Dividend – the court may take cognizance
of offences on the complaint of any person authorized by
SEBI.

CS Ranjeet Pandey, Central Council Member, ICSI

General Punishment for various offences, fraud.

Punishment for Fraud (Sec. 447):

Imprisonment for a term 6 months, which extend to 10 years and fine

extend to amount involved in fraud, extend to 3 times the amount
involved in the fraud.

Fraud involves public interest, imprisonment not be less than 3 years.

Punishment for False Statement (Sec. 448)

In any return, report, certificate, financial statement, prospectus,

statement or other document, he shall be liable under section 447.

Punishment for False Evidence (Sec. 449)

False Evidence in any of affidavit, deposition or solemn affirmation,

imprisonment 3 years but extend to 7 years and with fine to Rs. 10 lakh.

CS Ranjeet Pandey, Central Council Member, ICSI

General Punishment for various offences, fraud.

No specific punishment or punishment is provided (Sec. 450)

Co. and Officer in Default or other person – fine Rs. 10,000/-, and
continuing default - further fine Rs. 1,000/- for every day after the first,
during which the contravention continues.

Punishment in case of repeated default (Sec. 451)

Same offence is committed for the second or subsequent occasions within

3 years, then - twice the amount of fine for such offence in addition to
any imprisonment provided for that offence.

Punishment for wrongful withholding of property (Sec. 452)

Officer or employee of the company shall, on complaint of the company or

of any member or creditor or contributory thereof, fine Rs. 1 lakh to 5
lakh.

CS Ranjeet Pandey, Central Council Member, ICSI

Compounding & Process
What is Compounding ??

 Non-compliance of Law results into offences by Company or

Officer in Default.

 Offences can be classified into civil and criminal offences.

Further, it may further be classified as Compoundable and
Non-compoundable offences.

 While there is no definition of the word "compounding" in the

Act, however, the legal meaning of compounding is "doing
good the default / non-compliance".

 The Compounding of offences is nothing but a "settlement" for

the offence committed by any company or any officer thereof
and a short cut method to avoid litigation and to bring an end
to a default.

CS Ranjeet Pandey, Central Council Member, ICSI

Advantages of Compounding

 No personal appearance for officer in default, as in case of

prosecution for an offence in a criminal court.

 Summary proceeding less time consuming.

 The defaulter can be discharged on payment of composition

fee, which cannot be more than the maximum fine leviable
under the relevant provision.

 Fees payable on compounding are not treated as penalty,

hence no disqualification for Directors.

CS Ranjeet Pandey, Central Council Member, ICSI

Notification MCA and its impact on Compounding

 The MCA vide its notification dated June 1, 2016 has enforced
29 sections of the Companies Act, 2013 with immediate effect
i.e. from 1st June, 2016.

 Amongst other important Sections of the Act, 2013, Section 441

dealing with "Compounding of certain offences" has also
been notified.

 No rules as of now. The corresponding rules of Section 441,

the same are yet to be notified.

CS Ranjeet Pandey, Central Council Member, ICSI

Transfer of Pending Compounding Cases (section 434)

 All matters pending before CLB before Effective Date (i.e. 1st June,
2016) shall stand transferred to NCLT, which shall dispose of such
matters in accordance with provisions of the New Act [Sec. 434(1) (a)].

 Therefore, all compounding cases already filed before CLB and not
yet heard, shall be transferred to jurisdictional benches of NCLT.

 Compounding cases already filed and pending before CLB and

required to be heard by Special Court to be transferred to
jurisdictional session court / special court (section 440).

 Appeal from order of CLB on any Compounding matter made before

the Effective Date may be filed with High Court within 60 days (plus
60) from date of communication of order on question of law.

 All cases where Order is reserved prior to the Effective Date to be

reopened and reheard by NCLT (Draft Rule 65 ).

CS Ranjeet Pandey, Central Council Member, ICSI

Section 441 & major departure

Three major departure brought by Section 441 are:

 Offences punishable with imprisonment or fine or

imprisonment or fine or both, shall now be compounded with
permission of Special Court.

 Now, any offence punishable with fine only, cannot be

compounded, if the investigation against such company has
been initiated or is pending under Act, 2013.

 Monitory limit for compounding of offence by Regional

Director has been raised from INR 50,000 to INR 5 Lakhs.

CS Ranjeet Pandey, Central Council Member, ICSI

Circumstances where compounding not possible

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

 The offence cannot be compounded in case either the

investigation has been initiated or is pending.

 The offence cannot be compounded in case similar offence

committed has been compounded and period of three years
has not expired.

 Any offence which is punishable under this Act with

imprisonment only or with imprisonment and also with the
fine; cannot be compounded

CS Ranjeet Pandey, Central Council Member, ICSI

Compoundable vs Non-Compoundable offences

Penalties

Fine only Imp. Only

Fine or Imp. Imp. and Fine

Fine or Imp.
or Both

With permission of
Compoundable Non-Compoundable
Special Court
Section 441 – Jurisdiction

NCLT • Fine only exceeding INR 5 Lakhs

Regional Director/
Prescribed Officer
• Fine does not exceed INR 5 Lakhs

• Imprisonment or fine or both can

Special Court be compounded with the
permission of Special Court.

CS Ranjeet Pandey, Central Council Member, ICSI

Section 441 – Who can be applicant ??

WHOLE TIME DIRECTOR

KMP

If no KMP, any specified Director /

all Directors, if no specified Directors
OFFICER IN
DEFAULT Any person charged with responsibility for
2(60) compliance by Board/ KMP

Any person on whose instructions Board is

accustomed to Act

Every Director having knowledge or acted

in connivance to contravention

STA/ Registrar/ MB for contravention of

issue/ transfer
CS Ranjeet Pandey, Central Council Member, ICSI
Can compounding application be rejected

 The Company Law Board in the case of Amadhi Investments

Ltd., held that neither of the CLB or the Regional Director has
been authorized with discretionary power to reject a
compounding application without due consideration.

CS Ranjeet Pandey, Central Council Member, ICSI

Application for compounding

 As per sub-section 3(a) of Section 441, every application of

compounding of offence shall be made to the Registrar of
Companies, who, in turn, shall forward the same along with
his comments to the NCLT or RD or any other officers, as may
be authorized by the Central Government for the purpose of
adjudication.

 There is no change under the new provisions.

CS Ranjeet Pandey, Central Council Member, ICSI

Application for Compounding

Existing Proposed
CLB Regulations, 1991 NCLT Rules

General Heading in Form 1 General Heading – Form NCT 4

Application in Form 3 Application - Form NCT 1**

Affidavit verifying Petition Affidavit - Form NCT. 6

Notice of hearing to be issued Notice of Hearing in Form NCT 5

Memorandum of Appe. – F 5 Memo of App. – Form NCT 12

Fees: NIL Fees: INR 1,000/-

 In a situation not provided for in these rules, the Tribunal may,

for reasons to be recorded in writing, determine the procedure
in a particular case in accordance with the principles of natural
justice (Draft Rule 3(1)].
CS Ranjeet Pandey, Central Council Member, ICSI
Drafting of Application / Petition

 Heading in Form NCT 4

 General profile and history of the company.

 Particulars of Petitioner(s)

 Jurisdiction of Bench /RD

 Limitation

 Facts of the case i.e. nature of offence and period of default.

 How and when the default is made good.

 Matters not previously filed or pending before any court.

 Relief(s) sought : Prayer to the competent authority.

 Annexure
CS Ranjeet Pandey, Central Council Member, ICSI
How to make Default good

 Continuing Offences: Non – appoint of CS, Non –

holding of AGM, section 188, etc

 One Time Offence: Non-holding of Board Meeting in a

quarter by listed Company, section 188.

 Annual Offences: Disclosure in Board Report, Financial

Statement, etc.

CS Ranjeet Pandey, Central Council Member, ICSI

E-filing of application with ROC – GNL 1

 The Application can be filed for Company, Director /

Manager / others – Details of 8 persons can be filled - for
Additional person(s) – Need to attach optional sheet.

 In case of Director – DIN, Manager /Secretary- PAN, Others-

PAN or Passport. Prefix 0 to make it 12 digit number.

 Applicant is a Company: Director / Secretary / Manager /

CEO & CFO of Indian Company - duly authorized by BOD

 Foreign Company: Authorized Representative

 Others: Individual who does not DSC, by practicing

Professional : CS/CA/ ICWA

CS Ranjeet Pandey, Central Council Member, ICSI

 PROCESS OF COMPOUNDING BEFORE / AFTER INSTITUTION OF PROSECUTION

If Fine
Only No further
If prosecution not
Application to institution of
initiated
prosecution
ROC
Compounding application along
ROC shall, in
with ROC’s Report forwarded
If prosecution writing, bring
based on the amount of fine
pending before any compounding
court in notice of the
5 Lacs or court
Intimation within 7 days

< 5 Lacs
More

RD/CG Authorized
NCLT Officer Company
/ Officer
discharged

Compounded

Imprison. 6
Compounding months/ Special
Company order is not Fine 1 Lac / Court
complied Both
Section 441 - Post Compounding Obligations

 Wherein the offence has been compounded, either before or

after the institution of any prosecution, an intimation shall be
given by the Company to the ROC within 7 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.

 Period of 7 days shall be reckoned with from the date on

which the order is made available to the petitioner/applicant.

CS Ranjeet Pandey, Central Council Member, ICSI

Section 441 – Post Compounding obligations of ROC

 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.

CS Ranjeet Pandey, Central Council Member, ICSI

Penalty for non- compliance of order

 NCLT or RD, while dealing with a compounding application

for an offence of non-filing with ROC of any return or other
document, may order any officer or other employee of the
company to file or register such return or document.

 Penalty for non-compliance – to comply with the order made

by Tribunal/RD/Officer authorized by the Central Govt.

 Non-compliance regarding filing of Order – punishable with

imprisonment for term which may extend to six months, or
with fine not exceeding one lakh rupee or both.

CS Ranjeet Pandey, Central Council Member, ICSI

Compounding by Special Court

 CG to set up special courts for speedy trial of offences.

 All offences under the Act shall be triable by the Special Court
having jurisdiction over area of registered office of the company.

 The Special Court would have the liberty to try summary

proceedings for offences punishable with imprisonment for a term
not exceeding three years. In case of summary trial it can award a
maximum imprisonment for 1 year.

 Appeal against order of Special Court to lie with High Court.

 Except as specified under the Act, provisions of Cr P C shall apply

before the Special Court and they shall be deemed to be Court of
Session.

CS Ranjeet Pandey, Central Council Member, ICSI

Companies Amendment Bill, 2016

 The CLC has observed that most of the offences which are
punishable with fine or imprisonment or both are technical /
procedural in nature, and thus, for the leniency and ease in
administration of the Act, the old provisions relating to
compounding may be re-instated.

 Therefore, Companies (Amendment) Bill, 2016 proposes an

amendment under sub-section (1) of section 441 to give power
to the Tribunal to compound the offences punishable with fine
as well as offences punishable with imprisonment or fine or
both.

CS Ranjeet Pandey, Central Council Member, ICSI

Adjudication of Penalties under
section 454
Adjudication of Penalties under section 454

 CG to appoint Registrar, as adjudicating officers for adjudging penalty.

 Reasonable opportunity of being heard to company and the officer by

giving notice of min. 15 days and not more than 45 days(plus15 days).

 ROC may, by an order impose the penalty company and officer in

default stating any non-compliance or default under the relevant
provision.

 Appeal to the Regional Director within 60 days from the date on

which the copy of the order made by the adjudicating officer.

 The RD may pass order confirming, modifying or setting aside the

order appealed against.

 Company not paid penalty imposed within 90 days, Company: fine

Rs. 25,000/- but may extend to Rs. 5 Lacs. Officer: imprisonment 6
months or with fine Rs. 25,000/- but may extend to Rs. 1 Laca, or with
both.
CS Ranjeet Pandey, Central Council Member, ICSI
Condonation vs. Compounding

Condonation Compounding

1. Unable to upload form 1. Form taken on record /

thereby unable to make the Default is made good
default good

2. Move application for

2. Move an application in Form Compounding - Concerned
CG 1 to MCA authority – RD or CLB

3. SRN of INC - 28 inbuilt in e- 3. SRN of INC – 28 not inbuilt in

form e-form

CS Ranjeet Pandey, Central Council Member, ICSI

 CS Ranjeet Pandey
Central Council Member, ICSI
Practising Company Secretary
# 09810558049, 011 – 46074119
[email protected]