Compounding refers to the process where an individual voluntarily acknowledges the breach, admits guilt, and seeks resolution. Although the Compounding of offences under the Companies Act, 2013 is not explicitly stated, it furnishes provisions that empower companies including private limited company registration, directors, or officers to apply for compounding, thereby avoiding prolonged legal proceedings.
It gives individuals or companies a chance to acknowledge their mistakes, pay the penalty while also lessening the load on the legal system. This blog provides a concise explanation of the procedure for Compounding of offences under the Companies Act, 2013 and more specifically, Section 441 of the Companies Act, 2013.
Eligibility for Compounding of Offences Under the Companies Act, 2013
Under the provisions of Section 441 of the Act, certain offences can be compounded which are punishable solely with a fine or offences that are punishable with a combination of a fine and imprisonment.
Exceptions to Compounding of Offences under the Companies Act, 2013:
However, there are specific situations where compounding will not be allowed. These include:
1. Offence Punishable with Imprisonment Only: offences that are punishable solely with imprisonment and do not involve a fine are not eligible for compounding.
2. Offence Punishable with Imprisonment and Fine: offences that entail both imprisonment and a fine as penalties cannot be compounded.
3. Ongoing Investigations: Compounding is not permissible when an investigation has been initiated against the company or is currently pending.
4. Repeat offence: If a similar offence has been previously compounded within the preceding three years, compounding will not be granted.
Who Can Make Application for Compounding of offences under the Companies Act, 2013?
The applicants who may seek compounding of an offence under the Companies Act, 2013 are given below:
1. Company Authorised Personnel:
An application for compounding can be made by a company, specifically by any director of the company who has been duly authorised by its board to proceed in this matter.
2. Officers in Default:
In cases of non-compliance that can lead to prosecution, officers in default of the company are also eligible to submit a compounding application for compounding of offences under Companies Act, 2013. Officers in default refer to individuals who hold positions within the company and are accountable for the particular non-compliance.
According to the provisions of section 2(60) of the Companies Act, 2013, officers in default include Whole-time Directors (WTD) and Key Managerial Personnel (KMP). Moreover, in instances where no Key Managerial Personnel exist, the directors identified by the board to take on this role and who provide their consent are considered officers in default. If no director has consented to this responsibility, then all directors are regarded as officers in default.
Required Documents for Compounding of Offences Under the Companies Act, 2013
To initiate the compounding of offences under the Companies Act, 2013, the following documents are necessary:
1. Compounding Application:
A formal application for compounding, prepared in accordance with the provisions of the Companies Act, 2013.
2. Board Resolution:
A board resolution issued by the company’s board of directors, explicitly authorising specific directors to submit the compounding application on behalf of the company.
3. Affidavit:
This legal document attests to the truthfulness of the information contained in the application.
4. Authorisation Letter:
A letter of authorisation granting permission to an authorised entity, which could be an officer of the company, legal counsel, Company Secretary, Chartered Accountant or Cost and Management Accountant to appear and act on behalf of the company in all matters related to the compounding of the offence.
5. Power of Attorney:
A power of attorney document conferring the legal authority upon the authorised representative to represent the company and furnish relevant documents before the Regional Director or the National Company Law Tribunal.
6. Memorandum of Appearance:
A memorandum that formally acknowledges the appearance of the authorised representative in connection with the compounding matters. This document establishes the representative’s presence on behalf of the company.
7. Additional Documentation:
Any other document that may be stipulated by the relevant authorities as required for the compounding process.
Procedure for Compounding of Offences Under the Companies Act, 2013
The process for compounding of offences under Companies Act, 2013 involves several steps to ensure compliance and legal resolution:
1. Conducting Board Meeting:
Initiate the process by convening a board meeting and passing a resolution specifically authorising the compounding of the offence. This resolution should include the directors who are authorised to proceed with the compounding application.
2. Preparation of Compounding Application:
Prepare a comprehensive compounding application that provides all necessary details. Ensure that all required annexures and supporting documents are properly compiled and attached to the application.
3. Filing the Application:
File the compounding application using Form GNL-1. This form is used for submitting applications for various matters, including compounding. Fill in the required details accurately and completely.
4. Submission of Physical Application Copies:
In addition to the online submission, provide physical copies of the compounding application along with the annexures to the office of the Regional Director and the Registrar of Companies.
5. Hearing and Order of Compounding:
Attend a hearing before the National Company Law Tribunal or the Regional Director, as applicable. After considering the merits of the case, the NCLT/RD will issue an Order of Compounding if deemed appropriate.
6. Rejection with Reasons:
In the event that the application is not accepted, the NCLT/RD will provide reasons for the rejection of the compounding application.
7. Penalty Payment:
Upon approval of the compounding application, the company, directors, and officers in default are required to make the payment of the imposed penalty.
8. Filing Form INC 28:
Following the receipt of the Compounding Order, the company must file Form INC 28 within 7 days. This form notifies the Registrar of Companies about the compounding and its related details.
Penalty for Non-Compliance with Orders
Given below are the penalties for non-compliance with orders of authorities:
- Imprisonment: The officer or employee can face imprisonment for six months maximum.
- Monetary Fine: In addition to or instead of imprisonment, a fine not surpassing INR One Lakh can be imposed.
- Combined Penalty: The penalty can be a combination of both imprisonment and fine, as determined by the legal authorities.
Final Thoughts
The process of compounding offences under the Companies Act, 2013 holds significant importance in the realm of legal matters. It provides an avenue for resolving criminal charges without the need for lengthy court proceedings. The Companies Act, 2013 plays a vital role in providing provisions for compounding offences, enabling companies to settle non-serious violations and non-compliance issues efficiently.
By understanding the concept, purpose and benefits of compounding, companies can make use of this mechanism to maintain their reputation, promote good corporate governance and contribute to the pursuit of justice and the maintenance of law and order.
For more information on compounding offences under the Companies Act, 2013, connect with our experts at StartupFino.
