Understanding Compounding Provisions in the Companies Act, 2013

Key Takeaways:

1. Provisions of Compounding under the Companies Act, 2013:

Compoundable offences can be compounded by the appropriate authority before or after the institution of any prosecutions.

Non-compoundable offences include those where the punishment is “Imprisonment only,” “Imprisonment and Fine,” and where a similar offence has been compounded within three years

2. Compounding Authority:

The appropriate authority for compounding of offences is the National Company Law Tribunal (“Tribunal”) when the maximum amount of fine exceeds Rs. Twenty-Five Lakhs.

The Regional Director or any officer authorized by the Central Government can also act as the compounding authority.

3. Compounding Procedures:

Conduct a Board Meeting and pass resolutions for filing an application for compounding, authorization, and appointment of professionals.

File GNL-1 Form with ROC along with required documents and fees.

Once the compounding order is received, intimate the same to ROC within 7 days.

4. Effects of Compounding:

Once the compounding fees are paid and the appropriate authority is satisfied, an order stating that the offence is compounded will be issued.

The compounding order has implications on the institution of prosecutions and non-compliances.

Introduction

“Compounding” provides a distinctive resolution for individuals or entities accused of offences under various laws, thereby facilitating ease of conducting business.

Here, you'll read about the specifics of compounding as it pertains to the Companies Act, 2013.

Although the Companies Act doesn't explicitly describe compounding of offence, yet you can see it providing a few noteworthy insights into compoundable offences, non-compoundable offences, compounding authority, procedures, and the effects of compounding.

The term “Compounding” refers to a situation where a person accused of an offence under any prevailing law agrees not to be prosecuted under criminal charges in exchange for a compounding fee, as decided and agreed upon by both the accused person and the Compounding Authority.

Here're the compounding provisions covered under the Companies Act, 2013

Compoundable Offences

Under Section 441(1) of the Companies Act, 2013, any offence committed by a company or any of its officers, where the prescribed punishment is either a fine only or imprisonment or fine, can be compounded by the appropriate authority, either before or after the institution of any prosecutions.

Non-Compoundable Offences

Non-compoundable offences include those where the punishment is “Imprisonment only,” “Imprisonment and Fine,” and where an investigation has been initiated or has been pending against the company or an offence committed within a period of three years from the date on which a similar offence was compounded under this section.

Compounding Authority

The appropriate authority for compounding of offences is the National Company Law Tribunal (“Tribunal”) when the maximum amount of fine which may be imposed exceeds Rs. Twenty-Five Lakhs.

Additionally, the Regional Director or any officer authorized by the Central Government can also act as the compounding authority.

Compounding Procedures

You should follow the below steps for compounding an offence.

1 Check whether the offence is compoundable?

2 Conduct a Board Meeting where directors resolve for filing offence compounding application and authorise some director or officer to carry this out.

3 Appoint professionals.

4 File GNL-1 Form with the Registrar of Companies (ROC) along with the required documents and Rs1000 fees.

5 After you receive the compounding order, you should intimate ROC about it within 7 days.

Please note that ROC forwards GNL-1 to the appropriate authority after writing his own comments. The appropriate authority determines the compounding fees that you should pay.

Effects of Compounding

When the compounding order is received before or after the institution of any prosecution, the applicant must intimate the same to the Registrar within 7 days. If the compounding order is received after the institution of any prosecution, the Registrar shall inform the court where the prosecution is pending, and the accused person shall be discharged from all further prosecutions.

Conclusion

Compounding in the Companies Act, 2013 provides a mechanism for resolving offences and non-compliances, offering an alternative to lengthy prosecutions and potential damage to the company’s reputation. It is important for the parties involved to be on the same page and fix a compounding amount to be paid by the accused, ensuring compliance with the order of the Compounding authorities.

FAQ:

Q1: When can you say that the offences are compounded?

A1: You can say that the offences are compounded after the appropriate party has issued you the order stating that the offence is compounded.

The appropriate authority issues the order after the party/applicant makes the payment of compounding fees as decided by the appropriate authority and the appropriate authority is satisfied about the receiving of the payment.

Q2: What else should the company do to get totally complied with the compounding order?

A2: The company or the applicant should submit/file all the required returns, forms, etc., for which the non compliance arose, along with the additional fees as is prescribed in that behalf.

Q3: What happens if anyone fails to comply with the order of Compounding authorities?

A3: The maximum amount of the fine that can be imposed for such offence will be twice as per section 441(5).