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Compoundable Offences and Penalties under Companies Act, 1956


The Companies Act, 1956 provides the legal basis for various corporate governance norms that are considered essential for proper corporate operation and protecting the rights of stakeholders. Violations of such norms are defined as offences with associated penalties. Essentially, law should be such that all subject entities should comply with it in their own interest. Nevertheless, it would not be realistic to expect that all companies would comply with the framework voluntarily. There would be some entities that would seek gains at the cost of legitimate rights of others, sometimes by fraudulent behaviour or through violation of the legal regime. However, law must also provide clear definition of what constitutes an offence and provide penalties that act as deterrent to companies from taking such action. Simultaneously, it should provide for procedures that enable application of penalties promptly and effectively.

Corporate Offences are broadly classified as civil and criminal offences. The offences committed by the directors and officers of a corporate body, which is criminal in nature, also fastens on the corporate body, being an independent legal entity, in the same manner and to the same extent as the perpetrators of the offence. This brings us into sharp focus the fundamental legal relationship between the corporate body and those making use of corporate name for doing business.

The Act by Section 621A provides for compounding of offences. This is a shortcut to avoid or cut short to litigation as it is not only time consuming but also unduly divert the attention of the companies. Compounding of offence is subject to certain regulations. Similar facility is proposed to be continued in the Bill by clause 402.Only those offences, not being an offence punishable with imprisonment only or with imprisonment and also with fine, either before or after the institution of any prosecution, may be compounded, with the permission of the Court having jurisdiction to try the offence, subject to the regulations to be prescribed by the rules.

Compoundable and non-compoundable offences:

Compoundable offences are such offences in which the victim of the offence would be at liberty to compound the matter with the accused and if the victim makes a statement before the court of this effect, the court is bound to acquit the accused. Whereas in non-compoundable offences the victim cannot compound the offence and the accused cannot be acquitted on the sole statement of the victim that he has forgiven the accused or compounded the offence.

A compoundable offence is an offence in which the trial court can compound the offence and dispose the case without trial. A non compoundable offence is an offence in which the court cannot compound the case without trial. A compoundable offence is always a lesser degree offence punishable with a shorter jail term or fine.

Compoundable offences are those which can be compromised by the parties to the dispute. The permission of the court is not necessary. When an offence is compounded, the party, who has been aggrieved by the offence, is compensated for his grievance. Suppose your car accidentally hits a person on the road and he is injured. Though you may be guilty of rash and negligent driving, you can settle the matter by paying some money to the victim.

Only the aggrieved party or the victim may compound an offence. Not even the public prosecutor has the power to compound an offence.

Compounding is permitted on payment of additional fine which should not exceed the quantum of fine prescribed by law in respect of any particular offence. On acceptance of compounding proposal, no prosecution will be launched .and if the prosecution case is already before the Court.

The Courts’ permission is requested by the prosecuting authority for withdrawal of the case. However, an offence is not compoundable if it is punishable with imprisonment only or with imprisonment and also with fine.

Power of Compounding:

Any compoundable offence under the Act may, either before or after the institution or proceedings, be compounded at any stage of the proceedings. The Act may suitably prescribe the scale of compounding fees and the authority empowered to compound.

Prosecution:

Any person committing an offence referred to in the Second schedule i.e. offences punishable with imprisonment or with imprisonment along with penalty may be proceeded against in the criminal Court but only with the previous approval of the Central Government or any other authority specified by the Central Government. No prosecution should be launched unless the offender is provided with a reasonable opportunity of being heard in the matter.

Department of Company Affairs:

The Department of Company Affairs (DCA) has said that there is no legal bar for composition of an offence under Section 621A of the Companies Act, 1956, provided the conditions specified in the Section and guidelines, if any, are fulfilled.

In this connection, the DCA has directed all the Regional Directors (RDs) and Registrars of Companies (ROCs) that the provisions of Section 446 of the Companies Act do not bar criminal proceedings against the directors of the company for any offences committed under the Companies Act and the offences are compoundable under Section 621A of the Companies Act.

The clarification to RDs and ROCs follows revelations in some of the inspections whether the offences committed by directors of a company can be compounded under Section 621A of the Companies Act when the company in which they were directors is under liquidation without obtaining the leave of the Company Court under Section 446 of the Companies Act. The issue, which has been examined in consultation with the Ministry of Law, is further clarified that where the penal provisions provide for proceedings against the companies also and if the offences are compoundable under Section 621A of the Companies Act, compounding will not be permissible against the company in view of the provisions of Section 446 of the Companies Act.

Composition of certain offences:

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

(a) the Company Law Board; or

(b) where the maximum amount of fine which may be imposed for such offence does not exceed five thousand rupees, by the Regional Director, on payment or credit, by the company or the officer, as the case may be, to the Central Government of such sum as that Board or the Regional Director, as the case may be, may specify: Provided that the sum so specified shall not, in any case, exceed the maximum amount of the fine which may be imposed for the offence so compounded: Provided further that in specifying the sum required to be paid or credited for the compounding of an offence under this sub- section, the sum, if any, paid by way of additional fee under sub- section (2) of section 611 shall be taken into account.

(2) Nothing in point (1) shall 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 section 621A.

(3) Every Regional Director shall exercise the powers to compound an offence, subject to the direction, control and supervision of the Company Law Board.

(4)        (a) Every application for the compounding of an offence shall be made to the Registrar who shall forward the same, together with his comments thereon, to the Company Law Board or the Regional Director, as the case may be.

(b) Where any offence is compounded under section 621 A, whether before or after the institution of any prosecution, an intimation thereof shall be given by the company to the Registrar within seven days from the date on which the offence is so compounded.

(c) Where any offence is compounded before the institution of any prosecution, no prosecution shall be instituted in relation to such offence, either by the Registrar or by any shareholder of the company or by any person authorised by the Central Government against the offender in relation to whom the offence is so compounded.

(d) Where the composition of any offence is made after the institution of any prosecution, such composition shall be brought by the Registrar in writing, to the notice of the Court in which the prosecution is pending and on such notice of the composition of the offence being given, the company or its officer in relation to whom the offence is so compounded shall be discharged.

(5) The Company Law Board or the Regional Director, 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 a company or its officer to file or register with, or deliver or send to, the Registrar any return, account or other document, may, direct, by order, if it or he thinks fit to do so, any officer or other employee of the company to file or register with, or on payment of the fee, and the additional fee, required to be paid under section 611, such return, account or other document within such time as may be specified in the order.

(6) Any officer or other employee of the company who fails to comply with any order made by the Company Law Board or the Regional Director under shall be punishable with imprisonment for a term which may extend to six months, or with fine not exceeding five thousand rupees, or with both.

(7)        a) any offence which is punishable under Companies Act with imprisonment or with fine, or with both, shall be compoundable with the permission of the Court, in accordance with the procedure laid down in that Act for compounding of offences;

(b) any offence which is punishable under Companies  Act with imprisonment only or with imprisonment and also with fine shall not be compoundable. 

Comments
Pankaj Agnihotri January 13, 2011
This article has not touched the vital issue on the point that in an eventuality, where an offence is compounded and a fine of Rs. 2,000/- is imposed on any director, then will that director be eligible to continue as a director.
 Kotankar April 17, 2011
i want to ask u that whether the offence of child labour(17 years) is compoundable or non compoundable?
 ajay May 17, 2011
good article
balasaheb patil December 14, 2012
I am a shareholder of one of the unlisted piblic limited company,the transferre and the board has violated the u/s 198 and 109, I am want to produce suit for the offence, kindly advice who is the jurisdiction autjhority whther CLB or the District Court?
 nadeem May 2, 2013
hi,

The friend of mine has done some changes in his salary chq, he was getting salary for 18,000 so he made 2,18.000/- and the Fir has been loged under his name and he also made the payment to the other party, complete payment and police officers says tat it is compoundable so, will he be given any punishment, and if the camplainant cames and says that settle ment is done that to the probelm will be there.
Nikhil May 30, 2013
"In this connection, the DCA has directed all the Regional Directors (RDs) and Registrars of Companies (ROCs) that the provisions of Section 446 of the Companies Act do not bar criminal proceedings against the directors of the company for any offences committed under the Companies Act and the offences are compoundable under Section 621A of the Companies Act.
The clarification to RDs and ROCs follows revelations in some of the inspections whether the offences committed by directors of a company can be compounded under Section 621A of the Companies Act when the company in which they were directors is under liquidation without obtaining the leave of the Company Court under Section 446 of the Companies Act. The issue, which has been examined in consultation with the Ministry of Law, is further clarified that where the penal provisions provide for proceedings against the companies also and if the offences are compoundable under Section 621A of the Companies Act, compounding will not be permissible against the company in view of the provisions of Section 446 of the Companies Act."

Could you please tell me the source of the above mentioned paragraph?
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