Compounding of certain offences under companies act, 2013

Authors: Adv. Rajneesh Sood & Adv. Shikha Prabhakar
Date: December 2021

Compounding of certain offences under companies act, 2013

Whether similar offence committed under the Companies Act, 2013 within a span of three years of the first composition is still compoundable?

Compounding of certain offences under the Companies Act, 2013. Whether similar offences committed within a span of three years of the first composition, still compoundable?

Section 441 of the Companies Act, 2013 (“Act”) deals with composition of certain offences committed by a Company or its officer that are punishable under the Act, notwithstanding anything contained in the Code of Criminal Procedure, 1973.

The offences committed by a company or its officer that are punishable with imprisonment only or are punishable with imprisonment and also with fine are not compoundable under the Act. However, the offences which are punishable with imprisonment or fine or both can be compounded under the Act by the Regional Director or a person authorised by the Central Government in cases where the amount of fine that may be imposed does not exceed Rupees Twenty Five Lakhs and by the National Company Law Tribunal (NCLT) irrespective of any pecuniary limit on the quantum of fine.

The application for compounding of offence under the Act has to be made to the jurisdictional Registrar of Companies. The Registrar forwards the same with his comments thereon to the Regional Director, officer authorised by the Central Government or NCLT as the case may be. Where any offence is compounded, intimation is to be given by the company to the jurisdictional Registrar of Companies within seven days.

An offence can be compounded at any time, either before or after the institution of proceedings thereof. It is not necessary that the offence must be proven to have been committed. An allegation of commission of an offence would suffice for invoking the play of this section. Even if prosecution has ended in conviction and the accused has preferred an appeal, the composition can be effected during the pendency of the appeal. Once the offence is compounded by payment of composition money, no prosecution can be launched in the Court for the very same offence. As soon as the offence is compounded, it operates as an acquittal. Apart from acquittal, composition of a compoundable offence bars a suit for damages on the facts of the original offence.

There are however certain limitations on the exercise of compounding powers under Section 441:

1. The composition money/fine so specified shall not exceed the maximum amount of fine which may be imposed for the offence so compounded.
2. While specifying the sum required to be paid or credited for compounding of an offence, the sum, if any paid by way of additional fee under Section 403(2) shall be taken into account.
3. No composition of offences is permitted in the cases where investigation against the company concerned has been initiated or pending under the Act.

It is permissible for a company to file a joint application along with its officers in default seeking compounding of contravention of offences that are committed in different years. The National Company Law Appellate Tribunal (NCLAT) in Pahuja Takki Seeds Ltd. V. Registrar of Companies, NCT of Delhi & Haryana, 2018.

An offense committed within a period of three years from the date on which a similar offence was committed and compounded, would not be compoundable and such offences can only be tried before the Court. However, similar offence committed after a period of three years from the date of composition of an earlier offence is deemed to be the first offence and is therefore compoundable.

What is the position with respect to subsequent similar compoundable offences that are committed within a period of three years from the date on which a similar offence was committed but not compounded? The NCLAT in Pahuja Takki Seeds Ltd. V. Registrar of Companies, NCT of Delhi & Haryana, 2018 has held that unless the offence has previously been compounded, it would not attract the provision of Section 451 and thus even such similar offences shall be compoundable.

As per Section 451 of the Act, in case a company or an officer in default commits an offence punishable with fine or imprisonment on more than one occasion within a span of three years, such company or the officer in default would be liable to pay twice the amount of fine in addition to the imprisonment provided for such offence. Does reference to the words in “in addition to the imprisonment” under Section 451 of the Act make the offence non-compoundable, as then it becomes an offence of “imprisonment and fine” and does it therefore oust the jurisdiction of the adjudicating authority, the NCLAT in Pahuja Takki Seeds Ltd. V. Registrar of Companies, NCT of Delhi & Haryana, 2018 has held that the penalty of imprisonment cannot be levied on a company and thus to that extent NLCT has the jurisdiction to compound the offence. As regards the position of an ‘officer in default’, the NCLAT held that unless the substantive penal provision did not provide for imprisonment, it will not automatically be deemed due to the terminology used in Section 451.

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