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Compounding Under Company Law

Posted on June 5, 2021June 10, 2021 By Advocate Aman Sharma No Comments on Compounding Under Company Law

Compounding Under Company Law

Compounding Under Company Law

Compounding

Compounding of an offence is a settlement instrument, by which, the litigation be avoid by giving the opportunity to the offender by giving an option to pay money to avoid prosecution, As per the Black’s Law Dictionary “Compound” means “to get the matter settle by a money payment against liability”. The Act does not talk about any provision which requires by a company before filing compounding application before the authority.

What is Compoundable Offences under Companies Act 2013 and Which section deals with the compounding of Offences under IT Act?

Section 441 of Company Act 2013 deal with the term compounding, of offences committed by companies or any officer. The defaulting party first to make an application for compounding in Form GNL-1 to the Registrar of Companies after receiving the application, it has to be forwarded to the compounding authorities., as the is, depending upon maximum fine involved, along with the report. Once an offence is compounded, the company shall intimate the same to Registrar of company in Form-28 within a period of 7 days from the date on which an offence is compounded and order is received.

Judgment passed by National Company Law Tribunal Bprex Pharma Pacakging India Private Limited: In the judgment the petition is filed under section 441 under Company Law Act for the purpose of compounding of violation of provision of section 60(2) of the Company Act 2013 and section 166 Of Company Act 2013 also explain the concept of Section 441 of Company Act 2013.

The Act classifies the following classes of offences, which can be compounded:

  1. Offences punishable with fine.
  2. Offences punishable with imprisonment or with fine.
  3. Offences punishable with imprisonment or with fine or with both.

Authorities Having Jurisdiction For Compounding Of Offence Under Company Law

The authority for compounding of offences under the Act lies with:

  1. National Company Law Tribunal (NCLT)

2. Regional Director (RD) depending on the maximum amount of fine that      may be imposed.

Judicial Aspect Of Compounding

Section 144 of company act 2013 prescribes the procedure of term of compounding by approaching the authorities for compounding of an offence against the defaulting party.

Judgment passed by NATIONAL COMPANY LAW APPELLATE TRIBUNAL, In Company Appeal (AT) No. 238 of 2019, Quinn Logistics India Private Limited & Ors. Vs. Registrar of Companies, Hyderabad

The tribunal must look into the relevant facts while compounding application on the basics of nature of offence and its gravity and if it is pleaded by the applicant or reported by Registrar of Companies, such as:

(i) The gravity of offence;

 (ii) The act is intentional or unintentional;

(iii) The maximum punishment prescribed for such offence, such as fine or imprisonment or both fine and imprisonment.

(iv) The report of the Registrar of Companies.

(v) The period of default.

(vi) Whether petition for compounding is suo moto before or after notice from Registrar of Companies or after imposition of the punishment or during the pendency of a proceeding.

(vii) The defaulter has made good of the default.

(viii) Financial condition of the company and other defaulters.

(ix) Offence is continuous or one time.

Important rules to be considered before compounding of offence under company law:

  1. The applicant must file the documents, record register, payment of fees and information required by the authority within the stipulated period of time prescribe under the provisions.

2. Where the maximum amount of fine which may be imposed for such offence does not exceed the amount of rupees twenty-five lakh rupees, also 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 and 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 403 shall be taken into account.

NATIONAL COMPANY LAW TRIBUNAL in the case of Company Appeal (AT) No. 49, 50, 51, 52 and 53 of 2016 decided on 28th February, 2017 also in f M/s Viavi Solutions India Pvt. Ltd. & Ors. Vs. Registrar of Companies, NCT Delhi and Haryana held as under:

While compounding any offence it is required to consider different aspects, i.e. grounds taken by the applications, nature of offence, etc. In one case lessor amount cannot be imposed when higher amount is claim in another case for same offence, if similar ground is taken Tribunal are required to be consistent in passing the order on compounding application, any offence and are required to notice the precedence, i.e. earlier order if any passed in one or other case for similar offence

  1. No offence specified in this section shall be compounded except under and in accordance with the provisions of this section.

ADJUDICATION OF COMPOUNDING:

Section 441 of the Act deals with compounding of offences Section 454 empowers Registrar or other adjudicating authority to deal with defaults which are not punishable with fine or imprisonment but by way penalty. For the adjudication of penalties, Registrar by issuing show cause notice directs a default thereof to rectify the default, In compounding, it is the defaulting company apply for compounding after admitting the default and further, where offences liable with penalties are committed for the second occasion

CONCLUSION

Compounding is a settlement or giving the opportunity to the defaulter, by providing an opportunity to pay the debt to avoid prosecution an also to avoid the litigation as it may lead to waste of time, wealth and goodwill. And also as we see on the company incorporated on the large scale, the company have to monitor to avoid default in order to avoid the misuse of the concept of compounding.

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