A business plays an important role in shaping a nation’s economy. It invites investments both domestically and internationally, provides employment, enhances competition in the market, and also generates revenues for the Government through taxes. Without businesses, there would be no circulation of resources from one end to another and this would lead to a derailed economy. To encourage the creation of newer businesses the Government brings in various incentive schemes to support them.

Just like how a Government should be liberal enough to back the businesses in its territory, it must equally be strict enough to hold them guilty when these businesses resort to any unfair or illegal practices. Especially for bigger businesses like companies, timely penalizing them for their wrongs is of utmost importance as they handle quite high-stake transactions which can affect the interests of all those connected with the company.

Of course, the severity of a penalty depends on the magnitude of an offense committed by the company and its possible after-effects. It does mean that offenses by companies that are not much serious in nature but are a mere violation of certain formalities to be followed as given by law, then the punishment so prescribed can be lessened and the empowered authorities can go lenient over those companies by reducing their punishments or fines.

In the context of the Indian company law, we shall further explore whether there are any provisions for reducing the punishments or fines levied on companies, the offenses for which such bargaining cannot be sought, and also the things to be complied with to request the bargaining on such punishments.

Meaning of ‘Compounding of offenses’:

When the person who has complained against the offenses committed, agrees to compromise and drop the charges against the accused, then such an offense is said to be a compoundable offense.

In simple words, reduction of the punishment for doing a certain offense is called compounding of offense.

Legal provisions for compounding of offenses under the Indian Company Law:

(a) When an offense is committed by a company or its officers and the punishment attracted is other than only imprisonment or imprisonment and fine, then such an offense can be compounded by the Regional Director provided the maximum amount of fine for such offense is not more than 25 lakhs.

(b) Offences by companies or their officers that attract only a fine and if such fine exceeds 25 lakhs then such an offense can be compounded by the National Company Law tribunal.

(c) When imprisonment or fine or both are attracted for an offense committed by a company or its officers, it can be compounded only by Special Courts.

One must simply keep in mind that any offense which attracts the punishment of only imprisonment or imprisonment and fine both, cannot be compounded by any authority under the Indian company law.

It shall be thus understood that the reduced punishment (i.e for an offense that is compounded) shall be less than the maximum fine applicable otherwise for such offense.

(d) No offense committed by a company or its officers shall be compounded if an investigation is pending or newly initiated against such company under the Companies Act of 2013.

(e) If an offense is compounded and within 3 years a similar offense is committed by a company or its officers, then such a similar offense would not be eligible for being compounded again.

This also means that a similar offense would be compoundable only after a period of 3 years from committing the first compoundable offense.

(f) Any company applying for compounding of its offenses shall make an application to the Registrar of Companies (ROC). The ROC shall add his comments over the application and forward it to the Regional Director or NCLT or any other officer authorized by the Central Government, as the case may be.

(g) Once the offense is compounded, no prosecution shall lie against the company whether it is initiated by the ROC or the shareholder of such company or by the authorized officer of the Central Government.

(h) If the compounding of offense is made after the prosecution is initiated, the ROC shall notify the concerned Court about such compounding and only after such notice is served, the company and its officers shall be discharged from the prosecution.

(i) The NCLT or Regional Director or Central Govt authorized officer while examining the application for compounding may require the company or its officers to file a return, report, or any other document with the ROC along with any additional fees which the company or its officers have failed to file.

All offenses under the Indian company law are non-cognizable except those referred to the Serious Fraud Investigating Officer under sub-section 6 of Section 212.

Some offenses under company law that are compoundable in India:

(i) Violation of provisions relating to rectification of company’s name.

(ii) Contravention of provisions with respect to the issue of prospectus.

(iii) Violating the provisions relating to the issue of shares at discount.

(iv) Failure to comply with the provisions for the formation of non-profit companies under Sec 8 of Indian company law.

(v) Issuing duplicate share certificates fraudulently.

Some offenses that are non-compoundable as per Indian company law:

(i) Tampering the minutes of the meetings of companies.

(ii) Non-distribution of the dividend within a prescribed time limit.

(iii) Making contributions to political parties in contravention of the law.

(iv) Disobeying the directions or instructions given by the investigating officer or ROC.

(v) Frauds by company’s officers.

Conclusion:

Compounding may thus release the companies from the burden of getting penalized for less severe offenses.

This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being. Further, despite all efforts that have been made to ensure the accuracy and correctness of the information published, White Code Legal and Tax shall not be responsible for any errors caused due to human error or otherwise.