Compounding of offence is a process whereby the person/entity committing default will file an application to the compounding authority accepting that it has committed an offence and so that same should be condoned. The compounding
authority may compound the offence and ask the defaulting party to deposit compounding fee as decided by it on case to case basis. Once the said compounding fee is paid, the defaulting will no more be treated in default of the
offence which has been so compounded.
WHO ARE COMPOUNDING AUTHORITIES UNDER THE ACT?
Under the Act, the compounding authority shall be either Regional Director or National Company Law Tribunal. An offence shall be compounded by Regional Director where the maximum amount of fine which may be imposed for such offence
does not exceed INR 25,00,000. All offences where the maximum amount of fine which may be imposed for such offence exceed INR 25,00,000 shall be compounded by National Company Law Tribunal.
ADVANTAGES OF COMPOUNDING:
No personal appearance for an officer in default, as in case of prosecution for an offence in a criminal court.
Summary proceeding less time-consuming.
The defaulter can be discharged on payment of composition fee, which cannot be more than the maximum fine leviable under the relevant provision.
Fees payable on compounding are not treated as penalty, hence no disqualification for Directors.
PROCEDURE FOR COMPOUNDING OF OFFENCE UNDER THE COMPANIES ACT, 2013:PRE-COMPOUNDING OBLIGATION:
Call a Board Meeting in accordance with the provisions of the Companies Act, 2013 and Secretarial Standard-1 (SS¬1).
The Board shall then calculate the total amount of offence and the amount of penalty as per the relevant Section of the Companies Act, 2013.
Conduct a Board meeting and pass a resolution to file an application with authority for compounding of offence and authorize the director of the Company and for preparation and signing of documents including application.
The Company shall prepare the application for compounding of offence along with the relevant documents.
The Application of compounding shall be submitted electronically in e-Form GNL-1 with ROC. This e-form will be forwarded by ROC together with their comments thereon, to NCLT / Regional Director or any officer authorized by the
Central Government, as the case may be.
There is no specific provision in the Act, normally, NCLT/Regional Director will give personal hearing and then pass a speaking order giving reasons. The hearing can be attended by the Director/secretary/ officer of Company or
by authorized representative like an advocate or a practicing CA/ CMA/ CA.
POST-COMPOUNDING OBLIGATION:AS PER SECTION 441 3(B) OF THE COMPANIES ACT, 2013:
Where any of the offence has been compounded, either before or after the institution of any prosecution, intimation shall be given to the Registrar of Companies (ROC) within 7(seven) days from the date on which, the offence is
In case the offence has been compounded before the institution of any prosecution, no prosecution shall be filed either by ROC or by any shareholder or by any person authorized by the Central Government.
It is needless to point out that the period of seven days shall be reckoned from the date, the order is made available to the petitioner/applicant
Where the compounding of any offence is made after the institution of any prosecution, such compounding shall be brought by the Registrar in writing, to the notice of the Court in which the prosecution is pending.
On such notice of the compounding of the offence being given, the company or its officer in relation to whom the offence is so compounded shall be discharged.
PENALTY FOR NON - COMPLIANCE OF ORDER:
NCLT or RD, while dealing with a compounding application for an offence of non-filing with ROC of any return or other documents, may order any officer or other employees of the company to file or register such return or document
Penalty for non-compliance: to comply with the order made by Tribunal/RD/Officer authorized by the Central Govt
Non-compliance regarding the filing of Order: punishable with imprisonment for a term which may extend to six months, or with fine not exceeding one lakh rupee or both
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