Compounding of Offences

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An “Offence” shall mean any act or omission made punishable by any law for the time being in force. The “compounding” refers to the process of voluntarily admitting the contravention, pleading guilty and seeking redressal.
A compounding of consists of three basic elements:
(1) Knowledge of the offence;
(2) The agreement not to prosecute; and
(3) The receipt of a penalty.
The Act does not define Compounding of offences. However, it provides enabling provisions by which the Company or its director or officers can apply for compounding thereby avoiding prolonged litigation.

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Offences which can be compounded under section 441 of the Act:
The National Company Law Tribunal (“NCLT”) / Regional Director (“RD”) /any officer authorized by Central Government, as the case may be has the power to compound offences punishable with fine only or offence punishable with “fine or imprisonment or both.
Further in following cases, compounding shall not be allowed:
1. offence punishable with “imprisonment only”; or
2. offence punishable with “imprisonment and fine”; or
3. Where investigation has been initiated or is pending against the company; or
4. Where a similar offence has been compounded within the last three years.
Jurisdiction:
Where the maximum amount of fine which may be imposed for an offence does not exceed INR 25 Lakh, the Regional Director (“RD”) or any officer authorized by the Central Government has a power to compound such an offence;
Where the maximum amount of fine which may be imposed for an offence exceeds INR 25 Lakh, the NCLT has a power to compound such an offence.
Persons eligible to make a compounding application:
1. A company (any director of the company authorized by its board in this behalf) and/or
2. Officers in default of the company who are liable for prosecution under the respective provisions for non-compliances.
Pursuant to section 2(60) of the Companies Act, 2013, a Whole-time Director (WTD) and Key Managerial Personnel (KMP) shall be the officers in default. Further, where there is no KMP, officers in default shall be those directors who are identified by the board in this respect and who also consent to act as such. If no such director has consented as such, all directors shall be officers in default.

Documents required to compound any offence:

Procedure for Compounding of offence under the Companies Act, 2013:

Conclusion:

Compounding is a golden opportunity for any defaulting entity or person to come forward, admit the default and make the same good. The defaulting party gets discharged on payment of composition fee from that particular offence. Though compounding is the most appreciated tool for settlement of less grave defaults, it is important for the corporates to ensure that no such defaults occur and needs to monitor compliance of law on a real time basis.

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