In this blog post, Mamta Ramaswamy, an Associate at Doraswamy Law Chambers (DLC), Bangalore and a student pursuing her Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses the concept of compounding of offences under Companies Act, 2013.
The word ‘compound’ is not defined under the Companies Act, 2013 or the Companies Act, 1956. According to the Law Commission report on Compounding of (IPC) Offence, Compounding in the context of criminal law means forbearance from the prosecution as a result of an amicable settlement between the parties.
Compounding under the Companies Act, 2013
Section 441 of the Companies Act, 2013 (the Act) deals with the compounding of offenses which came into effect on 1st June 2016. According to section 441, any offence punishable under the Act, whether committed by a company or by any of its officer, with fine only, may either before or after institution of any prosecution, be compounded by the Tribunal or where the maximum amount of fine which may be imposed for such offence does not exceed five lakhs rupees, by regional director or any officer authorised by the Central Government on payment of such sum as may be prescribed by that Tribunal or regional director or such offer authorised by the Central Government. Also, any offense which is punishable under the Act, with imprisonment or fine or both shall be compounded with the permission of the Special Court, established under section 435 of the Act.
The section further states that offenses shall not be compounded under the following conditions:
- if investigation against such officer or company is pending under the Act;
- if a company or the officer commits the offense within 3 years from the date a similar offense committed by such officer or company was compounded or,
- if the offenses are punishable with imprisonment only or with imprisonment and also with fine.
Therefore, an offense under the Companies Act, 2013 is compoundable, i.e., the offender can pay a fine for an offense if such offense is punishable by fine or imprisonment and not with just imprisonment.
Issue with this section
According to section 24(1) of the Act, Securities and Exchange Board of India (SEBI) shall administer, issue and transfer of securities and non-payment of dividend by the listed companies or those companies which intend to get their securities listed on any recognized stock exchanges in India by making regulations in this behalf.
Therefore, from the provisions as mentioned above, it can be deduced that an unlisted company intending to get listed can come under the purview of SEBI, i.e., an unlisted public company. So, there seems to be a conflict of the provisions as mentioned above, i.e., if an unlisted public company intends to get listed on the stock exchanges then compounding of offenses will be regulated by section of 24A of the Securities and Exchange Board of India, Act 1992. Therefore, according to the Sahara case intending to get listed would mean any company offering its securities to more than 49 persons, which would entail that such offer is a public offer and thus shall be governed by SEBI.
Therefore, any company which is not a listed company but undertakes actions like a listed company shall be governed by SEBI laws and thus the decision of compounding the offenses will also lie with SEBI.
Compounding of offences is an important concept because if an officer or a company admits to commission of an offence, then in such case, it must be given a chance of making a payment in terms of fine to the concerned authority and reduce its punishment with respect to such offence when punishment for such offence is not severe.
 Sahara India Real Estate Corporation Limited and Ors vs. Securities and Exchange Board of India CIVIL APPEAL NO. 9813 OF 2011