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Offences & Prosecutions - Relief & Remedies against offences - Advisory & Representation

Compoundable Offences

Offences under the Companies Act, 1956 are compoundable unless the offence in question invites imprisonment as a mandatory part of the prescribed punishment. [Section 621A]
The following offences are compoundable:

Offences punishable with fine only; Offences punishable with fine or imprisonment; Offences punishable with fine or imprisonment or both.

What is meant by the word “Offence”?

The word offence is not defined under the Companies Act, 1956 not under the Indian Penal Code.
Offence means “a contravention of law” as defined under Section 20 of the Cattle Trespass Act, 1871 (1 of 1871).

Repeat Offences – Non compoundable

Under Section 621A of the Companies Act, 1956, it is not possible to apply for compounding of an offence, if the same offence has already been compounded and a period of 3 years has not elapsed after the previous compounding.

Twin Benefits of Compounding

A prosecution of the offence would not be launched in a Criminal Court by filing a criminal complaint whereby the hassles of appearing before a criminal court would not arise. If a prosecution had already been launched, the compounding of offence puts an end to such prosecution.
The compounding fee payable in consideration of the appropriate authority allowing the application for compounding is not same as a fine levied by a criminal court. A fine will be levied as the whole or part of the punishment for the offence committed preceded by the court convicting the accused of the offence.

Twin Pre-requisites for the compounding of an offence

Admission of the Offence
Putting an end to such offence; where the offence cannot be stopped immediately an undertaking could be furnished, that all steps will be taken to comply with the provision within a reasonable time. For instance if the offence had arisen due to default in appointment of a whole-time company secretary, the appropriate authority may allow the application for compounding on the strength of such an undertaking. Presently there is no effective system that monitors compliance of such undertakings.

Compounding Authority under the Companies Act, 1956

Where the amount of fine as per the penal clause contained in the relevant provision of the Companies Act, 1956 in relation to a given offence is not more than Rs.50,000/-, the Regional Director in the Ministry of Corporate Affairs is the Compounding Authority.
In other cases, the Company Law Board is the Compounding Authority.

Application – How made?

In all cases, an application for compounding of an offence under the Companies Act, 1956 can be filed only with the Registrar of Companies.
No fee is payable for filing this application.
The Application will be filed in Form – 61 through the MCA portal by electronic mode.

Illustrative Case AFS & AR

Non filing of Annual Financial Statements [AFS]; Annual Return [AR] and other connected matters default whereof will create offences.

AFS and AR have to be filed with the Ministry of Corporate Affairs on an annual basis whether the company is carrying on any business or not; any event takes place or not.
AFS have to be prepared on the basis of books of account, [Section 209] registers and records. AFS includes Balance Sheet, Profit and Loss Account, Notes and Schedules.
AFS would include a Directors’ Report prepared as per Section 217.
AFS would include the report of the statutory auditors too. [Section 227]

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