Compounding of Offenses under the Companies Act, 2013

Compounding of an offense, although not explicitly defined in the Companies Act of 2013, refers to settling offenses related to corporate law by paying a prescribed penalty without going through a lengthy court process. Compounding allows for faster resolution of certain offenses by paying a fee as specified by the law. The process of compounding allows defaulters to acknowledge their wrongdoing and seek resolution by agreeing to pay a penalty or fine determined by the Central Government or Tribunal. It is a form of compromise or arrangement between the enforcer of the law and the individual or entity that has committed the offense. Essentially, compounding involves receiving a consideration, termed as compounding fees, in exchange for an agreement not to prosecute the individual or entity for the committed offense.

However, not all offenses can be compounded. There is a list of offenses that are compoundable under the Act, and these vary in their severity. Some offenses are not allowed to be compounded if they are considered serious in nature. The compounding provisions are outlined in Section 441 of the Companies Act, 2013, and they are specified by the Ministry of Corporate Affairs (MCA). The MCA issues rules and notifications indicating which offenses can be compounded and under what circumstances.

Compoundable offence:

The offences that are not mandatorily punishable with imprisonment are compoundable, as stated below:

• Offences punishable with fine only.

• Offences punishable with fine or imprisonment.

• Offences punishable with fine or imprisonment or both.

• In such types of offences the punishment may or may not include imprisonment.

Non-compoundable Offence:

Offences punishable with imprisonment mandatorily are non-compoundable offences. Therefore, the following offences are non-compoundable:

• Offences punishable with imprisonment only

• Offences punishable with both imprisonment and fine

• Any offence for which action is taken under Section 447

Compounding After Effect:

• If an offense is compounded before any legal prosecution is initiated: The Registrar/shareholder of the company/ authorized person by the Central Government, cannot proceed with launching a prosecution against the individual for that particular offense. Once the offense is compounded, it settles the matter, preventing further legal actions related to that specific offense.

• If the offense is compounded after a legal prosecution has already been initiated: The Registrar must inform the Court handling the case about the compounding. Upon notification, the individual facing prosecution for that offense will be discharged from the case.

In essence, compounding an offense, if done before or after prosecution, halts further legal actions pertaining to that specific offense.