Compounding And Condonation Under the Companies Act, 2013

Compounding And Condonation Under the Companies Act, 2013

Compounding is a settlement process in which the party in default or the criminal pays a specified sum of money to the appropriate authorities rather than being punished. 

Compounding is not a new phenomenon; it has existed since Section 621A of the former Companies Act of 1956, which states that "a corporation or an official thereof who has committed or is believed to have committed an infraction can seek for compounding the offence." 

The notion of compounding offences is addressed under Section 441 of the current legislation, namely the Companies Act, 2013. 

U/s. 441, Compounding as a remedy can be employed by the defaulting company or the company's officials in default as specified in Section 2(60) in the case of an offence punishable by fine only if committed under the Companies Act, 2013 or the rules and regulations adopted thereunder. 

So, let us talk more about it.

Before starting anything, let us know what is Compounding and Condonation under the Companies Act, 2013

Compounding and Condonation under the Companies Act, 2013

The Companies Act of 2013 has no provision for pardoning crimes committed by corporations or their directors, executives, and other personnel. 

The process of forgiving or excusing an offender is referred to as the condonation of offences. 

The only option to settle the offence under the Act is by compounding, as indicated above, or through indictment in a court of law.

If the violation is not arbitrable and the firm or individual doing it is found guilty, they may incur fines or imprisonment under the Act. 

The Act imposes a variety of penalties for non-compliance with its rules, including fines, prison, and director disqualification. 

The penalties imposed by the act are intended to guarantee compliance with the act's terms and to serve as a deterrence to others.

Under this act, offences can be classified into two major types:

  1. Compoundable offences that include payment of a fine or can even offer punishable fine or imprisonment
  2. Non-Compoundable offences, i.e. if a comparable offence has already been compounded and the three-year limit has not ended, the offence cannot be compounded again. Section 441 (2) and Offenses cannot be combined if an inquiry has been launched or is ongoing (Section 441(1)).

Let us know about the importance of compounding

Criminal provisions in corporation law may serve as a disincentive to the promotion of business and the flow of money. 

Compounding offences helps to mitigate this because it is an effective summary process and takes less time. 

The officer in default is not prosecuted, and the compoundable offence is remedied by paying the charge determined by the NCLT/RD. 

The amount paid is not a punishment and cannot be used to disqualify the director. 

The fine imposed cannot be more than the punishment imposed under the applicable legislative law. 

Procedure for compounding of offences under the Companies Act, 2013

Before submitting an application for compounding, the company must have a board meeting to discuss and approve the filing and empower the CS or CFO, 

any director or law firm/practising chartered accountant/practising company secretary or any individual by passing a resolution. 

This individual is allowed to file the application for compounding on behalf of the corporation or the officers in default.

Section 441 of the Companies Act, 2013 r/w. Rule 34 of the NCLT Rules, 2014 requires the submission of an application in e-form GNL-1 to the Registrar of Companies (ROC) together with the necessary fee and also some documents that they will be asking for.

The ROC would transmit the e-form and any accompanying materials to the NCLT or the Regional Director, as appropriate.

Once the NCLT/RD has compounded the offence, taking into account the quantum of fine involved, the Company is legally required to notify the ROC in Form INC-28 to the ROC within 7 days of such order being made by the NCLT/RD.

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Once the NCLT/RD receives the application for compounding, the concerned authority will send a notice to the company for a personal hearing, 

during which the authorized representative of the company is required to make a submission and admit the violation committed under relevant sections of the Companies Act, 2013 and rules made thereunder.

After this, the company is bound to pay the amount as asked by the competent authority, and no one can deny this; also, the amount has to be paid within the specified period of time.

To know more about striking off a company, you can rely on the blogs of Especia, the leading financial service-providing firm in the nation.

FAQs Related to Compounding and Condonation under the Companies Act

1. Is there a difference between compounding and condonation?

Yes, there are some major differences between compounding and condonation.

2. What are the key differences between compounding and condonation?

Compounding is simply a compromise or arrangement between the enactment's administration and the individual committing the infraction. On the other hand, the phrase condonation refers to an implicit forgiveness of an offence by treating the perpetrator as if he had committed no crime. The mentioned infraction here is the offence of disregarding the legislation of the term set by the Limitation Act of 1963.

3. Can we go for condonation in case of compounding?

Yes, as the immunity granted to firms to file within an additional 270 days has been removed. As a result, any filing that exceeds the deadline set in the relevant provision will incur additional fines as well as be excused for the delay.

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