COMPOUNDING OF OFFENCES- Where no Specific Penalty prescribed under the Section

Where no Specific Penalty prescribed under the Section


Under the relevant provisions of the Companies Act, 2013, offences committed under the Act entail penal consequences by way of fine, or imprisonment or both. . In this editorial, the author begins by referring the provisions of section 441 of the Companies Act, 2013 and also makes an attempt to light up on provisions of compounding of Offence where there is no penalty prescribed under the Companies Act, 2013. The main thrust of the article, however, is upon the provisions of section 441 which deals with compounding of offences and most recent case laws decided by the Benches of National Company Law Tribunal. Author will share the process relating to Compounding of offence in next piece of writing.

Corporates are run by humans.  To err is human. As committing of mistakes inadvertently by the corporate are unavoidable. Ignorance of law cannot be pleaded as an excuse for the default committed, whether intentional or unintentional. These defaults are the *Non-Compliances of provisions of the Law.

The Companies Act, 2013 ( Act ), inter alia, provides for penalties for the contravention of any of the provisions of the Act, any Rule, Regulation, Notification, Direction or Order issued there under or for contravention of provision in the section itself. Even Act has provide the penalties for the contravention of provisions of section ‘where there is no specific penalty provide under the section’ [Section 450 of the Act]. At the same time, an enabling provision to compound the contravention is also provided for in the Act [Section 441 of the Act].
"the aforesaid section was brought in view of the need of leniency in the administration of the Act because a large number of defaults are of technical nature and many defaults occurred because of the complex nature of the provision."
What we understood by Non-Compliance?
Non-compliance means - such as default, violation, breach, failure, contravention, failure to do something - all ultimately mean the same thing, i.e., something required to be done under the Companies Act, 2013, 'Not Done' resulting in default. In short any contravention of the Companies Act, 2013 or any previous Company Law would be an offence and it is punishable depending upon the section under which the default is committed with simple fine or imprisonment or both.

Offence doesn’t defined by the Companies Act, 2013 in any of its sections. However, the definition could be seen in the Code of Criminal Procedure (Cr.P.C.) which states as under:
"Any act or omission made punishable by any law for the time being in force."

Reasons behind Offences:
Many of the offences committed by companies under the Companies Act are technical and complex in nature, as has been observed by the Hon'ble Supreme Court of India in its judgment.
Offences for which no specific penalty is provided - HOW THESE ARE DEALT WITH

In some of the sections of the Companies Act, 2013, specific penalty is not provided although there could be instances of offences arising in those sections. Section 450 of the Companies Act, 2013 addresses the above issue and the penalties would be decided as provided in this section.

Statutory Framework:

Section 450 Punishment where no specific penalty or punishment is provided
If a company or any officer of a company or any other person contravenes any of the provisions of this Act or the rules made there under, or any condition, limitation or restriction subject to which any approval, sanction, consent, confirmation, recognition, direction or exemption in relation to any matter has been accorded, given or granted, and for which no penalty or punishment is provided elsewhere in this Act, the company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to ten thousand rupees, and where the contravention is continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which the contravention continues.

Analyses of the Section:
It is understandable from the above provision that if no specific penalty provide under the Act for any Section or Rule then the Company and officers in defaults are legally responsible for penalty under Section 450 of the Companies Act, 2013. Let’s discuss the same on the basis of the recent judgments of the NCLT.

In National Company Law Tribunal, Bangaluru Bench Narayana Hrudayalaya (P.) Ltd., In re
Section 179, read with section 441, of the Companies Act, 2013/Section 621A of the Companies Act, 1956 - Board - Powers of - Whether where petitioner company had granted inter-corporate loan to its subsidiary companies but there was a delay of 96 days in approving transactions by board of directors, petitioner's had not complied with section 179. The petitioners filed petition under section 621A of Companies Act, 1956, read with section 179(3) and section 185 of Companies Act, 2013 with a prayer to record compounding of the offence.
The petitioner stated that the company could not comply provisions of section 179(3) due to paucity of time and due to urgency of releasing of funds. Thus, default had occurred unintentionally and without any mala fide intention
There is no penal provision provided under section 179(3) of Companies Act, 2013. Therefore, provision of section 450 of Companies Act, 2013 is applicable. Any violation of section 179 of Companies Act, 2013 is punishable under section 450 of Companies Act, 2013. The company and every officers of the company are liable for punishment.
As the petitioner mentioned that due to paucity or time and due to urgency of releasing of fund this offence occurred which was unintentionally, the offence stated in the petition is compounded by the NCLT Bangaluru Bench.
National Company Law Tribunal, Hyderabad Bench Case:
In National Company Law Tribunal, Hyderabad Bench ICOMM Tele Ltd., In re
In this case applicant's company, it was noticed that the company failed to appoint a Woman Director on its Board of Directors as per section 149 of the Companies Act, 2013 read with rule 3 of the Companies (Appointment and Qualification of Directors) Rules, 2014.
Show-cause notice was issued to the company and its Directors by the Registrar of Companies (RoC), Hyderabad, dated 10-8-2015, under section 149 of the Companies Act, 2013, questioning the applicants as to why penal action, under section 450 of the Companies Act, 2013, should not be initiated against the applicants for not appointing a woman director on the Board of Director of the Company. 
The Company failed to reply to the said show-cause notice. It was stated by the applicants that the company had appointed 'N', woman director on 28-9-2015, in accordance with the provisions of the Companies Act, 2013 and as per requirement laid down under section 149 of the Companies Act, 2013. However, the Company delayed in intimating the same to the RoC in Form DIR - 12. Subsequently it was intimated to the RoC in Form DIR-12 only on 25-4-2016. The RoC the absence of any communication or reply filed a criminal complaint under section 450 of the Companies Act, 2013, before the Court of Special Judge for the Economic Offences-cum-VIII AMSJ Court, Hyderabad for prosecuting the applicants
Application by the applicant: The applicant filed application under section 621A of Companies Act, 1956, read with Regulations 35, 40, 44 of Company Law Board Regulations, 1991 and also under section 149 of Companies Act, 2013 read with rule 3 of Companies (Appointment and Qualification of Directors) Rules, 2014 before NCLT by seeking direction to compound the offence by imposition of minimum composition fee
In the lights of above facts of the case, the issue to be decided in the present case is whether the NCLT is having power to permit the applicants to compound the offence when there is no penalty prescribe under Section 149 for non compliance of provisions of this Section.
In the light of decision of the Larger Bench of Company Law Board (Hon'ble P. Majumdar, Hon'ble S. Balasubramanian and Hon'ble C. Das) was constituted in the case known as Hoffland Finance Ltd., In re [1997] 13 SCL 12 (CLB) and the subsequent decision of Hon'ble High Court of Delhi, V.L.S. Finance Ltd. v. Union of India [2003] 48 SCL 742  the issue of the Company Law Board/NCLT having jurisdiction and power to compound offences, where no fine or imprisonment or both is prescribed under the Act, is no longer res Integra. The Tribunal can exercise its jurisdiction under Section 621A of Companies Act, 1956 or its corresponding Section 441 of Companies Act, 2013. Though the applicants have filed the Application under Section 621A of the Companies Act, 1956, later they have mentioned Section 441 of the Companies Act, 2013 in their Affidavit dated 16th August, 2016

On the basis of above mentioned judgements and the provisions of Companies Act, 2013 one can interpret that provisions where no specific penalty or punishment is provided under the Act read with relevant rules (e.g. Section 135, Section 179) then penalty as per Section 450 will be levy on the Company and the officers in default.
Ideally, one has to comply with the requirements of the Act, under which, the companies are incorporated or any subsequent Law. In case of any non-compliance, if not done willfully, and the person acted honestly and reasonably. The only recourse available go for Compounding of Offence.

(Author – CS DiveshGoyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at
Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION WITH THE USE OF THE INFORMATION.
This is only a knowledge sharing initiative and author does not intend to solicit any business or profession.


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