Compounding of Offences under the Companies Act, 2013: Understanding the Process and Importance

The Companies Act, 2013, governs the functioning of companies in India, and lays down various provisions and regulations for their operation. The Act also specifies various offences and penalties for non-compliance with its provisions. However, in certain cases, the Act allows for compounding of offences, which is a process of settling the offence by payment of a fine without going through the legal process of prosecution.

Compounding of offences is a mechanism that allows companies to avoid legal proceedings and settle the matter by paying a fine. It is an important tool for maintaining the ease of doing business in India and promoting compliance with the law. The process of compounding is initiated by the company or its authorized representative, and involves payment of a sum of money as a penalty for the offence committed. Once the penalty is paid, the matter is considered closed, and no further legal action is taken against the company.

The process of compounding of offences is governed by Section 441 of the Companies Act, 2013, and the Companies (Compounding of Offences) Rules, 2016. The Rules specify the offences that can be compounded, the procedure for compounding, the authority responsible for compounding, and the penalties that may be imposed for each offence.

Some examples of offences that can be compounded under the Companies Act, 2013, include:

1. Failure to file annual returns: Section 92 of the Companies Act, 2013, requires every company to file its annual return with the Registrar of Companies (ROC) within 60 days from the date of its Annual General Meeting (AGM). Failure to file the annual return within the specified time can result in a penalty of up to Rs. 100 per day for each day of default. The penalty can be compounded by paying a sum of money as specified in the Rules.
2. Non-maintenance of books of accounts: Section 128 of the Companies Act, 2013, requires every company to maintain proper books of accounts, which should be kept at its registered office. Failure to maintain the books of accounts can result in a penalty of up to Rs. 5 lakh. The penalty can be compounded by paying a sum of money as specified in the Rules.
3. Non-compliance with the provisions of the Act: The Companies Act, 2013, lays down various provisions and regulations for the functioning of companies, such as those related to share capital, board of directors, auditors, and meetings. Non-compliance with these provisions can result in penalties and prosecution. However, in certain cases, the non-compliance can be compounded by paying a sum of money as specified in the Rules.

An example of compounding of offences under the Companies Act, 2013, is as follows:

ABC Pvt. Ltd. is a company engaged in the business of manufacturing and exporting garments. The company failed to file its annual returns for the financial year 2020-21 within the prescribed time limit of 60 days from the date of its AGM. As a result, the company incurred a penalty of Rs. 60,000 for a delay of 600 days. The company approached the ROC for compounding of the offence, and agreed to pay a penalty of Rs. 30,000 as per the Rules. The ROC accepted the application for compounding, and the company paid the penalty. The matter was considered closed, and no further legal action was taken against the company.

In conclusion, compounding of offences is a useful mechanism for settling minor offences and avoiding legal proceedings. It is important for companies to be aware of the provisions of the Companies Act, 2013, and to comply with its provisions to avoid penalties and legal action