companies actDecriminalization of Compoundable Offences

BACKGROUND 

COVID-19 Pandemic has played a significant role in changing of the companies’ working patterns. The companies are facing plenty of difficulties to fulfil their regulatory, procedural, and technical requirements governed by the Companies Act, 2013 (the Act).  The Government of India is initiating various relief packages, to provide aid to the companies to ease their working during the current pandemic, which the world is facing at large.

When a company contravenes specific provisions of the said Act, by doing something which is barred, restricted or prohibited under the Act, then such a behaviour performed by the company is treated as an offence under the Act. Such offences can be treated as Compoundable and Non-Compoundable Offences. The Government of India has announced to decriminalize certain offences which are compoundable in nature, to reduce the burden of compliance on the companies under various provisions of the Act during the outbreak of COVID-19 Pandemic. However, the prompt action taken by the Government is not cannot be an overnight step. It will definitely be a well-thought process which was in pipeline since the year 2018.

WHAT IS A COMPOUNDABLE OFFENCE? 

Compounding of an offence is a settlement mechanism by which, the offender is given an option to pay money in lieu of his prosecution to avoid prolonged litigation. Section 441 of the Act, provides for the provisions pertaining to the compounding of an offence. There is no specific definition of the word “compounding” provided in the Act, however legal meaning of compounding can be referred to as doing good the default or non-compliance.

Generally, compoundable offences are those which can be settled by paying a certain amount of money.

THE REVIEW COMMITTEE 

The roots of necessity to decriminalize certain compoundable offences are elevated from the Ministry of Corporate Affairs (MCA) vide order dated 13.07.2018, wherein, The MCA has constituted a review committee under the chairmanship of Mr. Injeti Srinivas, to review the offences which are prescribed under the Act and to analyse, examine and peruse the need to decriminalize some of the offences. The Committee submitted its report with recommendations to the MCA on 14.08.2018, wherein; the committee had advised and laid down certain innuendos for the MCA. The relevant recommendations regarding compoundable offences suggested by the Committee are as follows:

(i) Re-categorizing of 16 offenses out of 81 which are in the category of compoundable offenses to an in-house adjudication framework wherein defaults would be subject to penalty by an adjudication officer.

(ii) Instituting a transparent and technology driven in house adjudication mechanism and increasing the transparency in the in-house adjudication mechanism b minimizing physical interface, conducting proceedings on an online platform and publication of the orders on the website.

(iii) Strengthening the in-house adjudication mechanism by necessitating a concomitant order for making good the default at the time of levying penalty, to subserve the ultimate aim of archiving better compliance

(iv) Declogging the NCLT by enlarging the jurisdiction of Regional Director (RD) by enhancing the pecuniary limits up to which they can compound offences under section 441 of the Act.

In light of recommendations given by the Committee to review offences under the Act, the 16 offences were re-categorized into civil defaults according to the enactment of Companies (Amendment) Act, 2019, by the Indian legislature. The In-House Adjudication Mechanism (IAM) under Section 454 of the Act was one of the key amendments introduced by Companies (Amendment) Act, 2019 to change the mechanism in which the compoundable offences are dealt with.

IAM facilitates with the online platform administrated by the MCA, in substitution of appeal and adjudication before NCLT. The introduction of IAM framework aims at de-clogging judicial forums such as NCLT by reducing burden of adjudication for the matters which are in nature of minor and technical compliances. 

COMPANIES (AMENDMENT BILL), 2020 

In line with Companies (Amendment) Act, 2019, the government introduced Companies (Amendment) Bill, 2020 into the Lok Sabha on 17.03.2020 with the proposal to further decriminalize certain compoundable offences under the Act.  The Companies (Amendment) Bill, 2020 has its genesis in the recommendations made by the committee lead by Mr Injeti Srinivas (Secretary MCA) as mentioned above.

The proposed bill aimed at reclassifying 23 Compoundable Offences to be dealt with in-house adjudication framework, the omission of the 7 compoundable offences, restricting 11 compoundable offences to an only fine and alternate framework for 5 offences.

The intent behind the proposed amendments is to provide better procedural leverage in conducting business and reduce criminal liability thereby decreasing the burden on criminal courts and the National Company Law Tribunal (NCLT).  

DECRIMINALIZATION OF COMPOUNDABLE OFFENCE– Ministry of Finance dated 17.05.2020

The Hon’ble Finance Minister of India vide press conference, dated 17.05.2020 has announced fifth and last tranche of COVID-19 economic package targeted at building an “ATMANIRBHAR BHARAT”. In view of extending relaxations to the companies, the Hon’ble Finance Minister stated that, an ordinance would be promulgated to amend the Act. The amendment would include decriminalization of various technical defaults under the Act, which are compoundable in nature.

Decriminalization of certain offences involves minor and technical defaults such as shortcoming in CSR reporting, inadequacies in board report, filing defaults, delay in holding AGM. The proposed amendments are as follows:

(i) Majority of the Sections deals with compoundable offences would be shifted to Internal Adjudication Mechanism (IAM).

(ii) Besides, powers of a regional director for compounding various offences would be enhanced to 58 Sections as compared to earlier 18 Sections.

(iii) Seven compoundable offences would be dropped altogether and five offences will be dealt under alternative frame work.

The Hon’ble Finance Minister further stated that, the amendments would de-clog Criminal courts and the Hon’ble National Company Law Tribunal (NCLT).

CONCLUSION 

The ordinance for Decriminalization of Compoundable Offences is well-thought process by the central government, which is intended to provide the companies, the stakeholders and the investors with the potential to confer long term benefits by facilitating ease of doing business.

The amendments proposed by the Hon’ble Finance Minister in press conference dated 17.05.2020 was earlier introduced in Lok Sabha on 17.03.2020 under Companies (Amendment) Bill, 2020, which was adjourned on account of COVID-19 pandemic. The real objective to decriminalize certain compoundable offences is these offences are technical and procedural in nature which does not involve larger public interest.

Since, the parliament is not in session due to the lockdown, the status of the decisiveness of Companies (Amendment) Bill, 2020, remains unconcluded.  The government has used COVID-19 as a platform to implement the proposed changes made in Companies (Amendment) Bill, 2020, related to the compounding offence by showing the intention to introduce an ordinance in the Act as a part of relief package to decriminalize certain offences which are compoundable in nature under the Act.

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