Seminar by ICSI, Noida Chapter - PowerPoint Presentation

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Seminar by ICSI, Noida Chapter

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12th February, 2017byA. K. KuchhalManaging PartnerIndiacorp LawCorporate Consultants and AdvocatesIn association with M/s A. K. Kuchhal & Co. , Company Secretaries Compounding under the Companies Act, 2013 Slide2

Compounding of offences

National Company Law TribunalSlide3

Corporate Jurisdiction Hierarchy under

the Companies Act, 2013

Company Law Jurisdiction Supreme CourtHigh Courts

NCLAT

Special Courts

NCLT

Offences to be tried

Specified proceedings

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As per section 3(38) of General Clauses Act, 1897 "Offence" shall mean any

act or omission

made punishable by any law for the time being in force.The word has not been defined under Companies Act,1956 nor under Companies Act,20134 OFFENCE Slide5

BAILABLE OFFENCES

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Section 2(a) of Cr. Procedure Code defines Bailable Offences – as any offence:-Which is shown as Bailable in the First Schedule of the Code, orWhich is made Bailable by any other Law for the time being in Force.Bailable Offences constitute less serious offences, where bail can be claimed as matter of Right and is granted by Police Officer in due course.Offences which are punishable with Imprisonment of less than 3 years are usually considered as bailable.Slide6

NON-BAILABLE OFFENCES

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Non Bailable Offences – means Offence other than the Bailable offence.The Code does not provide any specific criteria to determine whether an Offence is Bailable or Non-Bailable offences.The offences that are punishable with Imprisonment of 3 years or more shall be treated as Non-bailable.In Non-bailable

offences, bail is not granted as a matter of Right. The grant of Bail shall be on the discretion of the Court.

The offences punishable with death, life imprisonment or imprisonment with 7 years or more can be granted Bail only after hearing to the Public Prosecutor.Slide7

COGNIZABLE OFFENCES

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Section 212(6) of the Act now recognizes offences to be cognizable (S.2 (c) of Code of Criminal Procedure, 1973), offence where a police officer may arrest without a warrant, and non-bailable.This means that a bail for such offences can be granted only:after the public prosecutor has been given an opportunity to oppose the same; the court has sufficient reason to believe that the person is not guilty of offence and shall not likely commit any offence when on bail.Slide8

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Section 447 Fraud in relation to affairs of the Company/body corporate shall include any act, omissions, concealment of any fact or abuse of position, committed by any person with intend to deceive, to gain undue advantage or to injure the interest of the company or its Shareholders or Creditors whether or not there is any wrongful Gain or Loss.

Fraud has also been taken as Cognizable and Non Bailable offence under Companies Act, 2013 – Sec 212(6).Slide9

COGNIZABLE OFFENCES

9Other Cognizable / Non Bailable offences - Sec 212 (6) Section 7(5)- if a person furnishes any false information with ROC in respect of registration of Company.Section 7(6) – after incorporation if its proved that the company has been incorporated with false information than, the Promoters as First Directors and the person making the false affidavit shall be held liable under this section Section 34 – Criminal Liability for mis-representation.Section 36 - Punishment for Fraudulently inducing Persons to Invest Money

Section 38(1) -

Makes/abets making of application of acquiring securities in fictitious Name/different name of the company.Slide10

COGNIZABLE OFFENCES

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Section 46(5) – Company defrauds issues of Duplicate certificate of shares than every defaulting officer shall be punishable u/s 447.Section 56(7) – where any DP with intention to defraud any person has transferred the shares shall be punishable u/s 447.Section 66(10) – if any officer knowingly conceals the name of any creditor entitled to object to the reduction of the share capital of the company, or mis-represent the nature /amount of the debt of the creditor shall be punishable u/s 447.Section 140(5) – Auditor acted in a Fraudulent manner against whom final order has been passed by the Tribunal shall be punishable u/s 447.Slide11

OFFENCES

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COMPOUNDABLE OFFENCESAny Offences punishable with FINE ONLY is Compoundable under the Act in the following manner:The Offences with Maximum Penalty of 500000/- shall be Compoundable by the REGIONAL DIRECTOR or by the Authorized OFFICER of CG.

Offences

with penalty more than 5lacs shall be

Compoundable

by the TRIBUNAL .

NON- COMPOUNDABLE OFFNECES

Any Offence punishable with

Imprisonment or fine or with both

Imprisonment AND fine AND / OR Both (meaning thereby compulsory Imprisonment)

In the new Act, most of the Default attracts stringent Penalties along with Imprisonment.

Therefore most of the Violation of the Sections of the Companies Act 2013, are Non-Compoundable in Nature.Slide12

Offences which are punishable with

fine only or with

imprisonment or fine can be compounded either by the NCLT, Regional Director with or without the permission of the Special Court. 12Nature of offences that can be compoundedSlide13

In case of compounding, the accused need not appear personally and can be discharged on payment of composition fee which cannot be more than the maximum fine leviable under the relevant provision. 

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Benefits of compounding of an offenceSlide14

DEALING WITH OFFENCE

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COMPOUNDABLE OFFENCES

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Companies Act 2013 (Section 441)If investigation has been already initiated or pending against any company than no offence shall be compounded for that Company.No Second Compounding for the same offence for next 3 yearsAny offence which is punishable with “Imprisonment or fine” or with “Imprisonment or fine or both” can be Compounded only with the permission of SPECIAL COURT in accordance with the provisions laid down in the Cr Procedure Code.Any offence which is punishable under this Act with Imprisonment only or with Imprisonment and Fine can not be compounded.Slide16

NATIONAL COMPANY LAW TRIBUNAL

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CLBBIFR/ AAIFR

HIGH COURT

Matters under the

Companies Act

Matters under SICA,

1985

Matters under Companies Act for arrangements, winding-up, Capital Reduction, Appeals etc

NCLT

and

NCLAT

NCLT consolidates the power and jurisdiction of:

Transition process for existing Schemes under section 391 of the Old Act which involve two motions may need to be transitioned carefully

Reserved judgements of CLB are likely to be re-heard by NCLT.

NCLAT is not empowered to entertain an appeal against the order of CLB. Whether HC jurisdiction remains open for past CLB orders?

Transitional IssuesSlide17

APPLICANTS- Who can apply

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Officers in default as defined under Section 2(60) of the Companies Act,2013 Whole Time DirectorKMP If no KMP ,any specified Director /all directors if no specified Director.Any person charged with responsibility for compliance by Board/KMP.Any person on whose instructions Board is accustomed to Act. Every director having knowledge or acted in connivance to contravention.Slide18

KEY MANAGERIAL PERSONNEL

CEO or MD or Manager

Company SecretaryWhole time d

irector

Chief Financial Officer

Prescribed Officers

*

KMPs can now be made responsible for compliance with the Act and they shall be capable of being proceeded against as ‘officers in default’ for offences under various provisions of the Act

KEY MANAGERIAL PERSONNEL (“KMP

”) SSlide19

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Procedure for application

1.Calling of Board MeetingAs per Companies Act,20132.Calculate the amount of offenceAs per the relevant section3.Holding of Board MeetingPass a resolution to file an application with the authority. Authorize a director of the company for preparation and signing of documentsCompany will authorize any professional for follow up the matter with authority.4.

Preparation of

Application

of Compounding as per NCLT Rules.

Accompanied by an affidavit and other relevant documents.Slide20

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Filing of e-form with ROCApplication for compounding shall be submitted in e-form GNL-1.This form will be forwarded by ROC to NCLT/R.D6.Hearing before AuthorityNo specific provision in this Act.The hearing can be attended by Director/Secretary/ or by authorized representative like C.A/C.S/CMA 7.Legal PrecedentsOpportunity of hearing to the company ,the officer in default. Slide21

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8.Payment of amount of order by Company

Payment should be made in appropriate account by way of challan and receipt challan should be produced to compounding authority9.Order by Authority/Filling of Order with ROCAfter the institution of any prosecution, intimation shall be given by the Company to the Registrar within 7 days from the date on which offence is compounded in GNL-2.Slide22

PROCEDURE FOR COMPOUNDING22

The Company shall made application for Compounding to REGISTRAR.Registrar shall forward the same to Tribunal/RD along with his Comments.Intimation to REGISTRAR by the Company within Seven days from the date of the offences so Compounded.Tribunal/RD may if required can ask the officer of the company to file/deliver any return /documents along with the fees/additional fees with the Registrar with the time specified in the order.Slide23

DEALING WITH OFFENCE

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Also CG may Refer to SFIO – 212 (6)Slide24

SPECIAL COURT

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The Central Government shall for the purpose of Speedy Trial of the Offences under this Act shall establish as many SPECIAL COURTS.The Special Court shall consist of a SINGLE JUDGE to be appointed by the CG with concurrence of Chief Justice of High Court.The Judge to be appointed shall be a Sessions Judge or an Additional Sessions Judge.All offences under this Act shall be triable by the SPECIAL COURT lying in the jurisdiction of the Registered office of the company.The Special Court Under this Act shall have Same power and Jurisdiction as the Magistrate under Cr.Pc. code, 1973.Slide25

Serious Fraud Investigation Office(SFIO)

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Section 211,of the Companies Act,2013 provides for the establishment of Serious Fraud Investigation Office (SFIO) by a notification. The Government of India has way back in January, 2003 by a notification set up SFIO under the Ministry of Company Affairs to undertake investigation of corporate frauds committed by the companies. The investigation report of SFIO filed with the Court for framing of charges is treated as a report filed by a police officer. In addition, SFIO also has also been granted with the power to arrest in respect of certain offences which attract the punishment for fraud.Slide26

NCLAT

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The National Company Law Appellate Tribunal (NCLAT) has been constituted by central government under section 410 of the Companies Act, 2013 for hearing appeals against the orders of the National Company Law Tribunal (NCLT) with effect from 1st June,2016.Any person aggrieved by an order of the National Company Law Tribunal (NCLT) may prefer an appeal to the appellate tribunal within time prescribe under section 421 of the Companies Act 2013.Slide27

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Offences compoundable by the NCLT8(11)- default in complying with the requirements relating to formation of companies with charitable objects etc.

40(5)- Default in complying with the provisions of this section relation to securities to be dealt with in stock exchanges46(5)- Fraudulently issuing duplicate share certificates by a company66(11)- Default in publishing the order of confirmation of the reduction of share capital by the Tribunal.List of Offences compoundable by NCLT.Slide28

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67(5)-  Default in provisions relating to purchase by company or loans by company for purchase of its own shares74(3)- Failure to repay the deposit or part thereof or any interest thereon within the time specified or such further time as may be allowed by the Tribunal

117(2)- Failure in filing with the Registrar the copy of notice or agreement within stipulated time124(7)- Default in transfer of  amount of accumulated profits to unpaid dividend account and violating other provisions of section 124.Slide29

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143(15)- Failure of auditor to intimate to Central Government regarding fraud against the company by officers or employees.

185(2)Contravention of the provisions of sub- section 1 relating to loans, guarantee or security.245(7)- Committing default in complying with the order of Tribunal under this section.314(8)-Default in complying with the provisions of this Section except sub –section (5).316(2) - Failure to send quarterly report on winding up and call meeting by company liquidator.Slide30

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11(2)-Failure in complying with the requirements relating to Commencement of business.

16(3)-  Default in complying with the directions issued under sub-section (1) relating to rectification of name of company.26(9)- Contravention of provisions relating to issue of a prospectus.53(3)-  Violation of provisions relating to issue of shares at discount.56(6)- Failure to comply with the provision relating transfer and transmission of securities under sub- section (1) to (5).OFFENCES COMPOUNDABLE BY REGIONAL DIRECTORSlide31

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59(5)-  Default in complying with the order of Tribunal relating to rectification of register of members.

64(2)- Default in filing a notice  related to alteration, increase or redemption of share capital along with the altered memorandum with the Registrar.67(5)-Contravening provisions relating to purchase by company or loans by company for purchase of its own shares.68(11)- Failure in complying with the provisions of this section or any regulation made by the Securities and Exchange Board relating to buy back of securities.86-Contravention of any provision relating to Registration of Charges (Chapter VI).88(5)-Failure to maintain register of members/debenture-holders/other security holders as prescribed.Slide32

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89(5)-Failure to file declaration not holding beneficial interest in any share.

89(7)-Failure to file return relating to beneficial interest in any share before the expiry of the time specified UIS 403(1)(i) proviso.92(6)-  If a company secretary in practice certifies the annual return otherwise than in conformity with the requirements of this section or the rules made there under.99-Default in holding a meeting of the company as u/s 96, I97, I98 or in complying with any directions of the Tribunal.102(5)- Default in complying with the provisions of this section relating to statement to be annexed to notice.Slide33

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105(3)- If default is made in complying with sub-section (2) relating to proxies.121(3)-Failure to file Report on annual General meeting.

124(7)- Failure to transfer the amount of accumulated profits to unpaid dividend account and violating other provisions of section 124.137(3)-Failure to file financial statements with the Registrar.140(3)-Non-Compliance by auditor of sub-section (2) relating to filing of resignation information.147(1)-Failure of company to comply with provisions of sections 139 to 146 with regard to auditors.157(2)-Failure to furnish DIN to Registrar.165(6)- Acting as a director of more than 20 companies.166(7)- Default in complying with the provisions of this section relating to directors duties.Slide34

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172-Contravention of then provisions of Chapter XI relating to appointment and qualifications of directors.

178(8)- Default in complying with the provisions of section 177 & of this section relating to Committees like Nomination, Remuneration  and Stakeholders Relationship Committee.188(5)(ii)- Related party transaction in case of other company.186(13)- Contravention of the provisions of this section relating to loans and investment.187(4)- Contravention of the  provisions of this section relating to investment of company held in its name.191(5)- Contravention of the  provisions of this section relating to payment to director for loss of office in connection with transfer of property.197(15)-Contravention of the provisions of this section relating to managerial remuneration in case of absence or inadequacy of profits.Slide35

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203(5)- Contravention of the  provisions of this section relating to appointment of Key Managerial personnel.

204(4)- Contravention of the  provisions of this section relating to Secretarial Audit for bigger companies.206(7)- Failure to furnish any information during inspection or inquiry.221(2)- Any removal, transfer or disposal of funds, assets, or properties of the company in contravention of the order of the Tribunal under sub-section (1).222(2)- securities in any company are issued/ transferred/acted upon in contravention of an order of the Tribunal under sub- section (1).232(8)- Contravention of the  provisions by the transfer and transferee company in case of merger or amalgamation.Slide36

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238(3)-Failure to register the offer of Schemes involving transfer of shares.242(8)- Contravention of the order of Tribunal relating to alterations in memorandum or articles.

247(3)(Proviso)- Contravention of the provisions of this section by the valuer.249(2)- Filing of application in restricted cases for removal of name.302(4)- default by official liquidator in forwarding a copy of the order of dissolution of company by tribunal within the period specified in sub-section (3).306(5)- Default in calling the meeting of the creditors; to prepare a statement of the position of the company's affairs along with a list of creditors, estimated amount of claim and filing the resolution with Registrar.Slide37

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307(2)- Default in publication of resolution to wind up voluntarily.312(2)- Failure to give notice of appointment of Company Liquidator to Registrar….

314(5)-Failure to prepare quarter statement of accounts by company liquidator in voluntary winding up and file with the Registrar under sub-section (5).318(8)- Failure to complying with the provisions of this section relating to final meeting and dissolution of company.342(6)- Failure or neglect to give assistance required under sub­section (5).344(2)- Failure to give statement that the company is in liquidation.348(6)- Contravention of the provisions of information as to pending liquidation.Slide38

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356(2)- Failure to file certified copy of the order of Tribunal relating to dissolution of company void with the Registrar

392- Contravention of the provisions of Chapter XXII by a foreign company405(4)- Failure to furnish information or statistics etc. by the companies required by the Central Government.No specific penalty or punishment is provided in the Act.Repeated default within 3 years.452(1)- Punishment for wrongful withholding of property.453- Improper use of the words "limited" and "private limited“.454(8)- Failure to pay the penalty imposed by the adjudicating officer or Regional Director.464(3)- Being a member of a company formed exceeding certain numbers.469(3)- Contravention of the Rules framed by Central Government.Slide39

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The offence cannot be compounded either by the Company or its officer in case either the investigation has been initiated or is pending.

The offence cannot be compounded in case similar offence committed by it has been compounded and period of three years has not expired. Any offence which is punishable under this Act with imprisonment only or with imprisonment and also with the fine; cannot be compoundedRESRTICTION ON COMPOUNDINGSlide40

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An intimation shall be given to the Registrar of Companies within seven days from the date on which, the offence is so compounded.

If the offence has been compounded before the institution of any prosecution, no prosecution shall be filed either by ROC or by any shareholder or by any person authorized by the Central Government. POST COMPOUNDING OBLIGATIONSSlide41

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No Penalty or Prosecution after Compounding: In following Cases:

PP Varkey V. STO(1999) 114STC251(Ker HC)It was held that once offence is compounded, penalty or prosecution proceedings can’t be taken for same offence.S Viswanathan V. State of Kerala(1999) 113 STC 182 (Ker HC DB)It was held that once the matter is compounded, neither department nor assessee can challenge the compounding order. Department can’t reopen the matter on the reason that actual suppression was much higher. CASE STUDIESSlide42

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A person having agreed to the composition of offence is not entitled to challenge the said proceeding by filing appeal.

S V Bagi V. State of Karnataka (199) 87 STC 138A person having agreed to the composition of offence is not entitled to challenge the said proceeding by filing appeal.Offence can be compounded only when there is no fraud.Reliance Industries Ltd.(1997) 24 CLA 234 (CLB)

The Company issued duplicate share when, in fact, original shares were in its possession. The offence was compounded as it was not with intention to defraud.Slide43

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Thank you

A. K. KuchhalC -154, Sector 51 Noida, 201301Ph.: 0120 – 4214372, 9650826950Mob.: 9810894275, email: csaloknoida@gmail.com