Sections 441 and 442 of the Companies Act 2013: Compounding of Offences, Mediation and Conciliation

Section 441 - Compounding of Certain Offences

Compounding is a statutory process by which an eligible offence under the Companies Act may be settled on payment or credit of the amount specified by the competent authority. Section 441 permits compounding either before or after institution of prosecution, subject to the conditions and exclusions contained in the section.

Which offences may be compounded?

Under Section 441(1), an offence punishable under the Companies Act may be compounded if it is not an offence punishable with imprisonment only, or with imprisonment and fine. Section 441(6) correspondingly makes offences carrying imprisonment only, or imprisonment and fine, non-compoundable under this section.

An offence cannot be compounded where an investigation against the company has been initiated or is pending under the Act. Section 441 also restricts repeat compounding of a similar offence committed within three years from the date on which the earlier similar offence was compounded. A second or subsequent offence committed after expiry of that three-year period is treated as a first offence for this purpose.

Who Has Power to Compound?

The compounding sum cannot exceed the maximum fine that may be imposed for the offence. Where additional filing fees have been paid in circumstances covered by the section, the statutory provision requires the relevant amount to be taken into account while specifying the compounding sum.

Application, Compliance and Effect of Compounding

Section 441(3) requires an application for compounding to be made to the Registrar of Companies. The Registrar forwards the application, with comments, to the Tribunal, Regional Director or other authorised officer, as applicable.

Where an offence is compounded, the company must intimate the Registrar within seven days from the date of compounding. If compounding takes place before prosecution is instituted, prosecution in relation to that compounded offence is not to be instituted against the person for whom it has been compounded. If compounding occurs after prosecution has begun, the Registrar is to bring the compounding to the notice of the court, following which the company or officer concerned is discharged in relation to that offence.

For defaults involving filing, registration, delivery or sending of a return, account or other document, the competent authority may also direct the company officer or employee to complete the statutory filing or delivery within the time specified. Failure to comply with such an order attracts the consequence prescribed by Section 441(5).

Section 442 - Mediation and Conciliation Panel

Section 442 requires the Central Government to maintain a panel of qualified experts known as the Mediation and Conciliation Panel. Its purpose is to facilitate mediation between parties while proceedings are pending before the Central Government, the National Company Law Tribunal or the National Company Law Appellate Tribunal.

A party to a pending proceeding may apply, in the prescribed form and with the prescribed fee, for reference of the matter to the Panel. The Central Government, Tribunal or Appellate Tribunal may also make a reference on its own motion.

The Panel is required to follow the prescribed procedure, dispose of a referred matter within three months from the date of reference, and forward its recommendations to the referring authority. A party aggrieved by the recommendation may file objections before the Central Government, Tribunal or Appellate Tribunal, as applicable.

Companies (Mediation and Conciliation) Rules, 2016

The Companies (Mediation and Conciliation) Rules, 2016 supplement Section 442 by prescribing matters relating to the panel, applications, appointment of mediators or conciliators, procedure, confidentiality, settlement, fees, costs and professional ethics.

The Rules also identify matters that are not to be referred to mediation or conciliation, including specified inspection or investigation matters, defaults or offences for which compounding applications have been made, serious allegations such as fraud or forgery, criminal and non-compoundable offences, and certain matters involving public interest or the interests of numerous persons who are not parties to the proceeding.