Companies Act 2013 provides for two distinct mechanisms to treat non-compliance of various requirements of Law. The process, responsible authority and the applicability differ in both. Both adjudication and compounding can be sou motu or on receipt of notice from the Regulatory.
Let us understand the difference between the two:
| Governing Section | Authority | Applicability | Nature of outcome | Indicative list of applicable section | |
|
Adjudication
|
Section 454 | Adjudicating officers appointed by Central Government. Appeal to RD in form ADJ within 60 days. | Offences that involve fine/penalty | Imposition of penalty | · Section 92/137- Failure to file Annual return/financial statements
· 203- Non appointment of KMP · 12- Non-maintenance of registered office |
|
Compounding
|
Section 441 | Regional Director if the amount of fine does not exceed 25 lacs or NCLT in other cases | Can be done before or after institution of prosecution.
Offences can be compounded only once in 3 years.
Offences punishable with imprisonment only or with imprisonment and fine cannot be compounded |
Fine is paid in lieu of court proceedings.
Once offences compounded, prosecution cannot be initiated against the same offence. If the offence compounded after prosecution, on intimation, court shall discharge the offenders. |
· Section 96-Delay in holding the AGM
· 76- Acceptance of deposits in contravention · 42(8)- Allotment of shares without filing return |
Process of adjudication:
- Have to be done through E-adjudication platform
- Order to be filed in INC 28
- Penalty to be paid through MCA portal and all sums to be certified to the Consolidated Fund of India.
- Post adjudication, compounding application is not allowed by the regulatory as held in several cases.
Process of compounding:
- Identify whether offence is compoundable
- Pass Board resolution for authority to Director to proceed for compounding
- File application in GNL 1 with application, affidavit and other annexures
- Order to be filed with MCA with INC 28
- Single application for default over multiple years is allowed
In order to identify whether an offence falls within compounding or adjudication, we need to read the section specifying the non-compliance. If the language of the section is ‘liable to penalty’- adjudication applies, if the section mentions fine with or without imprisonment, compounding applies. In case of imprisonment only special courts have jurisdiction for prosecution. Hearing opportunity is provided in both the cases for the parties and allowed to present evidence, documents and arguments in their defense.
Akansha Rathi and Associates (ARACS), Company Secretary Firm in Navi Mumbai is engaged into compliance related services. We have a team of experts who not only possess required skills and experience but also have worked in complex business environment and were engaged in providing complex solutions in terms of providing related Compliance services to our clients.