Officer in Default - Offences & Penalties, Company Law | Company Law - B Com PDF Download

Regulatory Framework – Offences, Penalties and Compounding – Companies Act 2013

The Companies Act 2013 provides for stricter enforcement of penalties in time bound manner by establishing necessary mechanism for enforcement of penalties such as establishment of special court, appointment of adjudicating officers, imposition of penalties for various offences including fraud depends on the gravity of an offence, hefty penalties, wider definition of officer in default etc., Further the act bifurcates offences into compoundable and non-compoundable offences. Further based on the quantity of penalty the compoundable offences are compounded either by the Tribunal or the regional Director as the case may be.

Offences under Companies Act 2013

Who is an Officer who are In Default [Section 2(60)]​

As per Section 2(60) “officer who is in default”, for the purpose of any provision in this Act which enacts that an officer of the company who is in default shall be liable to any penalty or punishment by way of imprisonment, fine or otherwise, means any of the following officers of a company, namely:—

1. whole-time director;
2. key managerial personnel;
3. where there is no key managerial personnel, such director or directors as specified by the Board in this behalf and who has or have given his or their consent in writing to the Board to such specification, or all the directors, if no director is so specified;
4. any person who, under the immediate authority of the Board or any key managerial personnel, is charged with any responsibility including maintenance, filing or distribution of accounts or records, authorises, actively participates in, knowingly permits, or knowingly fails to take active steps to prevent, any default;
5. any person in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act, other than a person who gives advice to the Board in a professional capacity;
6. every director, in respect of a contravention of any of the provisions of this Act, who is aware of such contravention by virtue of the receipt by him of any proceedings of the Board or participation in such proceedings without objecting to the same, or where such contravention had taken place with his consent or connivance;
7. in respect of the issue or transfer of any shares of a company, the share transfer agents, registrars and merchant bankers to the issue or transfer

Establishment of Special Court (Sections 435 To 440)

The Central Government may for the purpose of providing speedy trial of offences under this Act, by notification establish or designate Special Courts. The Special Court may exercise the same power which a Magistrate having may exercise under Section 167 of the Code of Criminal Procedure, 1973 in relation to an accused person who has been forwarded to him. When a person accused of or suspected of the commission of an offence under the Act is forwarded, a Judicial Magistrate may authorise the detention of that person for fifteen days or an Executive Magistrate for seven days. When the Magistrate consider that the detention of the person upon or before the expiry of the period of detention is unnecessary, he shall order such person to be forwarded to the Special Court having jurisdiction.

A Special Court may upon perusal of the police report of the facts constituting an offence under this Act or upon a complaint, take cognizance of the offence without the accused being committed to it for trial. When trying an offence under this Act, a Special Court may also try an offence under the Code of Criminal Procedure, 1973 in a same trial. The Special Court may try in a summary way any offence under this Act which is punishable with imprisonment for a term not exceeding three years. In case of summary trial, a sentence of imprisonment for a term exceeding one year shall not be passed. Where the Special Court think it is undesirable to try the case summarily, the Special Court shall record an order to that effect and thereafter recall any witness who may have been examined and proceed to hear or rehear in regular trial.

All offence under the Companies Act shall be triable only by the Special Court for the area in which the registered office of the company in relation to which the offence is committed. The provisions of the Code of Criminal Procedure, 1973 shall apply to the proceedings before a Special Court. The Special Court shall be deemed to be a Court of Session and the person conducting a prosecution before a Special Court be deemed to be a Public Prosecutor.

Offences To Be Non– Cognizable (Section 439):

All offenses are non-cognizable except offenses referred to SFIO

Every offence under this Act except the offences referred to in sub – section (6) of Section 212(Section 212 deals with investigation of offences by SFIO, which is discussed elsewhere in this lesson) shall be deemed to be non – cognizable within the meaning of the said code.

When court can take cognizance of any offence?

No court shall take cognizance of any offence under this Act except on the complaint of –

• the Registrar in writing,
• a shareholder of the company,
• a person authorised by the Central Government.

The court may take cognizance of offences relating to issue and transfer of securities and non – payment of dividend on complaint in writing by a person authorised by the Securities and Exchange Board of India. When the complainant is the Registrar or a person authorised by the Central Government, the presence of such officer before the Court trying the offence shall not be necessary. The court may require personal attendance of these complainants at the trial.

Compounding Of Offences (Section 441)

Any offence punishable (whether committed by a company or any officer thereof) with fine only and where the maximum amount of fine which may be imposed for such offence does not exceed five lakh rupees, may, be compounded by the Regional Director;

Any offence punishable under this Act (whether committed by a company or any officer thereof) with fine only and where the maximum amount of fine which may be imposed for such offence exceeds five lakh rupees, may, be compounded by the Tribunal;

The offences which are punishable with Fine or Imprisonment; fine or Imprisonment or with both may be compoundable with the permission of Special Court.

Any offence which is punishable under this Act with imprisonment only or with imprisonment and also with fine shall not be compoundable.

Offences may be compounded by

• Regional Director
• National Company Law Tribunal
• Special court