Decriminalisation of Compoundable Company Law Offence

December 23, 2022

This article has been written by Ms. Sonakshi Singla, a student of Army Law Institute, Mohali

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DECRIMINALISATION OF COMPOUNDABLE COMPANY LAW OFFENCES

INTRODUCTION

The COVID-19 Pandemic significantly altered the companies’ working procedures. Companies are having a lot of trouble meeting the technical, procedural, and regulatory requirements set forth by the Companies Act of 2013 (the Act). The Indian government has started a number of relief initiatives to help businesses and improve their working conditions during the current pandemic, which is affecting the entire world.

A company commits an offense under the Act when it violates particular provisions of the aforementioned Act by engaging in conduct that is barred, restricted, or prohibited by the Act. These crimes may be considered compoundable or non-compoundable. In order to lessen the burden of compliance on businesses under various Act provisions during the COVID-19 pandemic, the Government of India has announced the decriminalization of a number of offences that are compoundable in nature. The Indian government has made plans to decriminalize some offences that are compoundable under company law in order to adjust to the changing situation. It is done to make business or company operations easier and to woo those who have been hurt by legal disputes.

WHAT ARE COMPOUNDABLE OFFENCES

Compounding an offence is a method of settlement where the offender is given the choice to make a payment in lieu of being prosecuted in order to avoid protracted court proceedings. Section 441 of the Act, provides for the provisions pertaining to the compounding of an offence. These are offences that are punishable with only fine,Offences which are punishable with fine or with imprisonment,Offences that are punishable with a fine or with imprisonment, or with both.

The Act doesn’t provide a definition for the term “compounding,” but the legal definition can be described as making up for a mistake or a non-compliance.

Generally, compoundable offences are those which can be settled by paying a certain amount of money.Offences that cannot be compounded under section 441 are the ones only punishable with imprisonment or punishable with fine along with imprisonment.

WHY DECRIMINALIZATION?

Decriminalization can be used to boost foreign investments, boost the corporatization of numerous small businesses, and inspire confidence in domestic and international players. Compounding and the IAM framework are examples of provisions that aim to streamline and speed up default processes by imposing monetary penalties as a substitute for criminal trials in order to reduce the complexity and delays of criminal prosecutions. This collaterally benefits the State by expeditious collection of fines, penalties and fees and reduces the burden on the State’s machinery to engage several people to prove prosecutions, thus, resulting in freeing up of State’s human resources.

The promulgation of such an ordinance will be a useful step toward easing India’s highly regulated corporate environment. Taking its cue from this, the Ministry of Finance recently proposed decriminalizing minor offences under numerous other economic laws. Decriminalization enables India to become a preferred investment destination with the essential elements for conducting business effectively and quickly, namely approval, functioning, mitigation, and violations.

RECENT DEVELOPMENT

A company law committee was established by the Ministry of Corporate Affairs in July 2018 to review and evaluate the legal framework established by the Companies Act. Mr. Injeti Srinivas served as the committee’s chairman when it was established. The committee was asked to make suggestions regarding specific corporate law violations as well as suggestions to clear up the mess and lessen the load on the criminal justice system.

In August 2018, the company law committee turned in its report. Based on the report’s recommendations, changes were made to the Companies Act of 2013, particularly with regard to compoundable offences, where the committee suggested decriminalizing a few minor offences that fit this description. The committee also made recommendations regarding corporate social responsibility.

REVIEW COMMITEE

The Ministry of Corporate Affairs (MCA) has established a review committee, chaired by Mr. Injeti Srinivas, to review the offences that are prescribed under the Act and to analyze, examine, and explore the need to decriminalize some of the offences, which is where the necessity for decriminalizing some compoundable offences originates.

The relevant recommendations regarding compoundable offences suggested by the Committee are as follows:

Reclassification of 16 of the 81 offences that fall under the category of compoundable offences to an internal adjudication framework in which failures to comply would result in punishment from an adjudication officer.
Establishing a technology-driven, open internal adjudication process and enhancing internal adjudication process transparency by reducing physical interface, holding proceedings online, and publishing decisions online.
To support the ultimate goal of archiving better compliance, the in-house adjudication mechanism should be strengthened by requiring a concurrent order for making good the default at the time of levying penalty.
Declogging the NCLT by extending the scope of the Regional Director’s (RD) authority and raising the financial thresholds for the compounding of 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. One of the most significant changes made by the Companies (Amendment) Act, 2019 to alter how compoundable offences are handled is the In-House Adjudication Mechanism (IAM) under Section 454 of the Act.

CLAUSES RELATING TO COMPOUNDABLE OFFENCES

23 offences that are compoundable were reclassified

According to section 454 of the Companies Act 2013, 23 offences that are of a minor nature, such as minor non-compliance issues, will be sent to internal adjudication mechanisms, and those mechanisms will decide the penalties for these 23 compoundable offences. The appeal from such orders will lie with the regional director.

The omission of offences having remedy under other laws

The offences that are capable of being dealt with using other Acts will be excluded from the Companies Act, 2013. 7 such offences will be excluded.

Restricting compoundable offences to the imposition of fine only

Only a fine will be imposed as punishment for 11 offences because they are not grave violations and involve subjective judgment.

Alternative framework

The company law committee had suggested creating an alternative method of imposing sanctions for five offences.

ADVANTAGES OF DECRIMINALIZATION

The major reasons and advantages of decriminalising corporate offences are as follows:

De-clogging the justice system

There are too many cases for the Indian criminal justice system to handle. Numerous corporate offences that would otherwise be decided upon by an adjudicator chosen by the government are instead brought before the special courts under the Act, which serves no useful purpose. For instance, the Act’s Section 88(5) discusses the upkeep of registers. The determination of its violation does not involve any subjective evaluation and can, therefore, be administered under the IAM system rather than burdening the special courts.

Non-fulfilment of the elements of criminal liability

Proof of mens rea, or the existence of a guilty mind, and actus reus, or the unlawful act, are prerequisites to a criminal trial. In Director of Enforcement v. MCTM Corporation, the Supreme Court determined that blameworthy conduct is necessary in order to impose civil liability. Because using the preponderance of the evidence standard instead of the beyond a reasonable doubt standard involves less regulatory burden and expense, it is questionable whether criminal law is effective in cases of corporate misconduct..

Improving the ease of doing business

Decriminalizing corporate offences is being done in part to promote foreign investment. Additionally, it is essential to encourage homegrown start-ups to enter Indian markets rather than international ones. Therefore, if criminal provisions in corporate law are not decriminalized and laws are not made to be less strict in their application, it will be difficult to achieve the goals of retaining businesses in India and encouraging foreign capital.

CONCLUSION

All parties involved will benefit from the decriminalization of technical and procedural compoundable offences. The in-house adjudication mechanism is time and money efficient, which will benefit the litigators in addition to clearing the NCLT of its backlog and lessening their burden. The in-house adjudication mechanism’s adjudication process does not call for the proof of a mens rea, which is the core element of any criminal offence. Consequently, the entire process of imposing penalties is made quick and effective.

REFRENCES

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December 23, 2022