'Under the Companies Act, 2013, where a Company seeks compounding before institution of any prosecution, no prosecution shall be instituted in relation to such offences either by Registrar of Companies or any person auth

The Companies Act, 2013 does not define or for that matter the Companies Act, 1956, did not define the word compounding" or the terms "compounding or composition of offences". The dictionary meaning of the word "compounding" means "on prosecution, a prosecutor of an offence accepting anything of value, say a monetary fine, under an agreement not to prosecute the victim or to hamper the prosecution of an offence". To compound would simply mean to come to a settlement or agreement". As per the Black's Law Dictionary, "to compound" means "to settle a matter by a payment of money in lieu of any other liability." This definition represents the concept of compounding as a Settlement Mechanism, a settlement by paying the fine to the concerned compounding authority in lieu of facing the prosecution for the offence committed. However, on analysis of section 621A of the erstwhile Companies Act, 1956, or section 441 of the Companies Act, 2013, we can infer that compounding is nothing but admission of guilt by the person accused of violation of law. In the process of compounding, the person may either suo moto or on receipt of notice of default /initiation of prosecution, admits the commission of default and makes an application for compounding of the alleged offence. The defaulters agree to pay the fine which may be ordered by the Central Government. Compounding is essentially a compromise or arrangement between administrator of the enactment and person committing an offence. Compounding crime consists of payment of some consideration (termed as compounding fees) in return for an agreement not to prosecute one who has committed an offence. History of Compounding in Companies Act The term "Compounding of offences" found its way into the Companies Act in the year 1988 when the Companies Act, 1956, was amended with the insertion of a new Section 621 A under the recommendation of Sachar Committee vide the Companies (Amendment) Act, 1988. The amendment provided for composition of certain offences for the first time under that Act. Earlier all offences under that Act were required to be tried by the Court (Section 622) on a complaint filed by the Registrar or by a shareholder of the Company, or by a person authorized by the Central Government in that behalf (Section 621). On the recommendations of Sachar Committee and on the enactment of Companies Act, 1956, the offences under the Act were categorized as under: Category I: Offences punishable with fine only; Category II: Offences punishable with imprisonment or with fine or with both; and Category III: Offences punishable with imprisonment Offences under Category I were compoundable without the Court's permission by the Regional Director or the erstwhile Company Law Board depending upon whether the quantum of fine exceeded ₹50,000/- (after amendments) or not. Offences under Category II was compoundable by the above authorities with the permission of the Court only and offences under Category III were not at all compoundable but had to go through the trial in the Court. The above categorization has been carried forward in section 441 by the Companies Act, 2013 with some modifications. In case, where the maximum amount of fine which may be imposed for such offence does not exceed twenty-five lakh rupees, Can be compounded by the Regional Director or any officer authorised by the Central Government.