Case Study on Compounding of Offence for Violation of Provision of Section 56(4) of the Companies Act, 2013 – Non issuance of Share Certificates Within the Prescribed Time Limit
Compounding of offence means a process by which an entity/person who violates/commits default of the provisions of the Companies Act, 2013[the Act] files an application to the compounding authority accepting the default/non-compliance with a request for condoning the same. Compounding can be ordered by the concerned authority or can be initiated suo moto by the entity/person.
As per the provisions of the Section 56(4)(a) of Companies Act, 2013 share certificates have to be issued to the subscribers of the Memorandum of Association within 2 months from the date of incorporation.
Client requirement – Our client is primarily engaged in the business of marketing diagnostics kits for diabetes management and monitoring of blood glucose levels.
The client approached us intimating the default committed by it for non-issuance of share certificates to the subscribers of the Memorandum of Association within 2 months and sought guidance on the corrective steps that can be taken to rectify the default. We understood the facts of the case in detail and advised the client to suo motto initiate the process of compounding of offence before the Regional Director for above violation.
Compounding of offence involves series of activities which were undertaken and the same are mentioned below:
- As a first step, we had to analyse whether the compounding application should be made suo-moto by the client or wait for the regulatory authority to identify the default and issue orders. Further, analyse the implications of default under the relevant section of the Act and the quantum of fine prescribed for the non-compliance. The authority to be approached for making the compounding application would depend on the value of the penalty i.e., Regional Director [RD] [or] National Company Law Tribunal
- In the present case, the statutory auditors of the client made a qualification in the audit report reporting the non-compliance of Section 56(4)(a) of the Companies Act, 2013 and instructed the company to go for compounding of the above-mentioned offence and accordingly the compounding application was filed with Regional Director.
- The punishment for violation of aforesaid provisions is provided in Section 56 (6) of the Companies Act, 2013 provides the following:
i) For Company – a minimum fine of 25,000/- (Rupees twenty-five thousand only) and maximum of Rs. 5,00,000/-(Rupees five lakhs only)
ii) For every officer of the company who is in default – a minimum fine of Rs.10,000/- (Rupees ten thousand only) and maximum of 1,00,000/- (Rupees one lakh only)
- The client decided to go for compounding suo motto and so we initiated the process. We coordinated with the client and prepared the requisite documentation i.e., compounding Application, Affidavits, overing letters and other miscellaneous documents. Further, filed Form GNL-1 with the respective Registrar of Companies (RoC) and arranged for physical submission of the documents.
- Post filing of the application, rigorous follow up was done by us with the RoC officials for approval of the Form GNL-1 and for sending report on compounding application of the client to the RD. We also replied to the queries raised by RoC/RD on the application.
- We represented the client before the RD for hearing and the order was passed. Post hearing, we also assisted the client in making the payment of the fine levied by the RD on MCA portal and arranged for the certified true copy of the order.
- After receipt of the order, we assisted the client in filing of the order with the RoC in form INC 28.
Our experience of handling various compounding assignments has given us considerable exposure on the critical aspects to be looked into, in the process. We have undertaken similar assignments for other companies as well and the process has been smooth & seamless.
If you are looking for compliance support, we can help you with the same. SimplyCorp is a solution that offers comprehensive and end-end management of Corporate Governance & Secretarial Compliances covering all stages of entity life cycle. If want to know more on the compliance requirements and outsource the same to us, please write to our Product Head – Vaishali Vohra at the mail ID email@example.com or SimplyCorp@simplyBiz.in
The content of this document has been developed based on relevant information and are purely for private circulation. Though the authors have made utmost efforts to provide authentic information, however, the authors expressly disclaim all and any liability to any person who has read this document, or otherwise, in respect of anything, and consequences of anything done or omitted to be done by any such person in reliance upon the contents of this document.