compounding of offences & consent order x

8/11/2019 Compounding of Offences & Consent Order X

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sanction, remedy and deterrance without resorting to litigation, lengthy

proceedings and conse$uent delays.

What is the o!"ective of Compounding of Offence?

Compounding of offence allows the accused to avoid a lengthy process of

criminal prosecution, which would save cost, time, mental agony, etc in

return for payment of compounding charges.

#oes S$% have po'er to pass consent orders?

The Parliament of India has recognised SEBIs powersto pass an order with

consent of the parties. This will of the Parliament is clear from the words of

Section 15T of the SEBI Act 1992.Section 15T2! of the SEBI Act reads as

"nder#$15T 2! %o appeal shall lie to the Sec"rities Appellate Tri&"nal from an

order made

(a) by the oard on and after the commencement of the

&ecurities +aws (&econd Amendment) Act, ---

(b) by an ad!udicating officer,with the Consent of the parties./

"hus, the Parliament in its wisdom has recogni0ed that &I and its

authori0ed delegate have power to pass consent orders. &imilarly, courts

have well recogni0ed inherent powers to settle a case before them on an

application made by the parties.

s compounding of an offence permitted?

&ection 12A of &I Act permits compounding of offences by the court

where prosecution proceedings are pending.

What (ind of offences/cases can !e compounded or consented?

Consent Orders can be passed in respect of all types of enforcement or

remedial actions including administrative proceedings and civil actions e.g.

proceedings under &ections , A()(b), and 3 of &I Act or

under n$uiry Proceedings 4egulations or Ad!udication 4ules or e$uivalent

proceedings under the &ecurities Contracts (4egulation) Act -56,

3epositories Act --6 and other civil matters pending before &A"%courts.


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Compounding of offence can cover appropriate prosecution cases filed by

&I before the criminal courts.

Who can see( settlement of proceedings through consent order and

compounding?

Any person who is notified that a proceeding may or will be

initiated%instituted against him%her, or any party to a proceeding already

initiated%instituted, may, at any time, propose in writing for settlement.

What factors 'ill !e ta(en into consideration for the purpose of passing

Consent Order/ Compounding of offence?

A) 'ollowing factors, which are only indicative, may be ta#en into consideration

for the purpose of passing Consent Orders and also in the conte*t of

compounding of offences under the respective statute7

. 8hether violation is intentional.

1. Party9s conduct in the investigation and disclosure of full facts.

:. ;ravity of charge i.e. charge li#e fraud, mar#et manipulation or

insider trading

2. iolation is technical and%or minor in nature and whether violation

warrants penalty.

?. Consideration of the amount of investors9 harm or party9s gain.

@. Processes which have been introduced since the violation to

minimi0e future violations%lapses.

-. Compliance schedule proposed by the party


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. conomic benefits accruing to a party from delayed or avoided

compliance.

. Conditions where necessary to deter future non=compliance by the

same or another party.

1. &atisfaction of claim of investors regarding payment of money due to

them or delivery of securities to them.

:. Compliance of the civil enforcement action by the accused.

2. Party has undergone any other regulatory enforcement action for the

same violation.

5. Any other factors necessary in the facts and circumstances of the

case.

At 'hat stage can Consent Orders !e passed?

Consent Order can be passed at any stage where probable cause of

violation has been found. In the event of a serious and intentional

violation, the process cannot be completed till the fact finding process is

completed whether by way of investigation or otherwise.

*o' 'ill a person propose to consent or compound a violation/offence?

A person can ma#e an application proposing administrative%civil consent by

writing to the B3ivision of 4egulatory Action, nforcement 3epartment9 at

&I9s umbai address. 8here compounding is proposed by a party, such

application may be made to the court and a copy can be addressed to the

D3ivision of Prosecution, nforcement 3epartment/ at &I9s umbai

address. (addresses givenat the bottom of this document).

At 'hat stage Compounding of Offence can ta(e place?

At any stage after filing criminal complaint by &I. 8here a criminal

complaint has not yet been filed but is envisaged, the process for consent

orders will be followed rather than the one for compounding.


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What are the principal terms and conditions of Consent Order and

Compounding of offence?

Consent orders are passed by Competent Authority%&A"%Court where

proceedings are pending, sub!ect to the party ta#ing remedial action andon such further consent terms including consent bars or consent penalties

as the Competent Authority%&A"%Court where proceedings are

pending, may find appropriate in the facts and circumstances of the case.

Consent orders can be passed either a) admitting guilt or b) without

admitting or denying guilt. 8here an order is passed without admitting or

denying guilt, such person shall never represent subse$uently that he%she

is not guilty. In the event such a representation is made, the enforcement

process may be reopened. &imilar appropriate terms will be sought by &I

from Court where the prosecution is pending.

What is the process for passing consent orders/ compounding of

offences?

8hen the proposal of settlement is submitted by the party, it will be

e*amined by a high powered Committee headed by a retired high court

!udge. 8here the Committee finds the terms for passing a consent order

inade$uate, it may as# the party to revise the consent terms. "hereafter,

the Committee will submit its views%recommendations to the Ad!udicatingOfficer%Competent Authority where proceedings are pending for passing

consent order. "he above procedure and factors and waivers shall be

applied for considering the proposals of composition of offences under the

&I Act, &C4A and the 3epositories Act, --6, wherever applicable. Any

party who wishes to compound an offence shall file an appropriate

application before the court where complaint is pending with a copy

addressed to the Prosecution 3ivision, nforcement 3epartment

of &I9s umbai office which will forward the application% re$uest to be

placed before the highpowered Committee. "he terms of compounding as

recommended by the Committee and approved by the Competent Authority

would be placed before the court by the Prosecution 3ivision by way of

written submissions or application, as appropriate, for passing orders as

the court deems fit. 8here a matter is pending before &A"%Court, the same

consent process will be underta#en and the draft consent terms


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recommended by the Committee and approved by the Competent Authority

will be filed before the &A"% Court. "he &A"%Court may, if found fit, pass an

order in terms of the consent terms and sub!ect to such further terms as

the &A"% Court may find appropriate in the facts and circumstances of the

case.

Will S$% o!tain 'aivers 'hile passing the Consent Order?

Ees, while considering the proposal of the Party, &I will obtain a waiver

from the Party of ta#ing any legal proceedings against &I concerning any

of the issues covered by the consent order.

"he Party shall waive7

. all hearings pursuant to the statutory provisions under which

the proceeding is to be or has been instituted

1. the filing of proposed findings of fact and conclusions of law

:. proceedings before the oard or any officer

2. all post=hearing procedures and

5. Appeal%review before%by &A"%court.

y submitting an offer of settlement the Party shall further waive7

a. such provisions of the 4egulations or other re$uirements of law

as may be construed to prevent any officer of &I from

participating in the preparation of, or advising the Competent

Authority as to, any order, opinion, finding of fact, or conclusion of

law to be entered pursuant to the offer and

b. any right to claim bias or pre!udgment by &I based on the

consideration of or discussions concerning settlement of all or any

part of the internal proceeding.


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In addition, if the Party violates the consent order subse$uently, the party

shall waive a plea of limitation for reopening the case.

Similar appropriate wai'ers will &e so"ght &( SEBI from the acc"sed &efore )o"rt

where the prosec"tion is pending.

When 'ill final acceptance of any offer of settlement/Compounding come

in to effect?

"he final acceptance of any offer of settlement%Compounding will come in

to effect only upon the Competent Authority%&A"%Court passing the consent

order%Compounding order.

What will be the procedure after passing Consent Orders?

"he consent order will be published through press release and would be put

on &I website. In cases where a Party underta#es compliances, it has to

comply with the same as per agreed schedule.

Whether the party has to pay any compounding/settlement charges for

mitigating the violation?

Ees. 3epending upon the facts and circumustances of the case, gravity of

alleged violation, interest of investors and the securities mar#et and

deterent affect, amount payable by a party will be decided. In pending

prosecution cases and cases pending before &A"%courts, the party is also

liable to pay legal e*penses incurred by &I.

Whether S$% can consent+ if the enforcement order 'as already passed

and appeal is pending !efore Securities Appellate ,ri!unal/ Court?

8here a matter is already in &A"%Court, the same consent process will be

underta#en and the draft consent terms will be filed before the &A"%Court

with an appropriate prayer to consider the terms of the consent and

sub!ect to such further terms as the &A"%Court may find appropriate in the

facts and circumstances of the case.


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What 'ill !e the remedies availa!le 'ith S$%+ if the Consent Order is

violated !y a party?

'ailure to obey consent orders would invite appropriate action, including for

violating &I orders, besides revival of the pending action. In this conte*t

any proceeding which had been #ept in abeyance pending the consent

process will begin from such stage at which it was suspended.

What 'ill !e the conseuences of non-acceptance?

If &I re!ects the offer of settlement, the person ma#ing the offer shall be

notified of the same and the offer of settlement shall be deemed to

be withdrawn. "he re!ected offer shall not constitute a part of the record in

any proceeding against the person ma#ing the offer, provided, however,

that re!ection of an offer of settlement does not affect the continued

validity of waivers. &I and the Party will be free to resort to legal

recourse as may be available to them under law and neither &I nor the

Party would be entitled to use any information relating to the settlement

process in such proceedings. In cases where &I is not inclined to accept

&ettlement%Compounding of offence, &I would file its ob!ections before

&A"%Court for consideration.

.oreign $change Management Act 0.$MA1+ 2333

compounding of contravention

What is meant !y contravention and compounding of contravention?

Contravention is a breach of the provisions of the 'oreign *change

anagement Act ('A), --- and rules% regulations% notification% orders%

directions% circulars issued there under. Compounding refers to the process of

voluntarily admitting the contravention, pleading guilty and see#ing redressal."he 4eserve an# is empowered to compound any contraventions as defined

under section :of 'A, --- e*cept the contravention under section :(a)

ibid, for a specified sum after offering an opportunity of personal hearing to

the contravener. It is a voluntary process in which an individual or a corporate

see#s compounding of an admitted contravention. It provides comfort to any


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person who contravenes any provisions of 'A, --- Fe*cept section :(a) of

the ActG by minimi0ing transaction costs. 8illful, malafide and fraudulent

transactions are, however, viewed seriously, which will not be compounded by

the 4eserve an#.

Who can apply for compounding?

Any person who contravenes any provision of the 'A, --- Fe*cept section

:(a)G or contravenes any rule, regulation, notification, direction or order

issued in e*ercise of the powers under this Act or contravenes any condition

sub!ect to which an authori0ation is issued by the 4eserve an#, can apply for

compounding to the 4eserve an#. Applications see#ing compounding of

contraventions under section :(a) of 'A, --- may be submitted to the

3irectorate of nforcement.

When should one apply for compounding?

8hen a person is made aware of the contravention of the provisions of 'A,

--- by the 4eserve an# or the 'oreign Investment Promotion oard ('IP)

or any other statutory authority or the auditors or by any other means,

she%he may apply for compounding. One can also ma#e an application for

compounding, suo moto, on becoming aware of the contravention.

What is the procedure for applying for compounding?

"he form given should be with the appropriate anne*ure to the A.P.(3I4

&eries) Circular Ho. 56 dated une 1@, 1 issued by the 4eserve an# of

India, can be used for applying for compounding. "he same can also be

downloaded from the 4eserve an#9s website. 'urther the documents as

mentioned in A.P.(3I4) circular nos. 5? and 1 dated 3ecember :, 1 and

August 1, 1: respectively should also be submitted along with the

application.

Are any fees reuired to !e paid for see(ing compounding?


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Ees. "he application in the prescribed format along with necessary documents

and a demand draft for 4s. 5%= (4upees five thousand only) drawn in

favour of the D4eserve an# of India/ should be sent to the 4eserve an# of

India while sending the re$uest for compounding.

What are the details reuired to !e filled in the application form?

Along with the application in the prescribed format, the applicant may also

furnish the details as per the Anne*es= relating '3I, C, O3I, the A.P. (3I4

&eries) Circular Ho. 5? dated 3ecember :, 1 and A.P. (3I4 &eries)

Circular Ho. 1 dated August 1, 1:) along with an underta#ing that they

are not under investigation of any agency such as 3O, CI, etc., a copy of

the emorandum of Association and latest audited balance sheet while

applying for compounding of contraventions under 'A, ---

Compounding of Offences 4nder companies Act 2356

%enefits of compounding7

In case of prosecution for an offence in a criminal court, the accused has to

appear before the agistrate at every hearing and an advocate needs to be

engaged for appearing before the criminal court. 'urther court proceedings

are time consuming and e*pensive.


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d) Offences punishable with imprisonment only

e) Offences punishable with imprisonment and also

with fine.

As per &ection 61A of the Act, offences committed by a company or any

officer thereof under the above first three categories are compoundable

whereas offences under remaining two categories are not compoundable.

'urther, offences under other Acts li#e mployees9 Provident 'unds isc.

Provisions Act -51 or mployees9 &tate Insurance Act -2@ cannot be

compounded under &ection 61A of Companies Act.

Offences committed by persons other than a company or its officers (li#e

trustees, li$uidators, contributories etc.) cannot be compounded under the

Act.

Which offences are not compounda!le?

i) Offences under &ections 5@A(5), 5@A(6)(a)(i)

(ii), 5@A(), 5@AA(-) relating to

acceptance of deposits

ii) &ection 6@A(i)7 Personation for ac$uisition etc.

of shares.

iii) &ection ?:(1)7 'ailure to ma#e payment

within 6 months from the e*piry of the @thday.

iv) &ection @A(:)(a) (b)7 'ailure to comply

with &ection @A.

v) &ection @=I(2)(a)7 Contravention of

&ections @ or @3.

vi) &ection 67 Personation of shareholder

vii) &ection ?C(5)7 3efault in complying with

order of "ribunal.

viii) &ection 5:(:)(b)7 3eclaration by a trustee

as stated in &ection 5:(:)(b).

i*) &ection 1?7 Hot distributing dividend within: days.

*) &ection 1-A(@)7 'ailure to comply with

&ection 1-A.

*i) &ection 16-()7 Contravention of &ection

16-().


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*ii) &ection 1-:A(5)(b)7 Political contribution

made contrary to &ection 1-:A

*iii) &ection 226A7 'ailure of directors and other

officers to complete the boo#s of account and

get them audited upto date of winding up

order made by "ribunal and submitted to

"ribunal.

*iv) &ection 527 'rauds by officers in relation to

winding up.

*v) &ection 52()7 'ailure to maintain proper

boo#s of account in relation to winding up.

*vi) &ection 5@K(1)7 'ailure to furnish

information relating to Producer Company.

*vii) &ection 615(2)7 'ailure on the part of a

shareholder to pay compensation.

*viii) &ection 61@7 'alse statements as mentioned

therein.

*i*) &ection 61-7 'alse evidence given as stated

therein.

**) &ection 6:(1)7 8rongful withholding of

property.

Whether second offence can !e compounded?

If a person has already compounded an offence, he is not eligible to apply for

compounding a similar offence for a period of : years from the date of

compounding the first offence.


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Application for compounding of offence can be made before or after institution

of any prosecution. 3efault should be made good before filing application.

In case prosecution is instituted, the case can be compounded before the

sentence is pronounced.

Which authority has the po'er to compound an offence?

"he offence can be compounded by the 4egional 3irector (43) where the

ma*imum amount of fine is upto 4s.5,%= and by the Company +aw oard

(C+) where the ma*imum amount of fine e*ceeds 4s.5,%=.

What is the amount of composition fee paya!le for compounding the

offence?

"he amount that may be specified by the authority to be paid for

compounding of offence cannot e*ceed ma*imum amount of fine that may be

imposed for the offence under the relevant provisions of the Act. 'urther, thesum, if any, paid by way of additional fee under &ection 6(1) shall be

deducted from the amount specified for compounding of the offence. "he

amount should be decided #eeping in view factors li#e the nature of the

offence, financial position of the company, continuation of the default,

intention etc.

What is the procedure for ma(ing an application for compounding of an

offence under the Act?

"he company or the officers thereof can file online application for

compounding of an offence to the 4egistrar of Companies in e='orm 6 who

will forward the same to the 43%C+ togetherwith his comments thereon.

"he application should state the circumstances leading to the alleged offence

and whether the default was made good before or at the time of ma#ing the

application. &eparate application should be filed by each officer even for the

same offence. "he application should be accompanied by Power of attorney

for memorandum of appearance in 'orm 5 of C+ 4egulations, affidavit

verifying the content, detailed application as per the 4egulations, copy of

emorandum Articles of Association, copy of alance &heet and &tatement

of Profit +oss etc. As per general circular Ho.2%11 dated 1=6=11

issued by CA, filing fee should be paid as per Companies ('ees on

Application) 4ules ---.

What is the procedure after ma(ing application for compounding of

offence?


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An opportunity of oral hearing is provided to the company, its officers in

default, the 4egistrar or any other complainant by the compounding authority

#eeping in view principles of natural !ustice. After hearing all concerned, the

authority shall pass an order specifying the amount to be credited to the

Central ;overnment account for compounding the offence which should be

paid togetherwith e='orm 1. &ection 61A(:) of the Act provides that where

an offence is compounded before or after the institution of any prosecution,

intimation thereof should be given to the 4egistrar within ? days from the

date on which the offence is so compounded in e='orm 1 alongwith copy of

order and resolution passed by oard of 3irectors of the company. If the

order is made after institution of any prosecution, 4egistrar should bring the

same in writing to the notice of the court where the prosecution is pending,

and on such notice the company or its officers in default shall be discharged

by the court.

Can directors of a company under liuidation ma(e compounding

application?

"he 3CA vide circular dated 6=:=11 has clarified that in view of the

provisions of &ection 226 read with &ection 61A of the Act, there is no legal

bar for composition of offence under &ection 61A. &ection 226 does not bar

criminal proceedings against the directors of the company for any offence

under the Act and the offences are compoundable. 8here the penal

provisions provide for proceedings against the companies also and if the

offences are compoundable, compounding will not be permissible against the

company in view of provisions of &ection 226 of the Act.

Whether application for compounding of offence !e re"ected !y the

authority?

"he power to compound an offence under &ection 61A of the Act is

discretionary one and the authority can re!ect the application if the default is

not made good FGeneral Produce Company Ltd. Re (--2) @ Comp Cas 5?

C+7 (--2) 2 Comp + --G.

Whether the authority has po'er to issue directions?

"he authority can also issue directions for filing any document, return etc.

with the 4egistrar within the period specified in the order alongwith the filing

fee and the additional fee payable under &ection 6. 'ailure to comply with

such directions is punishable and is compoundable only with the permission of


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the court. Any officer or other employee of the company who fails to comply

with any such order shall be punishable with imprisonment for a term which

may e*tend to 6 months, or with fine not e*ceeding 4s.5,%= or with both.

What are the effects of compounding?

If the offence is compounded before institution of prosecution, it would act as

a bar to institution of any prosecution against the offender by the 4egistrar or

by a shareholder or by any person authorised by the ;overnment in relation

to that offence.


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say of the court. "he accused should appear before the "rial Court and may

engage an advocate. "rial court9s permission is re$uired for compounding and

on compounding the accused gets ac$uitted.

Who has to pay compounding fee?

It has been clarified by the 3CA vide its circular dated 1@=2=--: that in the

case of a company composition fee shall be paid from its funds.

compounding of offences & consent order x

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