Law is distinct from all other aspects of regulations, as its breach involves punishment. This punishment may be either a monetary penalty or loss of personal freedom for specific duration or both, and in some extreme cases, loss of the human life itself. Given that the punishment in itself is quite harsh and carries severe social strictures, the process of awarding the punishment is embedded with multiple safeguards to ensure that no innocent person is punished.
The system of administering justice built on the traditional wisdom that it is better to let a hundred accused escape punishment rather than have one innocent be punished, soon became so deeply ingrained in procedures that each trail and prosecution took years if not decades to conclude. Given this, there was a need to find a solution that protected the innocent but at the same time speeded up the process of justice delivery. Compounding of Offences was the answer to this challenge.
“Black’s Law Dictionary10 defines compounding as: “The process whereby the accused and the prosecutor in criminal case work out a mutually satisfactory disposition of the case Subject to the Court approval. It usually involves the accused pleading guilty to a lesser offence or to only one or some of the courts of a multi-count indictment in return for a lighter than that possible for the graver charge.”
Compounding has some similarities with plea bargaining, but they are different. A defendant in a trial can make three types of pleas: Not guilty, Guilty, or Nolo contendere. For the purposes of punishment, a plea of nolo contendere is the same as the plea of guilty. The benefit that a defendant gets is that unlike a guilty plea, it cannot be used against a defendant as an admission of guilt in a subsequent civil or criminal case.
Plea bargaining can take three distinct forms –
1. Charge bargaining, i.e. dilution of charges or
2. Sentence bargaining, i.e. lesser punishment, or
3. Fact bargaining –accept certain evidence as fact in return for no other evidence to be produced further in the case
The distinction between compounding of offence and plea bargaining is that compounding is stigma free, whereas plea bargaining has some taint of guilt. Lesser punishment is awarded in plea bargaining for not fully contesting the case.
In India, Section 3 (38) of the General Clauses Act, 1897 defines an Offence as ‘any act or omission made punishable by law for the time being in force.’ Further compounding of offences needs the three basic elements:
1. Knowledge of an Offence,
2. Receipt of consideration, and
3. Agreement not to prosecute that Offence
Given that the primary objective is to speed up and reduce the cost of justice delivery mechanism, compounding of Offences in India is not permitted in all cases. The Law Commission in its 41st report laid out the basis for it by stating “…The broad principle that forms the basis of the present scheme is that where the offence is essentially of a private nature and relatively not serious, it is compoundable”.
In Indian company law compounding of Offences was introduced by Sachar Committee in 1988 as it noted that ‘a large number of offences are defaults that were technical in nature or arising out of ignorance on account of bewildering complexity of the provisions.’
Given this legal framework, the Indian Companies Act, 2013 permits compounding only to a first time offender or a person who has not compounded the same Offence in the last three years. Further, Offences punishable by imprisonment, or fine and imprisonment are not compoundable under the Companies Act, 2013. In addition, where investigation has been initiated or is pending for any Offence against a company, that Offence would also not be compoundable.
Given this understanding, compounding of Offences under the Companies Act, 2013 does not have any ethical or moral taint and is a prudent commercial decision to save time, efforts and cost of running a business.