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Richa Mishra

New Delhi , Nov. 11

ALL violations of the Companies Act by corporates could soon be graded into three distinct categories - minor, major and major. A Department of Company Affairs (DCA) constituted committee, chaired by Mr Shardul Shroff for examining the existing penalty and compounding provisions in the Act, is understood to have taken a view that a clear categorisation of the various offences would help speedily determine penalties that each such violation would attract.

The Department has time and again made a case for strengthening the existing penalty and compounding provisions under the Companies Act to curb the widespread violations of the various provisions of the Act. There has been a thinking in the Government that the existing penalties were very low and did not act as a deterrent for the erring companies.

Informed sources told Business Line that the Committee has categorised offences such as non-filing with the registrar the altered copy of articles of association as minor offence. Major offences include those minor offences that have been made with the intention to defraud, and finally major-major offences - the offences that are non-compoundable.

Some of the offences, which are being considered as major by the Committee include non-compliance with provisions of buy-back of shares, failure to transfer premium amount received on shares to `share-premium account' and on utilisation of share premium account for the purposes other than those. Failure to comply with any direction given by Central Government to change the name of an existing company is also being considered as a major offence.

"The very purpose of awarding a punishment or penalty for an offence committed under any law is to deter the offenders from repeating the same. Besides, the penalty should be based on the gravity of offence," sources told Business Line. The five-member Committee is in its final stages of consolidating its report. The Committee has Mr Virender Ganda, Mr Salil Bhandari, Mr Amarjit Chopra, and Mr Rajiv Mehrishi as members.

For imposing a fine, it is necessary to have as much regard to the pecuniary circumstances of the accused persons as to the character and magnitude of the offences. The Committee, according to sources felt that in cases of monetary penalties, `fine', should include any pecuniary penalty or forfeiture or compensation, payable under the conviction.

"The system to determine the capacity of a company to pay should be based on the concept of `effective' capital. This system should be made equally applicable to all the companies irrespective of its kind," sources said.

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