What is compounding ?
Fine and imprisonment can be imposed only by competent criminal Court. However, instead of going to Court, the offender may agree to pay composition amount. Order for paying composition money can be made by quasi-judicial authorities. This is called ‘compounding of offences’.
‘Compounding’ is essentially a compromise arrangement between administrator of the enactment and person committing an offence. Compounding crime consists of receipt of some consideration (termed as compounding fees) in return for an agreement not to prosecute one who has committed an offence – Reliance Industries, In re – (1997) 24 CLA 214 (CLB).
‘Compounding’ means that the accused and the complainant have come to terms and the dispute between the parties has been settled amicably or adjusted by agreement and the complainant agrees not to prosecute the accused. If the case is pending, the accused and the complainant then make a joint application to the Court that the parties have come to terms and the case may not be proceeded with.
Thus, in compounding, there is a compromise or agreement, while in case of imposition of fine under provisions of an Act, there is no agreement as such. Section 320 of Criminal Procedure Code permits compounding of various offences under Indian Penal Code.
Such compounding can be done either before or after institution of prosecution. After payment of such composition amount, prosecution will not be launched, or if it was launched, it will be withdrawn.
Full and bona fide disclosure required for compounding of offense – In UOI v. Anil Chanana (2008) 4 SCC 175 = 222 ELT 481 (SC), it was held that compounding of offences is based on the principle of disclosure. If there are demonstratable contradictions or inconsistencies or incompleteness, application for compounding cannot be entertained. Applicant cannot hoodwink the authority. Applicant has to be a one-time evader. He has to make a clean breast of his affairs. Otherwise, offense should not be compounded.Compounding should be allowed only in case of doubtful benefit to the Revenue and to prevent needlessly proliferating litigation and holding up of collection.
Compounding means acquittal – As per section 320 of Cr PC, composition will have the effect of acquittal of accused. It is not mere discharge. Thus, if offence is compounded, the person is deemed to be acquitted, and hence does not become ineligible to be appointed as a director. [confirmed in circular No. 5/23 dated 28- 4-1993 of Department of Company Affairs].
In Maharashtra Power Development Corpn. Ltd. v. Dabhol Power Company (2004) 52 SCL 224 (Bom HC DB), it was held that if offence is compounded, it is as if no offence had even been committed in the first place.