Where to Prosecute under the Companies Act 2013?

The Companies Act 2013 is in the process of overhauling the erstwhile Companies Act 1956, with particular provisions of the 2013 Act having been notified already. The piecemeal manner in which the notification of provisions is proceeding has led to an interesting conundrum in the prosecution of offences created under the 2013 Act, which forms the subject of this post. 

Offences by under the Companies Acts

Similar to the 1956 Act, the 2013 Act contains a variety of provisions which impose penal sanctions including imprisonment. The primary difference is that the 2013 Act seems to add more bite to the bark by introducing newer offences and tougher sanctions, at least on paper. The maximum sentence possible for an offence under the 1956 Act was of seven years as provided under Sections 539 [falsification of books] and 629 [tendering false evidence]. Under the 2013 Act, Section 447 allows imprisonment up to ten years for "Fraud", which covers a wide variety of situations, that were not criminal acts/omissions under the previous regime.

The 2013 Act follows the old Act in restricting the manner in which a court may take cognizance of offences by companies or their officers. Section 439(2) of the new Act, identical to Section 621 of the old Act, permits cognizance to be taken only on the complaint of the Registrar of Companies, a Shareholder or a person authorised by the Central Government. There are some changes in the classification of offences however. Under the 1956 Act, all offences were deemed non-cognizable through Section 624. The position has been modified by the 2013 Act, wherein some offences have been expressly made cognizable under Section 212(6). That particular provision also restricts the rights of an accused person to bail. These aside, every other offence is deemed non-cognizable under Section 439(1) of the Act. 

Special Courts

The jurisdiction of courts to try offences was restricted under the 1956 Act. Section 622 barred courts inferior to those of Presidency Magistrates or Magistrates of the First Class from trying any offence under the Act. The 2013 Act diverges from this position and creates "Special Courts" as found under ; Chapter 28. Unlike the old Act which conferred jurisdiction upon Magistrates and those above, "Special Courts" under the 2013 Act can only presided over by a Additional Sessions/Sessions Judge, or someone of higher rank. 

This is an important change, necessitated by the insertion of a ten year imprisonment. According to Section 29 of the Cr.P.C., such a punishment is beyond the jurisdiction of Magistrates and can only be imposed by a Additional Sessions/Sessions Judge. Whereas punishment up to seven years [the maximum for the 1956 Act] can be imposed by Magistrates, making permissible the previous regime of Magisterial level courts. 

However, there is an obvious cost involved here: offences with prison terms up to three years far outnumber those carrying more serious sentences. Perhaps cognizant of this, a Bill has been tabled in Parliament titled the Companies (Amendment) Bill 2014 [passed by Lok Sabha on 17.12.2014]. This seeks to amend Section 435 whereby offences with imprisonment of two years or more would only be tried by the Sessions level courts, while Metropolitan Magistrates or other Judicial Officers having jurisdiction to try offences under any previous company law could try all other offences. Though the execution may be questionable, I believe the intention is correct and would help prevent an overloading of dockets.

The Catch - Where do you go?

Now that we are familiar with the rather complex workings of the criminal aspects of the Companies Act 2013 [no pun intended], I can proceed to the crux of the matter. Today, the Government has by notifications brought into force several offences under the 2013 Act [see, Notification dated 06.06.2014 bringing into force Section 74(3) which carries an offence punishable with up to seven years imprisonment]. It has also brought in force Section 439, which restricts the manner of taking cognizance for offences under the Act [see, Commencement Notification dated 12.09.2013]. But, conspicuously, Section 435 creating Special Courts has not been notified till date. Thus, we find ourselves in the curious position of having rights but no forum for enforcement.

This problem is very real, and is being faced across courts in India when litigants file complaints to prosecute offences under the 2013 Act. What are the possible courses of action open to litigants?

1. Proceed before the Magistrate having local territorial jurisdiction over the offence .

2. Proceed before the Sessions Judge citing that Section 435, though not notified, warrants so.

3. Proceed before the Special Court of Magisterial rank under the 1956 Act.

There are obvious pitfalls under each of these, rendering it highly possible for the Complaint to be dismissed for want of jurisdiction. But surely it cannot be that the Legislature intended for the offence to be non-prosecutable till the notification of Special Courts? It would be a first, if indeed that is the correct interpretation of the situation.

It may be that I have completely missed the bus and wrongly created a problem where none exists. Or, the solution may have emerged without my knowledge. If so, please comment!