SPECIAL COURTS ESTABLISHED UNDER THE COMPANIES ACT, 2013

A. Introduction:

On May 18, 2016, the Ministry of Corporate Affairs issued a notification regarding specific provisions within the Companies Act, 2013 (CA, 2013) that pertain to the establishment of Special Courts. These courts are designated to handle criminal offenses under the CA, 2013 that carry a minimum imprisonment term of 2 years. The primary objective behind establishing Special Courts is to streamline the legal process. Serious offenses are directed to the Special Courts, while less severe violations are handled by magistrate courts.

B. Provisions Under CA, 2013:

1. Establishment:

Section 435 of the CA, 2013 authorizes the establishment or designation of Special Courts by the Central Government through a notification. The main contents of Section 435 are as follows:

i. These courts are intended to expedite the trial of CA, 2013 offenses.

ii. A Special Court is presided over by a single judge, who is either a Sessions Judge, Additional Sessions Judge (for offenses with a minimum 2-year sentence),

iii. or a Metropolitan Magistrate or Judicial Magistrate of the First Class (for other offenses).

iv. The appointment of these judges is made by the Central Government in consultation with the Chief Justice of the relevant High Court.

2. Offenses Triable by Special Courts as Per Section 436:

Special Courts handle offenses under the CA, 2013 that entail imprisonment for a minimum of 2 years. Additionally, they can consider cases where detention is deemed unnecessary, and the investigation cannot be completed within 24 hours according to the Code of Criminal Procedure (CrPC). In such cases, detention can be for a minimum of 15 days (as ordered by a Judicial Magistrate) or 7 days (as ordered by an Executive Magistrate). Special Courts possess the same authority as a Magistrate with jurisdiction over the case.

• The offences that can be tried by the Special Court include such as:

i. Contravention of provisions of Section 336 of the Act (offences committed by Officers of Companies in liquidation) can warrant an imprisonment for a minimum period of 3 years.

ii. Commission of fraud within the meaning of Section 447 of the Act.

iii. Intentionally providing false evidence under Section 449 of the Act.

• Cognizance of offence by Special Court without the accused being committed to it for trial:

The foremost step towards a trial is taking cognizance of an offence. Cognizance basically means taking a judicial or authoritative notice. However, Section 436 of the Act, allows the Special Court to discard this cardinal rule and proceed to take cognizance of an offence even without committing an accused to it for conducting a trial of the case on:

i. Scrutiny of the police report received after the conclusion of the investigation consisting of the facts establishing an offence under the Act, or

ii. Receipt of a complaint in respect to the same.

• Summary trials by the Special Court:

i. The Special Court may, if it thinks necessary to do so, try any offence under the Act in a summary manner if the punishment for the same is imprisonment for a maximum period of 3 years

ii. The Special Court can impose a sentence of imprisonment for a maximum period of 1 year for convictions in a summary trial.

iii. The summary trial may be transformed into a regular trial in any of the following cases:

a) At the beginning or during the course of the trial, the Special Court considers that the nature of the case is one which may require passing of a sentence of imprisonment for a period exceeding 1 year or;

b) If the Special Court considers the continuing of the summary trial to be undesirable.

 

3. Prosecution Before Special Court:

In the realm of Special Courts, the process of prosecution is carried out under the careful guidance of Public Prosecutors, adhering to the established procedures outlined in the Code of Criminal Procedure (CrPC). These dedicated Public Prosecutors play a pivotal role in ensuring that cases brought before Special Courts are presented comprehensively and fairly. Their expertise in criminal law and procedure is vital in maintaining the integrity of the legal proceedings, which ultimately contributes to the pursuit of justice within the framework of the Companies Act, 2013. Their role encompasses the preparation of cases, presenting evidence, examining witnesses, and making legal arguments before the Special Court judges, all with the overarching goal of ensuring a just and lawful resolution to the matters at hand.

1. Non-Cognizable Offenses:

In Non-Cognizable offenses, the police cannot arrest the accused without an arrest warrant and cannot start an investigation without the permission of the court. Special Courts cannot consider offenses allegedly committed by a company or its officers unless a written complaint is submitted by:

i. Registrar,

ii. a shareholder,

iii. a company member,

iv. a person authorized by the Central Government.

A court can take cognizance of offences in relation to issue and transfer of securities and non-payment of dividend on receipt of a written complaint by any person authorized by the Securities and Exchange Board of India.

However, the aforesaid provisions shall not apply to any prosecution by a company of any its officers as well as any action that might be taken by the liquidator of a company with regards to any of the matters specified in Chapter XX or in any winding-up provisions contained in the Act.

1. Appeals:

Appeals against Special Court orders are filed with the High Court within the specific jurisdiction.

It\’s important to note that if an offense falls under the CA, 2013 and requires Special Court adjudication, but a Special Court is yet to be established, the offense can be tried by a Sessions Court, Metropolitan Magistrate, or Judicial Magistrate of the First Class with jurisdiction over the area.

1. Factors Determining Punishment Level:

In the process of meting out penalties and determining the length of imprisonment, Special Courts exercise a discerning approach by taking into account several crucial factors. These factors include the dimensions of the company involved, the specific nature of its business activities, the potential repercussions of the offense on public interest, the intrinsic characteristics of the default committed, and any patterns of recurrence of such defaults. This nuanced evaluation ensures that the penalties imposed by Special Courts align with the unique circumstances of each case, striving for a balance between punitive measures and equitable resolutions that uphold the principles of justice and corporate responsibility under the Companies Act, 2013.

1. Compounding of Offences under the Act:

The prior approval of Special Court was needed in order to compound certain offences under the Act. However, this provision was done away with by the Companies (Amendment) Ordinance, 2018.

At present, the offences can be compounded by the National Company Law Tribunal, Regional Director or any other officer authorised by the Central Government as the case may be depending on the quantum of punishment.

C. CONCLUSION:

In conclusion, the establishment of Special Courts tailored specifically for the adjudication of corporate offenses represents a pivotal stride in the ongoing evolution of our legal system. These specialized tribunals offer a targeted and efficient means of addressing the intricate web of legal issues arising in the corporate landscape, setting them apart from the conventional Sessions Courts. By doing so, they foster an environment conducive to the seamless conduct of business operations. Moreover, these Special Courts play a pivotal role in reinforcing corporate governance standards by ensuring that transgressions within the corporate sphere are handled with precision and expediency. This, in turn, bolsters the integrity of corporate practices and safeguards the interests of stakeholders and the public at large. Furthermore, the establishment of these courts has the added benefit of alleviating the burden of pending cases that often plagues the broader judicial system, enabling a more streamlined and responsive approach to legal proceedings. In sum, Special Courts under the aegis of the Companies Act, 2013, serve as a beacon of efficiency, accountability, and justice, contributing significantly to the broader goal of a fair and thriving corporate ecosystem within the legal framework.

 

This post has been authored by Anshita Argal, Legal Executive at VNC Corporate & Legal, Advocates and Solicitors.