Special Courts
Section 435. Establishment of Special Courts
435(1).
The Central Government can set up or designate Special Courts through an official notification.
These courts are created to ensure speedy trials for offences under the Companies Act.
However, offences under Section 452 (wrongful possession of company property) are not covered by these Special Courts.
Explanation
Ordinary criminal courts often deal with a wide variety of cases, which can lead to long delays in matters related to corporate offences.
Section 435(1) gives the Central Government the power to set up or name existing courts as Special Courts to exclusively handle company law cases.
435(2).
A Special Court shall consist of a single judge, and the level of that judge depends on the seriousness of the offence:
For serious offences:
Those that are punishable with imprisonment of two years or more, the judge must be a Sessions Judge or Additional Sessions Judge.
These are senior judges with higher authority, capable of dealing with more complex and severe cases such as corporate fraud, large-scale financial misconduct, or wilful falsification of records.
For less serious offences:
Those punishable with imprisonment of less than two years, the judge must be a Metropolitan Magistrate or Judicial Magistrate of the First Class.
The Central Government appoints these judges with the concurrence (approval) of the Chief Justice of the High Court within whose jurisdiction the judge works.
Section 436. Offences triable by Special Courts
436(1).
This section overrides anything in the Code of Criminal Procedure, 1973 (CrPC).
So , essentially where there is a conflict, this section will apply.
436(1)(a).
All offences under the Companies Act (except Section 452), as listed in Section 435(1), must be tried only by a Special Court.
The Special Court that handles the case must be the one that has jurisdiction over the area where the company’s registered office is located.
If there is more than one Special Court for that area, the High Court will decide which one will hear the case.
436(1)(b).
If a person is accused or suspected of an offence under the Companies Act & is arrested and brought before a Magistrate under Section 167 of the CrPC, then:
Magistrate can order that the person be kept in custody for:
Up to 15 days if the Magistrate is a Judicial Magistrate, or
Up to 7 days if the Magistrate is an Executive Magistrate.
However, if the Magistrate believes that keeping the person in custody is not necessary, he must forward the person to the Special Court that has jurisdiction over the case.
436(1)(c).
After an accused person is forwarded to the Special Court, that court takes charge of the case.
The Special Court has the same powers as a Magistrate under Section 167 of the CrPC.
This includes powers such as extending custody, granting or denying bail, and issuing other necessary judicial orders related to the accused’s detention.
436(1)(d).
The Special Court can directly take cognizance of an offence meaning it can start proceedings based on either:
A police report, or
A formal complaint.
436(2).
While hearing a case under the Companies Act, the Special Court is not limited to only that offence.
If the accused has committed other offences under different laws, and those offences can be tried together under the CrPC, the Special Court may try them in the same proceeding.
This helps avoid multiple cases and ensures faster, consolidated trials.
Example:
If a company director commits fraud under the Companies Act and also forges documents (an offence under the IPC), both offences can be tried together by the Special Court in one proceeding.
436(3).
The Special Court may, if it finds appropriate, try minor offences under the Companies Act in a summary way that is, using a simplified and quicker trial procedure.
This procedure can be used only for offences punishable with imprisonment up to three years.
However, there are safeguards:
If the Special Court convicts someone in a summary trial, it cannot impose imprisonment exceeding one year.
If, during the trial, the court feels that the case deserves a harsher sentence or is too complex for a summary process, it can convert the case to a regular trial, recall witnesses, and proceed afresh using the full trial procedure.
Section 437. Appeal and revision
High Court can exercise all the powers given under Chapters XXIX and XXX of the Code of Criminal Procedure, 1973 (CrPC), as if the Special Court were a Court of Session.
Special Courts handle company law offences as established under Section 435 and 436.
Once a Special Court gives its decision (for example, a conviction, acquittal, or sentence), a person who is not satisfied with that decision can go to the High Court.
The High Court, in such cases, has the same powers as it normally has in criminal cases under the CrPC.
That includes:
Hearing appeals from the judgments of Special Courts (like an appeal against conviction or sentence).
Revising cases to correct legal or procedural errors.
Confirming, altering, or reversing the findings or sentences passed by the Special Court.
Essentially, the Special Court like a Sessions Court.
So, for the purpose of appeal or revision, the High Court acts just as it would in regular criminal cases under the CrPC where a Sessions Court has passed an order,
Section 438. Application of Code to proceedings before Special Court
Unless the Companies Act itself provides a different procedure, all the rules and procedures from the CrPC will apply to cases tried in Special Courts.
Depending on the type of offence, the Special Court will be deemed to be:
A Court of Session: If the offence involves imprisonment of two years or more.
A Metropolitan Magistrate or Judicial Magistrate of the First Class: For less serious offences.
The person who conducts the prosecution (i.e., presents the government’s case) in a Special Court is considered a Public Prosecutor, just like in other criminal courts under the CrPC.
Section 439. Offences to be non-cognizable
439(1).
Regardless of what the CrPC says, offences under the Companies Act are generally treated as non-cognizable.
A non-cognizable offence means the police cannot arrest without a warrant and cannot start an investigation without permission from a magistrate.
So, for most offences under the Companies Act (like filing false statements, failing to hold meetings, etc.), the police cannot act on their own.
The process must begin only after a proper complaint is filed in court.
However, Section 212(6) which deals with serious frauds investigated by the Serious Fraud Investigation Office (SFIO) is an exception.
Those offences are cognizable (i.e., police can arrest without warrant and investigate directly).
439(2).
There are limits who can file a complaint to start prosecution under the Companies Act.
No court can take up a case against a company or its officers unless the complaint is in writing and made by:
The Registrar of Companies (ROC).
A shareholder or member of the company.
A person authorised by the Central Government.
Exception:
For offences related to:
Issue and transfer of securities.
Non-payment of dividends, a complaint may also be made by a person authorised by SEBI.
This restriction does not apply when a company prosecutes its own officer.
So, the company can directly file a case against its own officer without needing ROC or Government authorization.
439(3).
Some complainants get procedural relaxation during trials.
If the complainant is the Registrar of Companies (ROC) or an officer authorised by the Central Government, they are not required to be physically present in court.
They only need to appear if the court specifically directs them to do so.
439(4).
Liquidators are exempt from the restrictions mentioned in Section 439(2).
Liquidator can directly file a complaint or take legal action for offences committed during the company’s winding-up.
They do not need prior approval or a written complaint from the ROC or the Central Government.
Section 440. Transitional provisions
If an offence under the Companies Act is supposed to be tried by a Special Court, but that Special Court has not yet been established, the case will be handled by an existing criminal court.
Depending on how serious the offence is, it can be tried by a Court of Session, a Court of Metropolitan Magistrate, or a Judicial Magistrate of the First Class.
This rule applies even if the Code of Criminal Procedure (CrPC) normally assigns such cases to a different court.
Section 440 allows this temporary arrangement until the Special Courts are ready.
Without it, company law offences might remain pending indefinitely, defeating the goal of quick and efficient justice under the Companies Act.
Nothing in Section 440 limits the powers of the High Court under Section 407 of the CrPC.
It allows the High Court to transfer any case from one criminal court to another if it believes doing so is necessary for a fair trial, for the convenience of the parties or witnesses, or for the proper administration of justice.
Therefore, even when ordinary courts are temporarily handling company law offences, the High Court can still intervene and transfer a case whenever required.
Section 441. Compounding of certain offences
Compounding an offence means resolving it without going through a full court trial.
The offender pays a monetary penalty to settle the matter.
Once compounded, the offence is considered closed, and prosecution does not continue.
441(1).
Under the Companies Act, most offences can be compounded, whether committed by the company or its officers.
However, offences that carry only imprisonment, or imprisonment along with fine, cannot be compounded.
Offences that are punishable with fine only, or fine or imprisonment (where imprisonment is not mandatory), can be compounded.
Who can compound:
The National Company Law Tribunal (NCLT), for more serious offences.
The Regional Director (RD) or any officer authorised by the Central Government, if the maximum fine does not exceed ₹25 lakh.
The company or officer must pay the specified amount to the Central Government as directed by the NCLT or RD.
The amount cannot be more than the maximum fine allowed for that offence.
If the company has already paid additional fees under section 403(2), that will be taken into account.
However, if an investigation against the company is already started or pending, the offence cannot be compounded.
441(2).
If a company or officer repeats the same offence within three years of compounding it once, it cannot be compounded again.
If the same offence is committed after three years, it is treated as a first-time offence again.
The Regional Director mentioned here is the officer appointed by the Central Government for this purpose.
441(3).
(a). The company must apply to the ROC who will forward the application along with his comments to the NCLT or Regional Director (RD).
(b). After the offence is compounded, the company must inform the ROC within seven days.
(c). If compounding happens before prosecution begins, then no prosecution can be started later by the Registrar, any shareholder, or the Government.
(d). If compounding happens after prosecution has already started, the ROC must inform the court, and once the court is notified, the company or officer is discharged from that case.
441(4).
When the offence involves not filing or submitting a return or document, compounding may still be allowed.
The NCLT or Regional Director (RD) can order the company or officer to file the pending document.
They must file it within a specified time and pay the required fees and additional fees as per Section 403.
441(5).
If the company’s officer or employee fails to comply with such an order, the maximum fine for that offence becomes twice the normal amount prescribed under the Act.
441(6).
Offences that are punishable with imprisonment only, or with both imprisonment and fine, cannot be compounded.
They must go through the normal criminal trial process.
441(7).
An offence can be compounded only under and according to this section. No other method or authority can be used to compound an offence.
Section 442. Mediation and Conciliation Panel
442(1).
The Central Government must create a Mediation and Conciliation Panel, which is a group of qualified experts.
These experts act as mediators or conciliators to help parties reach a mutual settlement.
They assist in cases pending before the Central Government, NCLT, or NCLAT.
The number of experts and their required qualifications are specified through rules made under the Act.
442(2).
Either party in a case pending before the Central Government, NCLT, or NCLAT can apply (using the prescribed form and fee) to refer the matter to the Mediation and Conciliation Panel.
After receiving the application, the concerned authority appoints one or more experts from the panel to conduct the mediation.
This gives both sides an opportunity to try for an amicable settlement while the case is still ongoing.
442(3).
The Central Government, NCLT, or NCLAT can refer a case to the Mediation and Conciliation Panel even without a request from the parties.
This is done when the authority feels that the dispute is suitable for settlement through dialogue or mediation.
442(4).
The remuneration, terms of appointment, and other conditions of the experts on the panel are fixed as per prescribed rules.
442(5).
The Panel must follow the procedure laid down by the rules and dispose of (complete) the mediation process within three months from the date the case was referred to it.
After completing the mediation, the Panel submits its recommendations or settlement terms to the Central Government, NCLT, or NCLAT whichever body referred the case.
442(6).
If any party is aggrieved or dissatisfied with the Panel’s recommendations, they can file objections before the Central Government, NCLT, or NCLAT.
Section 443. Power of Central Government to appoint company prosecutors
443(1).
Despite what is stated in the Code of Criminal Procedure, 1973 (CrPC), the Central Government has the power to appoint one or more company prosecutors:
Either generally (for all cases).
Or for a specific case.
Or for a certain class of cases.
Or for a particular local area.
Company prosecutors are specialists who conduct cases under the Companies Act, such as those involving fraud, mismanagement, failure to file statutory returns, or violation of disclosure norms.
443(2).
Once appointed, company prosecutors have the same powers and privileges as a Public Prosecutor under section 24 of the CrPC.
They can appear before Special Courts or Magistrates to prosecute offences under the Companies Act.
They can conduct and manage all stages of the prosecution like filing charges, examining witnesses, and making arguments in court.
Their authority is equivalent to that of Public Prosecutors appointed by State Governments under general criminal law.
Section 444. Appeal against acquittal
444(1).
If a court (other than a High Court) acquits a company or its directors in a case under the Companies Act, the matter does not necessarily end there.
The Central Government can decide to challenge that acquittal by filing an appeal.
The Central Government can file the appeal in two ways:
It may direct a company prosecutor appointed under Section 443 to file the appeal.
It may authorise any other person to file the appeal either by naming a specific individual or by authorizing someone based on their official position.
444(2).
Once the appeal is filed by the company prosecutor or the authorised person, it is considered legally valid.
The appeal is treated as though it has been properly filed before the appellate court under the law.
Normally, the CrPC sets the rules for filing appeals, but Section 444 overrides those rules.
This means the Central Government can independently appeal acquittals in cases under the Companies Act.
Section 445. Compensation for accusation without reasonable cause
Under Section 250 of the CrPC, if an accused person is acquitted and the court believes the complaint was made without reasonable cause, the court can order the complainant to pay compensation.
Section 445 of the Companies Act applies this same rule to cases tried by a Special Court or a Court of Session under the Companies Act.
So, complainants in company law cases may also be required to pay compensation if their accusations were baseless.
Section 446. Application of fines
Section 446 allows the court to decide how fines imposed under the Act are used.
The court may direct that the fine, in whole or in part, be used to cover the costs of the legal proceedings.
It may also order that a portion of the fine be given as a reward to the person who provided information leading to the case.
Section 446A. Factors for determining level of punishment
While deciding the amount of fine or imprisonment under the Companies Act, the Court or Special Court must consider certain important factors.
These factors are:
(a) Size of the company:
The court considers how large or small the company is.
A big company with large financial resources may deserve a higher fine compared to a small company for the same kind of offence.
(b) Nature of business carried on by the company:
The court looks at what type of business the company is engaged in.
For example, a company dealing with public money or sensitive data is expected to act more responsibly than one engaged in a low-risk business.
(c) Injury to public interest:
If the company’s action or default harms the public, investors, employees, or the market, the punishment will be more severe.
(d) Nature of the default:
The seriousness of the violation is assessed.
A minor procedural lapse will attract a lighter penalty, whereas a deliberate or fraudulent act will lead to stricter punishment.
(e) Repetition of the default:
If a company or its officers repeat the same offence, the court will give a stricter and heavier punishment the next time.
Section 446B. Lesser penalties for certain companies
446B.
There are penalty reliefs to certain companies that are smaller or still growing.
If a One Person Company (OPC), small company, start-up company, or Producer Company violates a provision of the Companies Act, they do not have to pay the full penalty.
Instead, the company or the officer responsible will be required to pay only half of the normal penalty prescribed under that section.
However, there is a maximum cap on how much they can be fined:
Up to ₹2,00,000 for the company.
Up to ₹1,00,000 for the officer in default or any other person involved.
Explanation:
Producer Company means a company defined under section 378A(l), usually formed by farmers or producers to carry out related activities collectively.
Start-up Company means a private company registered under the Companies Act, 2013 or 1956 and officially recognised as a start-up by the Department for Promotion of Industry and Internal Trade (DPIIT).
