Composition of offences
Also written Compounding of offences · Composition of certain offences · Compounding of certain offences · Compounding an offence
Closing a criminal case under the Depositories Act by agreement instead of a trial — available for any offence except one punishable with imprisonment only, or with imprisonment and also fine.
In plain language
A breach of the Depositories Act can be dealt with in two very different ways.
One is a penalty. An adjudicating officer decides it, and it is an order to pay money. It is not a conviction.
The other is prosecution. That runs in a criminal court and can end in a fine, in jail, or in both.
Composition of offences is the exit from the second road. The matter is closed by agreement. There is no trial and no verdict.
The workbook heads the section composition of certain offences, and the word certain is the point. Not every offence can be settled this way. The more serious the punishment the law attaches, the less likely it is that composition is open at all.
How it works
The rule (Chapter 15, section 15.4.1). Notwithstanding anything contained in the Code of Criminal Procedures, any offence punishable under the Depositories Act may be compounded — except an offence punishable:
- with imprisonment only; or
- with imprisonment and also with fine.
Who compounds it. The Securities Appellate Tribunal, or a court before which such proceedings are pending.
When. Either before or after the institution of any proceeding. It does not have to wait for a prosecution to begin, and it is not shut out once one has.
What the workbook does not give. No compounding fee, no formula for the sum payable, no application form, and no time limit. This is a three-line provision. If a question asks what amount is payable on composition, Chapter 15 supplies no figure — do not manufacture one.
The offence sitting immediately above it. Section 20 of the same Act provides that if any person contravenes, attempts to contravene or abets a contravention of the Depositories Act, rules, regulations or bye-laws, or fails to pay a penalty imposed by the adjudicating officer or to comply with his directions or orders, that person is punishable with imprisonment up to 10 years, or a fine up to Rs 25 crore, or both. Section 20 opens with the words without prejudice to any award of penalty by adjudicating officer or SEBI, so a prosecution and an adjudicated penalty are two tracks over the same conduct.
Note what the workbook does not do. It states the section 20 punishment, and separately states the composition test, but it never applies one to the other. It does not say which Depositories Act offences are compoundable. Neither should you.
The neighbour to keep separate — immunity (section 15.4.2). The Central Government may, on the recommendation of SEBI and if satisfied, grant immunity from prosecution or penalty to a person alleged to have violated the Act, rules or regulations, provided that person has made full and true disclosure of the alleged violation. No such immunity may be granted where prosecution proceedings have already been initiated before the application is received. SEBI's recommendation is not binding on the Central Government. And immunity may be withdrawn if the Government is satisfied the person gave false evidence, who may then be tried for the offence.
Elsewhere in the paper. Chapter 2 notes that Chapter XXVIII of the Companies Act, 2013 likewise deals with the establishment of Special Courts, offences triable by them, offences being non-cognizable, the compounding of certain offences, and mediation and conciliation panels. Same device, different statute.
A worked example
Illustrative firm and dates. Every penalty figure below is the workbook's own.
Anvaya Depository Services Pvt Ltd is a depository participant. SEBI calls for records of a client's holdings on 3 April. Nothing is filed for 40 days.
Track one — the adjudicated penalty. Section 19A covers failure to furnish information, documents, books, returns or reports to SEBI within the specified time:
Minimum penalty = Rs 1,00,000
Per-day penalty, 40 days = 40 x Rs 1,00,000 = Rs 40,00,000
Statutory maximum = Rs 1,00,00,000
Penalty exposure = Rs 40,00,000
Track two — the prosecution. Anvaya then ignores the adjudicating officer's direction to file. Section 20 reaches that conduct too, and its punishment is imprisonment up to 10 years, or a fine up to Rs 25 crore, or both — expressly without prejudice to the Rs 40 lakh already on the table.
The composition question. Anvaya's counsel proposes to compound. Four questions arise, and the workbook answers only the first two:
| Question | What Chapter 15 says |
|---|---|
| Who may compound it? | SAT, or the court before which the proceeding is pending |
| Before or after proceedings begin? | Either |
| Is this particular offence inside the permitted class? | Not stated — the chapter gives the test, never the classification |
| What sum is payable? | Not stated — no fee, no formula |
Contrast with the immunity route. Suppose instead that, on 10 April and before any prosecution starts, Anvaya makes a full and true disclosure of the lapse and applies for immunity. That application goes to the Central Government on SEBI's recommendation, and SEBI's recommendation does not bind it. Had SEBI already launched prosecution proceedings on 8 April, the immunity door would be shut — two days too late. Composition has no such cut-off.
So the same Rs 40 lakh failure can travel three different routes, and the route decides who holds the pen: the adjudicating officer for the penalty, SAT or the court for composition, and the Central Government for immunity.
Why NISM asks about it
Chapter 15 (Depositories Act 1996), section 15.4.1, sits under the heading "Miscellaneous Issues", with immunity at 15.4.2 and appeals at 15.4.3 immediately after it. Chapter 2 mentions compounding again in its summary of the Companies Act, 2013.
The questions here are short and definitional. Who may compound an offence — SAT or the court before which the proceeding is pending. When — before or after proceedings are instituted. Which offences are outside it — those punishable with imprisonment only, or with imprisonment and also with fine.
The three miscellaneous provisions are also used as each other's distractors, because all three sit in a single one-page block. Chapter 15's own review question 2 is on immunity: it can be granted by the Central Government on SEBI's recommendation only if the person has made full disclosure of the violation — True. Expect the mirror-image question on composition.
Common exam traps
- Two exclusions, not one. Composition is barred where the offence is punishable with imprisonment only, and where it is punishable with imprisonment and also with fine. Candidates remember the first and drop the second.
- SAT or the court — not SEBI, not the adjudicating officer. Composition under this chapter is done by the Securities Appellate Tribunal or the court where the proceeding is pending. SEBI's role in the neighbouring provision is only to recommend immunity.
- Composition is not immunity. Immunity comes from the Central Government on SEBI's recommendation, requires full and true disclosure, and is unavailable once prosecution proceedings have already been initiated. Composition carries no disclosure condition and is expressly available after proceedings have started.
- Immunity can be withdrawn for false evidence, and the person may then be tried. The workbook gives no equivalent power to undo a composition.
- SEBI's recommendation on immunity does not bind the Central Government. A statement that "SEBI grants immunity" is wrong twice over.
- The provision overrides the criminal procedure code. It opens "Notwithstanding anything contained in the Code of Criminal Procedures", which is why a criminal matter can be closed by agreement at all.
- Do not confuse it with settlement of proceedings. Section 23JA of the SCRA, in Chapter 5, lets a person apply in writing to SEBI to settle proceedings initiated or to be initiated, on payment of a sum SEBI determines, with no appeal against that order and settlement amounts credited to the Consolidated Fund of India. Different statute, different authority, different chapter.
- Nor with "compounded with her creditors". That phrase appears in Rule 8 of the SCRR as a bar on stock exchange membership unless sixteen annas in the rupee have been paid. It is insolvency, not criminal composition — the same word doing a different job in the same paper.
Where this is taught
Free preparation for NISM Series III-ARelated terms
- DematerialisationConverting securities held as physical certificates into book-entry holdings: the certificates are defaced, mutilated and surrendered to the issuer, and an equivalent quantity is credited to the holder's demat account.
- Securities Appellate TribunalThe statutory tribunal established under the SEBI Act that hears appeals from orders of SEBI and of its adjudicating officers, which must be filed within 45 days of receipt of the order.
- Beneficial ownerThe investor who owns dematerialised securities for every practical purpose — the depository is the registered owner on the company's books, but the dividends, bonus, rights and votes are the investor's.
- ComplianceThe set of actions by which securities market intermediaries and issuers conform to the rules of SEBI, the exchanges, the depositories and their own boards — records, policies, reports and submissions.
- DepositoryAn institution that holds investors' securities in electronic form and provides the services needed to transact in them — the securities equivalent of a bank holding money rather than cash.
- Depository participantThe SEBI-registered agent through whom an investor reaches a depository — NSDL and CDSL cannot open investor accounts themselves, so every demat account is opened and operated through a DP.
- Stock exchangeA body of individuals, or a body incorporated under the Companies Act, that assists, regulates or controls the business of buying, selling or dealing in securities.