Special Courts and Offences (Sections 435–446) →

Chapter XXVIII of the Companies Act, 2013 — Sections 435 to 446B — supplies the criminal-procedure architecture of company law. It carves out a dedicated forum, the Special Court, for the trial of offences under the Act; it sorts those offences by gravity between a Sessions-level court and a Magistrate-level court; it declares almost every company offence non-cognizable and triable only on a qualified complaint; and it provides escape valves — compounding under Section 441 and mediation under Section 442 — that divert the bulk of regulatory defaults away from the criminal docket altogether. For the judiciary and CLAT-PG aspirant these sections are deceptively examinable: the numbers, the imprisonment thresholds and the post-2017 restructuring recur in objective papers, and the leading Supreme Court authority on the forum is recent.

This chapter traces the scheme section by section: the establishment of Special Courts under Section 435 and the watershed 2017 amendment that split them into two classes; the trial regime under Sections 436 to 438; the non-cognizability rule under Section 439 read with the complaint filter; the transitional jurisdiction of ordinary Magistrates under Section 440; the compounding mechanism under Section 441 and the mediation panel under Section 442; the residual provisions in Sections 443 to 446; the sentencing factors and lesser-penalty regime introduced for small companies by Sections 446A and 446B; and the 2024 Supreme Court ruling in Insolvency and Bankruptcy Board of India v. Satyanarayan Bankatlal Malu on the Special Court's jurisdiction over offences under the Insolvency and Bankruptcy Code. Readers new to the statute should first consult our introduction to the Companies Act, 2013 and the chapter on key definitions.

Statutory scheme — Chapter XXVIII

Before the 2013 Act, prosecutions for company offences were tried by ordinary criminal courts under the general scheme of the Code of Criminal Procedure, 1973, and the resulting delay was notorious. Chapter XXVIII answers that complaint by creating a specialised forum and a self-contained procedural code. The chapter runs from Section 435 (establishment of Special Courts) through Section 446B (lesser penalties for certain companies), and it must be read together with Section 212(6), which makes the grave fraud offences investigated by the Serious Fraud Investigation Office cognizable and non-bailable, and with Section 447, which defines and punishes fraud. The forum exists to deliver, in the words of Section 435(1), "speedy trial of offences under this Act."

The architecture has three moving parts. First, a jurisdictional sorting rule: grave offences (imprisonment of two years or more) go to a Sessions-level Special Court, lesser offences to a Magistrate-level Special Court. Second, a gatekeeping rule: company offences are non-cognizable and cognizance is taken only on the complaint of a defined class of complainants, principally the Registrar of Companies. Third, a set of diversion mechanisms — compounding and mediation — that keep minor and technical defaults out of the trial process. The whole chapter sits downstream of the regulatory machinery in the rest of the Act and is the enforcement teeth behind provisions on incorporation, the memorandum and the articles of association.

Section 435 — establishment of Special Courts

Section 435(1) empowers the Central Government, "for the purpose of providing speedy trial of offences under this Act, except under section 452," to establish or designate as many Special Courts as may be necessary, by notification. The exclusion of Section 452 — wrongful withholding of property of a company by an officer or employee — is deliberate; that offence is left to the ordinary courts. A Special Court may be newly constituted or an existing court of session may be designated to function as one. The provision is enabling, not self-executing: until the Government notifies a Special Court for an area, the transitional rule in Section 440 keeps jurisdiction with the ordinary Court of Session or Magistrate.

The qualification of the presiding judge is fixed by Section 435(2): a person is qualified for appointment as a judge of a Special Court only if, immediately before appointment, he is holding office as a Sessions Judge or Additional Sessions Judge (for the higher class) or as a Metropolitan Magistrate or Judicial Magistrate of the First Class (for the lower class). The appointment is made by the Central Government with the concurrence of the Chief Justice of the High Court within whose jurisdiction the judge is working. The requirement of the Chief Justice's concurrence preserves the separation between the executive's power to constitute the forum and the judiciary's control over who staffs it.

The 2017 amendment — two classes of Special Court

As originally enacted, Section 435 contemplated a single class of Special Court, presided over by a Sessions-level judge, for all offences under the Act. This proved unwieldy: the great mass of company offences are minor regulatory defaults punishable with fine or short imprisonment, and routing them all through a Sessions court defeated the object of speed. The Companies (Amendment) Act, 2017, brought into force on 7 May 2018, restructured the provision into two classes of Special Court. Section 435(1)(a) assigns to a single judge holding office as a Sessions Judge or Additional Sessions Judge all offences punishable under the Act with imprisonment of two years or more. Section 435(1)(b) assigns to a Metropolitan Magistrate or a Judicial Magistrate of the First Class "other offences" — that is, those punishable with imprisonment of less than two years, or with fine only.

The two-class structure matters for more than tidiness. It means that the level of the forum is a function of the maximum punishment prescribed for the offence charged, and a charge-sheet must therefore be filed in the correct class of Special Court. As discussed below, the dividing line of "two years or more" also became the pivot of the 2024 Supreme Court decision on IBC offences, because the IBC, enacted in 2016, incorporated the pre-amendment Section 435 with its single Sessions-level forum. The amendment thus has a doctrinal afterlife well beyond the Companies Act itself.

Section 436 — offences triable by Special Courts

Section 436 vests the trial in the Special Court and disapplies the ordinary scheme of the CrPC. Section 436(1)(a) provides that, notwithstanding anything in the Code of Criminal Procedure, 1973, all offences specified under sub-section (1) of Section 435 are triable only by the Special Court established for the area in which the registered office of the company in relation to which the offence is committed is situate, or by the Special Court having jurisdiction. Where a person accused of, or suspected of the commission of, an offence under the Act is forwarded to a Magistrate under the CrPC, that Magistrate may authorise detention — for a term not exceeding fifteen days where he is a Judicial Magistrate, and seven days where he is an Executive Magistrate — and must then forward the accused to the Special Court having jurisdiction.

Section 436(2) confers concurrent reach: while trying an offence under the Act, a Special Court may also try any other offence with which the accused may, under the CrPC, be charged at the same trial, provided the other offence is connected with the company offence. The effect is to permit a single composite trial rather than splitting a transaction artificially between two forums. This dovetails with the broader objective of consolidating company-related litigation that animates the constitution of the National Company Law Tribunal on the civil side.

Summary trial and the one-year cap

The most heavily examined feature of Section 436 is its summary-trial proviso. Section 436(1)(a), in its proviso, allows the Special Court to try in a summary way any offence under the Act punishable with imprisonment for a term not exceeding three years. The advantage of summary trial is speed; the price is a ceiling on sentence. In the case of any conviction in a summary trial, no sentence of imprisonment for a term exceeding one year may be passed. This one-year cap is the trade-off the legislature struck for the procedural shortcut.

The proviso contains a built-in safety valve. Where, at the commencement of, or in the course of, a summary trial, it appears to the Special Court that the nature of the case is such that a sentence of imprisonment exceeding one year may have to be passed, or that it is otherwise undesirable to try the case summarily, the Special Court must, after hearing the parties, record an order to that effect, recall any witnesses who may have been examined, and proceed to hear or rehear the case in the manner provided by the CrPC for the regular trial of the offence. The aspirant should hold two numbers together: the offence must carry a maximum of not more than three years to be eligible for summary trial, but the sentence actually imposed in a summary trial cannot exceed one year.

Section 437 — appeal and revision

Section 437 grafts the appellate and revisional jurisdiction of the High Court onto the Special Court. It provides that the High Court may exercise, so far as may be applicable, all the powers conferred by Chapters XXIX and XXX of the Code of Criminal Procedure, 1973 on a High Court, as if the Special Court within the local limits of the jurisdiction of the High Court were a Court of Session trying cases within those limits. The practical result is that an appeal from a judgment of a Sessions-level Special Court lies to the High Court in the same manner as an appeal from a Court of Session, and the High Court's revisional powers under Chapter XXX are equally available. The section avoids the need to re-legislate the entire appellate code by incorporating the CrPC machinery by reference.

Section 438 — application of the CrPC

Section 438 makes the general provisions of the Code of Criminal Procedure, 1973 the default procedural law before a Special Court. Save as otherwise provided in the Act, the provisions of the CrPC apply to the proceedings before a Special Court; and for the purposes of those provisions, the Special Court is deemed to be a Court of Session and the person conducting a prosecution before a Special Court is deemed to be a Public Prosecutor. The deeming of the prosecutor as a Public Prosecutor carries with it the statutory duties of fairness and disclosure that attach to that office. Section 438 is the residual clause that fills every gap left by the special provisions of Chapter XXVIII — wherever the Act is silent, the CrPC governs.

Section 439 — offences to be non-cognizable

Section 439 is the gatekeeper of the chapter. Section 439(1) provides that, notwithstanding anything in the Code of Criminal Procedure, 1973, every offence under the Act, except the offences referred to in sub-section (6) of Section 212, is deemed to be non-cognizable within the meaning of the Code. The carve-out is significant: the grave fraud offences that the Serious Fraud Investigation Office investigates under Section 212(6) are cognizable, so that the police (and the SFIO) may act without prior judicial sanction. For everything else, non-cognizability means the police cannot register a First Information Report or commence investigation on their own; the offence reaches the court only by way of complaint.

Cognizance only on a qualified complaint

Section 439(2) supplies the complaint filter. No court takes cognizance of any offence under the Act, alleged to have been committed by any company or any officer thereof, except on the complaint in writing of the Registrar, a shareholder or member of the company, or of a person authorised by the Central Government in that behalf. A proviso preserves a route for the Securities and Exchange Board of India: where the offence relates to issue and transfer of securities and non-payment of dividend, cognizance may be taken on a complaint of a person authorised by SEBI. The deliberate narrowing of who may set the criminal process in motion protects companies and their officers from vexatious private prosecution while keeping the door open to the principal regulator, aggrieved members and a Central-Government nominee.

Section 439(3) relieves the official complainant of the burden of personal attendance: where the complainant is the Registrar or a person authorised by the Central Government, his presence before the court trying the offence is not necessary unless the court requires his personal attendance at the trial. Section 439(4) excepts the liquidator of a company from the complaint requirement in respect of certain winding-up offences. The interaction of non-cognizability with the regulatory complaint power was examined by the Supreme Court in V.L.S. Finance Ltd. v. Union of India, AIR 2013 SC 3182, which, though decided on the corresponding provisions of the 1956 Act, confirms that the Registrar's complaint is the ordinary engine of company prosecution and that the compounding authority operates alongside, not in derogation of, the criminal court.

Section 440 — transitional jurisdiction of Magistrates

Because Special Courts are established by notification and not all at once, Section 440 supplies a transitional rule. It provides that, until a Special Court is established for any area, the offences triable by a Special Court continue to be tried by the Court of Session or the Court of Metropolitan Magistrate or Judicial Magistrate of the First Class, as the case may be, having jurisdiction. The provision ensures there is never a jurisdictional vacuum: a prosecution can always be commenced in the appropriate ordinary court pending the constitution of a Special Court for the area, with the matter standing transferred once the Special Court is notified.

Section 441 — compounding of certain offences

Compounding is the principal diversion mechanism. Section 441 allows an offence to be settled by the payment of a sum in lieu of prosecution, sparing the company and its officers the burden of a criminal trial and relieving the courts of a flood of technical defaults. Section 441(1) provides that any offence punishable under the Act (whether committed by a company or any officer thereof) with fine only may be compounded — either before or after the institution of any prosecution — by the National Company Law Tribunal, or, where the maximum amount of fine which may be imposed for the offence does not exceed twenty-five lakh rupees, by the Regional Director or any officer authorised by the Central Government. A proviso bars compounding of an offence by a company or its officer where the investigation against such company has been initiated or is pending under the Act.

The crucial classification is in Section 441(6), as substituted by the Companies (Amendment) Act, 2019. Clause (a) provides that any offence which is punishable under the Act with imprisonment only, or with imprisonment and also with fine, is not compoundable. Clause (b) provides that any offence which is punishable with imprisonment or fine, or with imprisonment or fine or with both, is compoundable with the permission of the Special Court, in accordance with the procedure laid down in the CrPC for compounding of offences. The dividing line is therefore the structure of the punishment clause: an "imprisonment-or-fine" offence may be compounded with the Special Court's leave, but an "imprisonment-and-fine" or "imprisonment-only" offence may not be compounded at all. This distinction is a perennial favourite in objective papers.

The Supreme Court in V.L.S. Finance Ltd. v. Union of India, AIR 2013 SC 3182, addressing the analogous Section 621A of the Companies Act, 1956, held that the compounding authority and the criminal court exercise parallel powers, and that the authority's power to compound is not subordinated to the requirement of the criminal court's permission where the prosecution has not yet been instituted before that court. The decision underscores that compounding is a substantive relief, not a mere indulgence, and that the two forums must act in coordination to avoid duplicating the proceeding.

Section 442 — Mediation and Conciliation Panel

Section 442 introduces a structured alternative-dispute-resolution route on the civil side of enforcement. The Central Government maintains a Mediation and Conciliation Panel of experts for the purpose of mediating between the parties during the pendency of any proceeding before the Central Government, the Tribunal or the Appellate Tribunal. Any of the parties may, at any time during the proceeding, apply to have the matter referred to the Panel, and the Central Government, Tribunal or Appellate Tribunal may suo motu refer a matter to mediation. The Panel must dispose of the reference within three months and forward its recommendation; either party may file objections before the referring authority. Matters involving serious and specific allegations of fraud, fabrication of documents, forgery, impersonation or coercion, and matters relating to inspection or investigation, are excluded from mediation, preserving the criminal and investigative track for genuine wrongdoing.

Sections 443 to 446 — prosecutors, appeals and fines

The remaining sections complete the enforcement code. Section 443 empowers the Central Government to appoint company prosecutors, with the same powers and privileges as a Public Prosecutor appointed under the CrPC, to conduct prosecutions arising out of the Act. Section 444 confers on the Central Government a right of appeal against any order of acquittal passed by a court in any matter arising out of the Act, mirroring the State's appeal against acquittal under the general law. Section 445 protects against malicious prosecution: where a complaint is found to be false, frivolous or vexatious, the court may direct the complainant to pay compensation to the accused — a deterrent against abuse of the very complaint power that Section 439(2) confers. Section 446 directs that, where a company is convicted and fined, the fine, so far as it is recoverable, is applied first towards payment of costs of the prosecution and recovery, and the balance to the credit of the appropriate fund.

Sections 446A and 446B — sentencing and lesser penalties

The Companies (Amendment) Act, 2019 added two structuring provisions. Section 446A directs the court or the Special Court, while deciding the amount of fine or imprisonment under the Act, to have regard to specified factors: the size of the company; the nature of the business carried on by the company; the injury to public interest; the nature of the default; and the repetition of the default. The provision injects a measure of proportionality into sentencing, requiring the court to calibrate punishment to the gravity of the wrong and the circumstances of the offender rather than mechanically applying the maximum.

Section 446B, as substituted by the Companies (Amendment) Act, 2020, provides a concession for smaller entities. Where an offence under the Act, committed by a One Person Company, a small company, a Producer Company, or a start-up company (or by any of their officers in default, or any other person in respect of such company), is punishable with fine or imprisonment or both, such company, officer or person is liable to a penalty or punishment not more than one-half of the penalty or punishment specified, subject to a maximum of two lakh rupees in the case of a company and one lakh rupees in the case of an officer in default or any other person. The provision reflects the Act's graduated philosophy — heavier obligations and sanctions for large public companies, a lighter touch for the small and the new.

Special Courts and the IBC — the Malu rule

The most important recent authority on Section 435 arises at the intersection of the Companies Act and the Insolvency and Bankruptcy Code, 2016. Section 236(1) of the IBC provides that offences under the Code are to be tried by the Special Court established under Chapter XXVIII of the Companies Act, 2013. When the IBC was enacted in 2016, Section 435 contemplated a single Sessions-level Special Court. The 2018 amendment then split Section 435 into the two classes described above, including a Magistrate-level court for lesser offences. The question was whether the post-2016 amendment to Section 435 carried into Section 236(1) of the IBC, so that IBC offences punishable with under two years could be tried by a Magistrate.

In Insolvency and Bankruptcy Board of India v. Satyanarayan Bankatlal Malu, 2024 INSC 317, decided on 19 April 2024 by Justices B.R. Gavai and Sandeep Mehta, the Supreme Court held that Section 236(1) of the IBC incorporates the Special Court of the Companies Act by way of "legislation by incorporation" and not "legislation by reference." The consequence is that the forum is frozen as it stood when the IBC was enacted: a Special Court presided over by a Sessions Judge or Additional Sessions Judge alone has jurisdiction to try offences under the Code, and any subsequent amendment to Section 435 of the Companies Act — including the 2018 creation of a Magistrate-level Special Court — does not travel into Section 236(1). The decision is a clean illustration of the incorporation-versus-reference distinction and is squarely examinable for CLAT-PG.

MCQ angle — the recurring distinctions

Several distinctions recur across previous-year papers. First, the threshold trio: a Special Court is of the Sessions class for offences punishable with imprisonment of two years or more; an offence may be tried summarily only if punishable with imprisonment not exceeding three years; and a summary trial cannot impose a sentence exceeding one year. Second, the cognizance rule: every company offence is non-cognizable except the Section 212(6) SFIO offences, and cognizance is taken only on the complaint of the Registrar, a member, a Central-Government nominee, or (for securities and dividend matters) a SEBI-authorised person. Third, the compounding line: imprisonment-or-fine offences are compoundable with the Special Court's permission, while imprisonment-and-fine and imprisonment-only offences are not compoundable. Fourth, the forum number: fine-only offences up to a maximum fine of twenty-five lakh rupees may be compounded by the Regional Director, others by the Tribunal. Fifth, the Malu rule: amendments to Section 435 after 2016 do not affect IBC offences, which remain triable only by a Sessions-level Special Court. Mastering these five lines disposes of most objective questions on the chapter; for the underlying corporate concepts, revisit the Companies Act hub.