Introduction
The compounding of offences offers a legal mechanism for resolving criminal charges through a settlement, thereby avoiding lengthy legal proceedings. Essentially, it represents a negotiated compromise between the accused and the authority, where the accused pays a specified amount to avoid prosecution.
To better understand the concept, one can look to s. 320 of the Code of Criminal Procedure, 1973 ('CrPC'), now renumbered as s. 359 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS), enumerates the offences that can be compounded. Typically, more serious crimes are non-compoundable. S. 320(8) of the CrPC specifies that the compounding of an offence affects the acquittal of the accused, while s. 320(9) clarifies that offences not listed under this section are non-compoundable. Consequently, offences under special or local laws are generally non-compoundable unless expressly provided for by those laws.
Under the Customs Act, 1962 ('Customs Act'), the compounding of offences serves as a crucial tool for resolving disputes efficiently. The Customs Act facilitates a more streamlined and expedited resolution process by allowing certain offences to be settled outside the traditional court system. However, this process has limitations and conditions, particularly regarding serious offences and the discretion of the compounding authority.
Compounding of Offences under the Customs Act
- 137(1) of the Customs Act allows criminal prosecution against an accused for offences under ch. XVI, covering ss. 132 to 136 of the Act. However, s. 137(3) of the Customs Act provides for the compounding of these offences, offering an option for early settlement of disputes. The compounding authority under the Customs Act is the Chief Commissioner of Customs, who can compound an offence either before prosecution is launched or after a case has been instituted upon payment of the compounding amount. The Customs (Compounding of Offence) Rules, 2005 ('2005 Rules'), govern the compounding process.
Under s. 137(3), certain conditions must be met for the compounding of offences, including payment of the compounding amount as determined by the compounding authority, exclusion of serious offences specified under the proviso to this section, and full and true disclosure by the applicant. Where a complaint has already been filed and is pending in court, the applicant must file an affidavit within 30 days, undertaking to comply with the 2005 Rules. The compounding authority will examine the application and pass an appropriate order under r. 4(3), and forward a copy of the order to the court. If the court accepts the compounding, the case will be disposed of accordingly. However, if the court rejects the request for immunity from prosecution, the compounding amount paid will refunded to the applicant1.
- 137(3) contains an exclusion clause whereby certain serious offences listed under the provisos (a) to (e) cannot be compounded. These include offences related to the Narcotic Drugs and Psychotropic Substances Act, 1985, the Arms Act, 1959, offences involving prohibited goods, cases where the market value of goods exceeds Rs. 1 crore, repeat offenders who have committed an offence under the Customs Act within the previous 5 years, and offences under any other allied law. The Supreme Court, in Rajesh Kumar Sharma2,observed that the offences typically excluded from compounding involve severe violations and that these exclusions are intended to prevent serious offenders from taking advantage of the compounding provisions. This is a landmark judgment as it clarifies various aspects of the compounding process, emphasising that it is designed to reduce litigation and expedite the resolution of cases, which is why the law permits the filing of such applications at various stages of the legal process.
Furthermore, it is mandatory that the accused be offered the option of compounding when prosecution is initiated or contemplated. However, the decision to allow compounding rests at the absolute discretion of the compounding authority, and r. 4(7) of the 2005 Rules clarifies that an applicant cannot claim compounding as a right. Additionally, a circular3 mandates that all persons against whom prosecution is initiated or contemplated should be informed in writing of the option of compounding.
Procedure for Filing Compounding Applications
- 2 of the 2005 Rules defines various terms, including 'applicant' under r. 2(b)refers to any importer, exporter, or other person (excluding customs officers) who can apply for compounding. The application must be filed before the 'compounding authority,' which is the Principal Chief Commissioner of Customs or the Chief Commissioner of Customs having jurisdiction over the location where the offence was committed4. Suppose an offence is committed in multiple jurisdictions. In that case, the Principal Chief Commissioner of Customs or the Chief Commissioner of Customs with jurisdiction over the location where the highest value of goods or duty evaded is involved shall be the competent authority5.
Unlike criminal law, where compounded occurs only after the case is instituted, under the Customs Act, compounding can occur before or after a case is filed. Moreover, under the Customs Act, the compounding amount must be paid as part of the compounding process, whereas no such requirement exists under the CrPC. However, in Chen Hsui Yun6, the Supreme Court showed a willingness to grant compounding of offences under the Customs Act even when procedural formalities had not been strictly followed, provided that the substantive conditions for compounding were met. One key point in this case was the Court's directive to consider the possibility of compounding the entire offence despite the appellant not having filed a formal application as required under r. 3 of the 2005 Rules. The Court allowed compounding by treating its directions as equivalent to an application for compounding. However, it also highlighted the necessity of fulfilling the conditions laid down under s. 137(3), before allowing compounding, including the requirement of a negative verification report from the field formations.
In Imran Latif Shirgawkar7, the Bombay High Court clarified that there is no statutory prohibition on filing a compounding application under s. 137(3) of the Customs Act, even if the show-cause notice has not been issued or the duty, fine, or penalty has not been determined. The Court emphasised that the Customs Act permits filing a compounding application at any stage, either before or after the institution of prosecution, and that there was no question of premature applications.
Upon receiving an application, the compounding authority may call for a report from the 'reporting authority', which is the Principal Commissioner of Customs or Commissioner of Customs with jurisdiction over the location of the offence or another authorised officer8. The reporting authority must submit the report within one month or within an extended period if allowed by the compounding authority9. The compounding authority will either allow the application, specifying the compounding amount in terms of r. 5 of the 2005 Rules, grant immunity from prosecution under r. 6, or reject the application10. If the application is rejected, the applicant must be given an opportunity for a personal hearing, and the reasons for rejection must be specified in the order. If the application is allowed, the applicant must pay the compounding amount within 30 days from the date of receipt of the order allowing the compounding11. In Vinod Kumar Agarwal12, the Bombay High Court emphasised the need for the compounding authority to provide cogent reasons when refusing a compounding application. It also noted that the decision to compound should also consider the public interest, ensuring that the compounding of offences does not undermine the enforcement of customs laws or the deterrence of serious offences.
Determination of Compounding Amount & Immunity from Prosecution
It is pertinent to note that compounding will not be allowed unless the duty, penalty, and interest are paid13. Once paid, the compounding amount is non-refundable except if the court rejects immunity from prosecution14. The compounding amount is determined according to r. 5 of the 2005 Rules, which specify amounts for different offences.
If a person has committed offences under more than one section, the compounding amount shall be determined by the section with the highest prescribed amount. Suppose the compounding authority is satisfied that the applicant has made full and true disclosure of the facts and complied with the conditions imposed. In that case, it may grant immunity from prosecution to the applicant15. However, if the offence is punishable only under s. 135AA of the Customs Act, immunity from prosecution must necessarily be granted16.
The concept of 'full and true disclosure' is critical. It requires the applicant to disclose all relevant and necessary facts accurately. A circular17 issued in 2009 clarified that if there are demonstrable contradictions, inconsistencies, or incompleteness in the information provided by the applicant, the compounding application cannot be entertained.
The Supreme Court, in the case of Anil Chanana18, emphasised that the applicant must provide a comprehensive account of the circumstances surrounding the offence to meet the standard of full and true disclosure. Further, the Delhi High Court, in the case of Depeesh Mamodiya19, elaborated on the boundaries of full and true disclosure, underscoring the importance of consistency and clarity in the information provided by the applicant. The High Court held that while integrity and completeness are crucial, initial contradictions may be acceptable if subsequently clarified, provided there are no further conflicting statements. This decision was made against the backdrop of the Court's acknowledgement that contradictions, inconsistencies, or incomplete information in the applicant's disclosure could lead to the rejection of the application.
The Court also recognised, both in Depeesh Mamodiya (supra) and the Anil Chanana (supra) case, that the decision of the compounding authority could be subject to judicial review. Judicial review would be appropriate if it is found that the authority did not consider the application in accordance with the law or if the rejection of the application was arbitrary or unreasonable. However, it was noted that the scope of such judicial review is limited to examining whether the authority acted within its jurisdiction and complied with the principles of natural justice. This limited scope ensures that while the compounding process is fair, it also prevents applicants from abusing the system by withholding information and guards against potential abuse or neglect by the authorities in following the legal procedure.
Immunity from prosecution granted through compounding is conditional, not absolute. It can be withdrawn if the applicant fails to meet the criteria for full and true disclosure, does not comply with the conditions imposed, or fails to pay the compounding amount20. In Anil Chanana (supra), the Supreme Court clarified that even when an offence is compounded, it does not automatically entitle the applicant to immunity from prosecution. The Court held that the grant of immunity is a discretionary relief at the compounding authority's disposal and not a right of the accused. Consequently, the authority is not obligated to compound every offence.
Conclusion
The legal framework for compounding offences under the Customs Act is well-established, providing a clear mechanism for the early resolution of disputes. The jurisprudence surrounding the compounding of offences under the Customs Act has been substantially clarified through various judicial pronouncements. These cases have delineated the contours of compounding, emphasising that it is a discretionary power vested in the compounding authority rather than an inherent right of the applicant. This discretion is expected to be exercised judiciously, considering the public interest, the gravity of the offence, and statutory guidelines. However, the authority's decision is not immune from judicial scrutiny, as courts may review it on limited grounds to ensure that it is neither arbitrary nor outside the bounds of the law. Additionally, the law and the judiciary have clarified that these beneficial provisions should not be abused by repeat offenders or used in severe violations that contravene public interest. This demarcation is crucial to maintain the integrity of the law and prevent its misuse. While the concept of compromise or early settlement of disputes is not new, it often receives less attention in an adversarial legal system. Therefore, awareness of such options and how they operate is not only important but also advantageous for individuals and businesses that may have unintentionally violated the law and do not deserve prolonged prosecution once the compounding amount has been paid.
Footnotes
1 Circular No. 54/2005-Cus., Para 5, dated 30-12-2005.
2 Rajesh Kumar Sharma v. Union of India & Ors., (2007) 9 SCC 158.
3 Circular No. 29/2009-Cus., Para 6, dated 15-10-2009.
4 R. 2(c), the Custom (Compounding of Offence) Rules, 2005.
5 R. 3, Explanation, the Custom (Compounding of Offence) Rules, 2005.
6 Chen Hsui Yun v. Directorate of Revenue Intelligence, 2022 SCC OnLine SC 1793
7 Imran Latif Shirgawkar v. DRI, 2019 SCC OnLine Bom 2277.
8 R. 2(e), the Custom (Compounding of Offence) Rules, 2005.
9 R. 4(2), the Custom (Compounding of Offence) Rules, 2005.
10 R. 4(3), the Custom (Compounding of Offence) Rules, 2005.
11 R. 4(5), the Custom (Compounding of Offence) Rules, 2005.
12 Vinod Kumar Agarwal v. Union of India, 2007 SCC OnLine Bom 1414.
13 R. 4(3), the Custom (Compounding of Offence) Rules, 2005; Inserted by Notification No. 118/2008-Cus. (N.T.) , dated 12-11-2008.
14 R. 4(6), the Custom (Compounding of Offence) Rules, 2005.
15 R. 6, the Custom (Compounding of Offence) Rules, 2005.
16 Inserted by Notification No. 69/2022-Cus. (N.T.) , dated 22-08-2022.
17 Circular No. 29/2009-Customs, Para 4, dated 15-10-2009.
18 Union of India v. Anil Chanana, (2008) 4 SCC 175.
19 Depeesh Mamodiya v. Chief Commissioner of Customs & Anr., 2014 SCC OnLine Del 3325.
20 R. 7, the Custom (Compounding of Offence) Rules, 2005.
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