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Compounding of Offences (Sec. 441)

Under The Companies Act 2013

Settle your company defaults without prosecution through the Section 441 compounding process. Get expert assistance for NCLT/Regional Director applications from experts at Setindiabiz. Quick resolution in 30-45 days 📋. Avoid criminal proceedings and clear your compliance record today!

Compounding - Your Path to Compliance Peace

Compounding of offences under Section 441 of the Companies Act 2013 allows companies and officers to settle defaults by paying a fee instead of facing prosecution. This legal provision enables businesses to rectify non-compliances, such as delayed filings or missed deadlines, without incurring criminal proceedings. Setindiabiz offers end-to-end support, from drafting and filing the compounding application under Section 441 in the prescribed Form GNL-1 to filing it before the NCLT/RD, ensuring smooth compounding within 30-45 days. We handle your entire process professionally.

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Founder, Tinsa Global P Limited

Setindiabiz’s disciplined and organized team made our company registration, tax, and IPR filings smooth and hassle-free.

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Checklist for Compounding Application

Ensure your compounding application meets all requirements.
Get expert help from Setindiabiz for smooth Section 441 compliance.

Company Through Director

Any company can apply through a director authorised by board resolution in this behalf as per Section 441

Officers in Default

WTD, KMP and officers liable for prosecution under respective provisions can file a compounding application

Rectify Default First

Must make good the default before filing. Attach evidence showing compliance has been completed

Board Resolution

Pass resolution authorising the director to sign the application and appoint the CS/CA/lawyer to appear before the authority.

One Offence Per Application

Each type of default needs a separate application. Cannot combine different offences in a single form

Authority Based on Fine

NCLT handles cases above ₹25 lakhs. The Regional Director handles cases up to ₹25 lakhs in fine amount

e-Form GNL-1 Filing

File your application electronically with the ROC, along with a ₹1,000 fee. Maximum 8 eight persons per form allowed.

Joint Application Allowed

The company and officers can file together for the same offence. The same offence for multiple years.

Note : As per NCLAT rulings under Section 441, different offences require separate applications. Non-filing of returns (S.92) and non-maintenance of registered office (S.12) cannot be combined. The same offence for multiple years can be allowed in one application, as per Pahuja Takii Seed Ltd. & Ors. Vs. The Registrar of Companies, NCT of Delhi & Haryana

Legal Provisions Concerning Compounding of Offences

The compounding of offences under the Companies Act, 2013, is governed by Section 441, which allows companies and their officers to settle certain violations by paying a fee instead of facing prosecution. The Regional Director is empowered to compound cases where the fine does not exceed ₹25 lakhs, while the NCLT manages cases involving higher amounts.

Table of Legal Provisions:

NoName of ProvisionsSection or RuleBrief Description
1Compounding of Certain OffencesSection 441, Companies Act, 2013The main provision allows for the compounding of offences punishable with a fine only, or with a fine or imprisonment, or both. It is not applicable for offences punishable with imprisonment only. Sets a 3-year bar for compounding a repeat of the same offence.
2Officer Who is in DefaultSection 2(60), Companies Act, 2013Defines officers liable for a company's non-compliances, including whole-time directors, KMPs, and other designated personnel. These officers can file compounding applications on behalf of the company for violations.
3Punishment for FraudSection 447, Companies Act, 2013Prescribes severe punishment for fraud, including imprisonment and a fine. An offence of fraud under this section is non-compoundable under any circumstances.
4Fee for FilingSection 403, Companies Act, 2013Mandates payment of additional fees for delayed filings. During compounding, authorities direct the filing of pending documents with prescribed fees under this section as a prerequisite to making the default good.
5Application for CompoundingForm GNL-1, Companies (Misc.) Rules, 2014Electronic form for filing compounding applications with the ROC. Must be accompanied by a detailed petition, board resolution, affidavit, and evidence that the default has been made good.
6Intimation of Compounding OrderForm INC-28, Companies (Mgmt & Admin) Rules, 2014Mandatory form to be filed with the ROC within 7 days of receiving the compounding order. Ensures official records are updated and prevents future prosecution for the compounded offence.
7Procedure and DocumentationCompanies (Adjudication of Penalties) Rules & NCLT RulesPrescribes the need for a detailed petition and supporting documents like MOA/AOA, financial statements, and replies to show-cause notices. The application fee for Form GNL-1 is ₹1,000.

This legal framework provides a structured approach for companies and officers in default to rectify non-compliances through compounding, promoting ease of doing business while ensuring regulatory compliance. Understanding these provisions is critical for navigating the compounding process efficiently.

Documents Required for Compounding Application

Proper documentation ensures smooth processing of your compounding application with NCLT or the Regional Director, helping avoid delays and rejections. Below is a standard list of documents required, which may vary from case to case.

Documents from the Company

Detailed Application Form

Petition detailing the case facts, nature of offence, and prayer.

Board Resolution Copy

Certified copy authorising the compounding application and representative.

Memorandum and Articles

Latest copies of the company's MOA and Articles of Association.

Latest Financial Statements

Audited financial statements for the preceding financial year.

Proof of Default Rectification

Evidence showing the default has been made good before filing.

ROC Notice (if applicable)

Copy of any show-cause notice received from the ROC.

Documents from Directors/Officers

Affidavit on Stamp Paper

Sworn affidavit on stamp paper verifying the petition's contents.

Digital Signature Details

DSC information of the director authorised for MCA filing

Authorisation Letter

Vakalatnama or Power of Attorney for the professional representative

The Step-by-Step Process for Compounding of Offences

Setindiabiz makes the compounding process seamless by handling your application from board resolution to final order. Get your defaults settled quickly without prosecution! 📋

1

Step-1: Rectify the Default

Before applying for compounding under Section 441, rectify your non-compliance. This involves filing overdue returns, settling pending fees, or completing missed compliances. The Registrar of Companies (ROC) will require proof of rectification, such as the SRN of filed forms or payment receipts. This is mandatory and shows your commitment to compliance! ⚖️

2

Step-2: Pass Board Resolution

To begin the compounding application process, a board meeting must be held in accordance with the Companies Act. During this meeting, a resolution should be passed to acknowledge the offence, determine the fine amount, and authorise a director to sign Form GNL-1. Additionally, a CS/CA/lawyer should be appointed to represent the company before the compounding authority. Remember to have a certified copy of this resolution readily available. 📝

3

Step-3: Prepare Application & Documents

Compile all required papers for submission and draft a detailed petition. This petition, which serves as the core application, must clearly explain the facts of the case, details of the default, and reasons for non-compliance. You should attach all necessary annexures, including an affidavit verifying the petition, the MOA/AOA, evidence of default rectification, financial statements, and the Board Resolution. 📄

4

Step-4: File Form GNL-1 with ROC

Submit online application to Registrar File e-Form GNL-1 electronically on the MCA portal with ₹1,000 fee. Enter details of up to 8 persons per form. ROC will scrutinise documents, calculate the maximum fine as per the relevant sections, and may seek clarifications. This initiates the official compounding process under Section 441! 💻

5

Step-5: ROC Forwards to Authority

Application sent to NCLT or Regional Director. After verification, ROC forwards your application with comments to the appropriate authority. Regional Director handles cases up to ₹25 lakhs fine under the Companies (Amendment) Act 2019. NCLT handles higher amounts. Authority is decided based on the maximum fine prescribed for the offence! 🏛️

6

Step-6: Attend Hearing

Present your case before the authority, NCLT/RD, which will fix the hearing date and send notice. Your authorised representative must appear, admit the contravention, and explain the circumstances. Authority considers the nature of the offence, intention, default period, and the company's financial condition before deciding the compounding amount as per Section 441! ⚡

7

Step-7: Pay Compounding Fee

Settle the prescribed amount online. Once the order is passed, pay the compounding fee through the MCA portal within the stipulated time. The fee won't exceed the maximum fine prescribed for that offence. Keep payment proof ready. This completes the settlement, and you will receive an honourable discharge from prosecution. 💰

8

Step-8: File Form INC-28

Intimate ROC about compounding order. Within 7 days of receiving the order, file Form INC-28 with ROC along with a certified copy of the compounding order. This updates official records and prevents future prosecution for the compounded offence. Your compliance record is now clear under the Companies Act! ✅

Timing of Filing Adjudication Application

A crucial timing consideration: Compounding applications can be filed either before or after prosecution begins. If filed after prosecution has started, the Registrar must notify the court, which may result in the offender's discharge. Once compounded, no new prosecution can be initiated for that offence. The company must inform the ROC within seven days using Form INC-28.

Indicative Timeline for Compounding of Offences

1
1-2 Days
documentation-and-digital-signature

Board Meeting
& Resolution Pass resolution authorising compounding application and appointing professionals

2
3-5 Days
name-search-and-moa-drafting

Document Preparation & Petition Drafting: Compile all attachments, including evidence of rectified default and draft petition

3
Variable
filing-for-company-incorporation

ROC Processing The Registrar reviews Form GNL-1 and prepares a report; this can take from one week to several weeks

4
Variable
issuance-of-incorporation-certificate

Final Order & Payment The time taken for a hearing and the final order from the NCLT/RD can range from a few weeks to several months.

Compounding Multiple Offences Over Multiple Years

If a company has committed two different types of offences, it not only can but must file two separate compounding applications. There is no legal or procedural bar to filing these separate applications simultaneously. It is legally settled that you cannot combine different categories of offences into a single application. For example, a default under Section 92 (Annual Return) and a default under Section 137 (Financial Statements) must be filed separately. Please note that as per the NCLAT ruling in Pahuja Takii Seeds Ltd., a single recurring offence over multiple consecutive years can be compounded through a single application.

Create a Default Master-Chart

To address a scenario with multiple defaults efficiently, follow this practical approach. The first step is to create a
comprehensive chart to map all non-compliances. This brings clarity and forms the basis of your entire strategy.

NoOffence (Section of Companies Act, 2013)Financial Year(s) of DefaultOfficers in Default (Names)Default Made Good? (Yes/No)Application
1Sec. 92 (Non-filing of Annual Return)FY 2021-22, FY 2022-23Mr. A (MD),
Mr. B (Director),
Ms. C (CS)
YesApplication No. 1 Group for the company, as well as officers
2Sec. 137 (Non-filing of Financials)FY 2021-22, FY 2022-23Mr. A (MD),
Mr. B (Director),
Ms. C (CS)
YesApplication No. 2 Group for the company, as well as officers
3Sec. 173 (Failure to hold 4 Board Meetings)FY 2022-23Mr. A (MD),
Mr. B (Director)
No (Irremediable)Application No. 3 Group for the company, as well as officers

Make Good All Rectifiable Defaults Before Filing Any Application.

Ensure that all rectifiable defaults are made good before filing any application. In our example, the company must file all overdue annual returns (MGT-7) and financial statements (AOC-4) and retain the SRNs of these filings as evidence. A default that cannot be rectified (like failure to hold a meeting in the past) can still be compounded. The application will state that the default is non-remediable.

Important Case Laws - Compounding of Offences

Here are some landmark judgments that have clarified the key principles and procedures for compounding of offences under the Companies Act, 2013.

1

Viavi Solutions India Private Limited v. Registrar of Companies ([2017]203CompCas165)

This NCLAT judgment is crucial as it laid down the guiding factors for authorities to consider while deciding on a compounding application. The ruling stated that the NCLT or Regional Director must look at the bigger picture and the specific circumstances of the case. Key factors include the nature and gravity of the offence, the period of default, whether the default was intentional, the financial condition of the company, and whether the default has been rectified before filing the application.

2

Pahuja Takii Seeds Ltd. & Ors. v. Registrar of Companies (Company Appeal (AT) No. 80 of 2018)

In this case, the NCLAT settled a major procedural question regarding the filing of compounding applications. The Tribunal ruled that Section 441 does not prohibit filing a single, joint application for the same offence committed over multiple years by a company, along with its officers in default. The NCLAT observed that procedures are deemed to be permitted unless they are expressly barred by law.

3

M/s. Cinepolis India Pvt Ltd & Ors. v. Registrar of Companies (Company Appeal (AT) No.137 of 2017)

The NCLAT here clarified the scope of compoundable offences, particularly those punishable with both imprisonment and fine. It is held that while offences punishable with 'imprisonment only cannot be compounded, those punishable with "imprisonment or fine or both" can be compounded by the NCLT. However, for such cases, the NCLT must follow the procedure laid down in Section 441(6), which includes taking permission from the Special Court.

4

RSPL Ltd., (Company petition no. 20/ALD of 2017)

This case highlights the importance of bona fide intent in making good a default. The company had filed its cost audit report after a significant delay of four years. The NCLT allowed the compounding application, noting that even though the company acted late, it demonstrated a genuine effort to rectify the non-compliance.

5

S Viswanathan v. State of Kerala (1993) 113 STC 182 (Ker HC DB)

This judgment established the finality of a compounding order. The Kerala High Court held that once an offence has been compounded, neither the department nor the assessee can challenge the order later. The department is barred from reopening the case even if it is later discovered that the actual suppression of facts was much higher than what was considered during compounding.

6

S V Bagi v. State of Karnataka (1992) 87 STC 138)

Similar to the principle of finality, this case established that a person who has voluntarily agreed to the composition of an offence cannot subsequently challenge those same proceedings by filing an appeal.

Difference between Adjudication and Compounding.

The Companies Act, 2013 offers two ways to handle corporate violations: adjudication (Section 454) for fixed penalties via civil proceedings by government officers, and compounding (Section 441) where offenders voluntarily pay to avoid criminal prosecution. Adjudication decisions are appealable within 60 days to the Regional Director, while compounding orders by the NCLT or Regional Director are not. Adjudication is authority-initiated enforcement, while compounding allows proactive self-correction.

Compliance Timeline Table

NoAspectAdjudication (Section 454)Compounding (Section 441)
1Legal Framework & AuthorityGoverned by Section 454; Adjudicating Officers appointed by Central Government; NEW: E-adjudication platform mandatory from Sept 16, 2024Governed by Section 441; NCLT or Regional Director (threshold increased to ₹25 lakh); No Special Court permission needed since 2018
2Process Initiation & NatureOfficer-initiated through e-notice; Civil proceedings; NEW: Fully digital process including hearings; Tiered penalties based on company size (2025)Voluntarily initiated by offender; Helps avoid criminal prosecution; Application through Form GNL-1
3Appeal RightsAppeal to Regional Director within 60 days; NEW: Electronic filing through revised Form ADJNo appeal permitted against compounding order
4Post-Decision RequirementsEnforcement through digital platform; NEW: Real-time compliance disclosures within 7 days (2025)File Form INC-28 with ROC within 7 days; Bars future prosecution for the same offence

Frequently Asked Questions

Compounding is a settlement mechanism where companies and officers can settle defaults by paying a fee instead of facing prosecution. It allows businesses to rectify non-compliances like delayed filings without criminal proceedings. The offender admits the default, pays the prescribed amount, and gets discharged from prosecution, making it a quick resolution method.

Offences punishable with "fine only" are compounded by the NCLT or RD. Offences punishable with "fine or imprisonment or both" can also be compounded, but require permission of the Special Court. Offences punishable with "imprisonment only" or "imprisonment and fine" are strictly non-compoundable under any circumstances.

A company, through its authorised director and officers in default, can file compounding applications. The board must pass a resolution authorising a director to file Form GNL-1. Officers in default include whole-time directors, KMPs, and other designated personnel under Section 2(60). Joint applications by the company and officers for the same offence are permitted.

The Regional Director (RD) can compound offences where the maximum fine prescribed for that offence does not exceed ₹25 lakhs. If the statutory maximum fine for the violation is above ₹25 lakhs, the application must be filed with the NCLT. This threshold limit pertains to the offence, not the number of applicants involved.

Yes, making good the default is a prerequisite before filing compounding applications. You must file overdue returns, pay pending fees, or complete missed compliances first. Evidence of rectification, like SRN of filed forms or payment receipts, must be attached to Form GNL-1. This shows commitment to compliance before seeking relief.

No, different types of offences require separate applications. Non-filing of annual returns (Section 92) and non-filing of financial statements (Section 137) need a separate Form GNL-1. However, the same offence committed over multiple years can be combined in one application as per the NCLAT ruling in the Pahuja Takii Seeds case.

Section 441(2) bars compounding if a similar offence was compounded within the previous 3 years. The company or officer must wait for 3 years from the date of the previous compounding. After 3 years have expired, any subsequent similar offence is deemed a "first offence" and becomes eligible for compounding again under the Act.

Form GNL-1 is filed electronically with ROC along with Rs. 1,000 fee for compounding applications. Maximum eight persons can be included per form. If more persons are involved, additional details are provided as an optional attachment. The form is forwarded by ROC to NCLT or the Regional Director based on the fine amount involved.

Key documents include board resolution authorising the application, detailed petition explaining the offence, affidavit verifying contents, MOA/AOA, evidence of rectified default, financial statements, ROC notices and replies if any. A comprehensive application with all annexures ensures smooth processing by the compounding authority.

The fee is decided by the NCLT/RD based on the offence's nature, default period, intent, and company's financials, but cannot exceed the maximum statutory fine. Fees paid under Sec 403 to regularise delayed filings are for rectifying the default and are not adjusted against the final compounding amount decided.

While no specific timeline is prescribed, ROC typically takes 1-4 weeks to scrutinise Form GNL-1, calculate maximum fine, seek clarifications if needed, and forward to the appropriate authority with comments. The time varies based on the completeness of documents and the ROC workload. Prompt responses to queries expedite the process.

Yes, NCLT/RD generally provides a personal hearing before passing orders. The authorised representative (director/CS/CA/advocate) must appear, admit the contravention, and explain the circumstances. The authority considers all factors, including the gravity of the offence, period of default, and financial condition, before deciding the compounding amount

The compounding order specifies the time limit for fee payment, typically 30-60 days. Payment is made online through the MCA portal. Proof of payment must be submitted to the authority. Non-payment within the prescribed time may result in the order becoming void, and prosecution proceedings may continue against the defaulters.

Form INC-28 must be filed with the ROC within 7 days from the date of receiving the compounding order. Attach certified copy of the order with the form. This intimation updates official records and prevents future prosecution for the compounded offence. The 7-day period is calculated from when the order is made available to the applicant.

No, offences cannot be compounded if an investigation against the company has been initiated or is pending under the Companies Act as per Section 441(1) proviso. This restriction ensures serious violations under investigation aren't settled through compounding. Wait for the investigation completion before applying for compounding of the offence.

Compounding offers quick resolution without criminal proceedings, saves time and legal costs, avoids court appearances, prevents business disruption, and provides honourable discharge. The fee paid isn't treated as a penalty, so directors avoid disqualification. It's a practical solution for technical defaults and promotes ease of doing business.

Offences involving fraud under Section 447 prescribe imprisonment and fine, making them non-compoundable. This includes fraudulent conduct of business, false statements, or tampering with documents. These serious violations must go through prosecution as they affect public interest and cannot be settled through a compounding mechanism.

No, Form GNL-1 compounding applications don't become public documents on the MCA portal. They're part of internal regulatory compliance proceedings. However, companies must disclose compounded offences in offer documents and annual reports for 3 years. Access may be obtained through RTI or a direct request to the company.

Once the order is passed and the fee is paid, the company/officers are discharged from prosecution. If prosecution was pending, ROC informs the court, leading to case closure. No further action is taken for that offence. The defaulter is no longer treated as in default, and the compliance record is cleared for the compounded violation.

Yes, directors and officers in default are jointly liable with the company for violations. They can file composite applications together since facts leading to non-compliance are usually same. This avoids multiple proceedings and conflicting orders. Joint liability ensures management accountability for corporate compliance under the Act.

No limit exists on the number of compounding applications a company can file. However, the same offence cannot be compounded again within 3 years. Different offences can be compounded simultaneously through separate applications. Regular compounding indicates a poor compliance culture, and authorities may view repeated applications unfavourably.

NCLT/RD considers the nature and gravity of the offence, default period, whether intentional or technical, financial condition, past compliance record, prejudice to stakeholders, prompt rectification, and cooperation shown. First-time technical defaults get a lenient view compared to repeated willful violations affecting public interest significantly.

Compounding involves voluntary admission and settlement, so appeal provisions don't typically apply. However, NCLT has power under Section 420(2) to rectify mistakes apparent from the record. NCLAT generally doesn't entertain appeals against compounding orders as it's a consensual remedy accepted by the applicant willingly.

Yes, board resolution is essential before filing Form GNL-1. The board must acknowledge the offence, approve compounding application, authorise a director to sign documents, and appoint professionals to appear before authority. This ensures proper corporate authorisation and fixes accountability for the compounding process undertaken.

While Section 446B provides lesser penalties for small companies defined under Section 2(85), compounding fees are decided case-by-case. Small companies may receive sympathetic consideration from authorities given their limited resources. However, no automatic reduction applies, and each case is evaluated on merit by NCLT/RD.

Some defaults, like not holding required board meetings in past, cannot be rectified. Such irremediable defaults can still be compounded. The application should clearly state that the default is non-remediable with reasons. Authority considers the circumstances and may allow compounding with an appropriate fee for such technical violations.

Form GNL-1 can accommodate details of the applicant company plus up to 8 officers in default (a total of 9 applicants). If more than eight officers are involved, their details must be provided as an optional attachment to the same e-form. A single form can therefore cover the company and all its defaulting officers together.

28. Is compounding allowed for Listed Companies? Yes, listed companies can compound offences like other companies. However, they face additional scrutiny given the public interest involved. SEBI regulations may apply in parallel. Listed companies must also disclose compounded offences in annual reports and other public documents as per regulatory requirements for transparency.

Practising CS/CA/advocates play a crucial role in preparing applications, ensuring compliance rectification, drafting petitions, and representing before authorities. Their expertise ensures proper documentation, legal compliance, and effective presentation. Board resolution must specifically authorise the professional to act on the company's behalf.

Filing a compounding application doesn't automatically stay prosecution. However, courts generally adjourn proceedings awaiting a compounding outcome. If compounding is allowed and a fee is paid, prosecution ends with discharge. If compounding is rejected or the fee is not paid, prosecution continues. Timely completion prevents dual proceedings.

Yes, offences punishable with "imprisonment only" or "imprisonment and fine" are always non-compoundable. This includes serious violations like fraud (Section 447), furnishing false information, destroying documents, or offences affecting public interest. These require mandatory prosecution regardless of admission or willingness to pay.

Form GNL-1 filing fee is Rs. 1,000 as prescribed under NCLT Rules, 2016. This is just the application fee. The actual compounding fee is decided by NCLT/RD based on the offence and circumstances. ROC fees for rectifying defaults under Section 403 are separate and must be paid before filing a compounding application.

Yes, foreign companies registered in India can file compounding applications by selecting "Foreign Company" category in Form GNL-1. They must provide Foreign Company Registration Number (FCRN). The process remains the same, including board authorisation from the competent authority of a foreign company for Indian violations.

While Section 621A of the Companies Act 1956 implied admission of guilt, Section 441 of the 2013 Act doesn't explicitly state this. Legally, it's viewed as a settlement mechanism rather than a guilty admission. It's acquittal by paying composite fee. However, factually, the applicant accepts that a contravention occurred while seeking relief.

Companies under liquidation can file compounding applications through liquidator. Court/tribunal permission may be needed depending on the liquidation stage. Past defaults affecting the company's assets or creditor interests get special scrutiny. The liquidator must justify how compounding benefits stakeholders and doesn't prejudice the liquidation process.

Petition must include company profile, incorporation date, main objects, detailed facts of default, period of violation, steps taken to rectify, reasons for non-compliance, prayer for compounding, and supporting documents. Clear, honest disclosure helps the authority understand the circumstances and decide fairly on the compounding application submitted.

The major benefit of compounding is that fees paid aren't treated as penalties under the law. This helps directors avoid disqualification under Section 164(2), which applies to companies having unpaid penalties. Compounding provides a clean slate and protects directors from consequential disqualifications arising from technical company defaults.

ROC can seek clarifications or additional documents, but doesn't reject Form GNL-1 outright. They scrutinise completeness, calculate the maximum fine, and forward it to the appropriate authority with comments. Rejection happens at the NCLT/RD level based on merits. Incomplete forms may be marked for resubmission with deficiencies highlighted.

Compounding is available only for penal provisions under the Companies Act 2013. Not all non-compliances have penal consequences. Some sections prescribe only consequences like striking off. Check if the section being violated prescribes a fine or imprisonment. If yes, evaluate if it falls under the compoundable category per Section 441.

Providing false information in a compounding application is a serious offence under Section 448, punishable with imprisonment and a fine. It defeats the purpose of compounding, which requires honest disclosure. If discovered later, the compounding order may be void, prosecution may resume, and fresh proceedings for false information may be initiated.