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Compounding of Offences Under Companies Act, 2013

February 19, 2018     by Mayank Verma



A company is a legal person formed under the applicable laws in order to do a business/activity by complying the laws of the land. In India, Companies Act, 2013 has many provisions in order to maintain transparent working of the company.  When these provisions are violated inadvertently or otherwise, either by the company or by its officer, huge penalty and prosecution provisions are attracted on them. Compounding of those violations is a solution given in the law.


What is meant by Compounding?

Compounding of an offense is a settlement mechanism, by which, the offender is given an option to pay money in lieu of his prosecution, thereby avoiding a prolonged litigation. There is no definition of the word “compounding” in the Companies Act 2013, however, the legal meaning of compounding is “doing good the default/noncompliance”.

Therefore, the first and foremost step in compounding is to make the default good. The procedure for compounding has been enumerated step wise later in this blog.


What is an Offence?

Term “Offence” has been extracted from section 3(38) of General Clauses Act, 1897, which says that “Offence” shall mean any act or omission made punishable by any law for the time being in force. An Offence may be “Compoundable” or “Non-Compoundable”.


Why should a Company go for Compounding?

The following are the advantages of Compounding:

  1. No personal appearance for officer in default, as in case of prosecution for an offence in a criminal court;
  1. No further prosecution shall be initiated either by registrar or shareholder or any other person in respect of that offence after compounding;
  1. Summary proceeding, less time consuming;
  1. The Compounding fee cannot be more than the maximum fine levied under the relevant provision;
  1. No appeal against order of composition;
  1. No disqualification for Directors, since fees payable on compounding are not treated as penalty;

One of the key benchmark in assessing ‘Ease of doing business’ is the smoothness and rapidness in compounding of offences.


What if prosecution is pending before a criminal court?

Section 441 starts with non-obstante clause “notwithstanding anything contained in the Code of Criminal Procedure, 1973”. A specific power or authority has been vested with NCLT or the Regional Director, as the case may be, under Section 441 of the Act to compound any offence punishable under this Act committed by a company or any officer thereof, not being an offence punishable with imprisonment only, or with imprisonment and also with fine. An elaborated procedure has been laid down for compounding such offences under Sub-sections (1) to (5) of Section 441 of the Act. It is nowhere indicated in any of the provisions as contained in Section 441, Sub-sections (1) to (5) that the NCLT or Regional Director while compounding the offences punishable under the Act is required or obliged to insist on obtaining prior permission of the criminal court where any such prosecution is pending.


Which offences are compoundable?

As per Section 441(1), the following two kind of offences are compoundable:

  1. Offences punishable with fine only.
  1. Offences punishable with imprisonment or fine or both.


Circumstances where compounding is not possible:

  1. The offence cannot be compounded in case either the investigation against company has been initiated or is pending.
  1. The offence cannot be compounded in case similar offence committed has been compounded and period of three years has not expired.
  1. Any offence which is punishable under this Act with imprisonment only or with imprisonment and also with the fine;


Jurisdiction to handle cases for the compounding:

A significant pre-requisite for filing application for compounding is to know where the application should be filed. This is answered in the section 441 itself as:

  1. In case the quantum of fine in any offence is upto INR 25 Lakh  [as amended by Companies (Amendment) Ordinance, 2018 dated 02.11.2018], the jurisdiction to compound that offence is with the concerned Regional Director (RD) or any officer authorised by the Central Government.
  1. In case the quantum of fine exceeds INR 25 Lakh  [as amended by Companies (Amendment) Ordinance, 2018 dated 02.11.2018], the Jurisdiction to compound that offence is with the respective Bench of the National Company Law Tribunal (NCLT).

Note: In case the offence is punishable with imprisonment or fine or both, the prior permission of Special Court was required. But, as per section 90 of Companies Amendment Act, 2017 notified as on 09.02.2018, the power to decide compounding case for offences punishable with imprisonment or fine or both has been given to NCLT. This amendment is a major step towards ease of doing business.


Procedure to compound an offence under Companies Act, 2013:

  1. Filing compounding application is the secondary step. The First step is to make the default good.
  1. An application for the compounding of an offence shall be made to the Registrar in Form GNL – 1.
  1. Registrar shall forward the same, together with his comments thereon, to the Tribunal or the Regional Director or any officer authorised by the Central Government, as the case may be.
  1. The concerned authority will hear both parties, i.e. Applicant and the Registrar and will pass compounding order by deciding the following:
    • Quantum of Fine which shall not exceed the maximum amount of the fine which may be imposed for the offence so compounded;
    • Directing any officer or other employee of the company to file, submit, deliver any document, return, account on payment of the fee, and the additional fee (as per sec 403) within such time as may be specified in the order.
  1. Where any offence is compounded, an intimation thereof shall be given by the company to the Registrar within seven days from the date on which the order is made available to the petitioner/applicant.


Post compounding of an offence:

  1. In case the offence has been compounded before the institution of any prosecution, no prosecution shall be filed either by ROC or by any shareholder or by any person authorized by the Central Government.
  1. Where the compounding of any offence is made after the institution of any prosecution, such compounding shall be brought by the Registrar in writing, to the notice of the Court in which the prosecution is pending. And, on such notice of the compounding of the offence being given, the company or its officer in relation to whom the offence is so compounded shall be discharged.
  1. Payment of fine, as decided in the order of Compounding, to be made within the time prescribed in the order.


Penal Provisions:

Any officer or other employee of the company who fails to comply with any order made by the concerned authority under Section 441, shall be punishable with imprisonment for a term which may extend to six months, or with fine not exceeding one lakh rupees, or with both.



  1. The Compounding application cannot be rejected without due consideration. The Company Law Board (now NCLT) in the case of Amadhi Investments Ltd., held that neither of the CLB or the Regional Director has been authorized with discretionary power to reject a compounding application without due consideration.
  1. Filing compounding application is the secondary step. The First step is to make the default good. The reason due to which default occurred should come to an end and thereafter the compounding application should be filed.
  1. In GNL – 1, the application can be filed for Company, Director or Manager/Secretary or CEO/CFO or others. Details of only 8 persons can be entered in the e Form. If number of persons is greater than 8, then additional details can be provided in optional attachment.
  1. Compounding application can be filed either before or after the institution of any prosecution.



1. Not Holding of Annual General Meeting “(AGM)” :

In case  where  companies  fails to hold its Annual General Meeting (as per Section 96)  in the below mentioned manner:

  • Within 6 months from the end of financial year ; or
  • Gap between the two AGM exceeds 15 months or more.

For instance, Compounding Orders were passed by NCLT Delhi Bench and NCLT Bengaluru Bench in the matter of M/s United News of India and M/s. Bhumika Alloy Castings Pvt. Ltd. respectively, where applicant had failed to hold AGM within the due date prescribed under the ACT and the offences were compounded by the respective NCLT Bench .

2. Not laying of Annual Accounts in the AGM:

In case where a company fails to lay down the audited financials or fails to get audited financials approved at AGM, and the AGM stands adjourned after the day which is in addition to the prescribed time period mentioned in Section 96 (please see point 1).

Example: In Bejoy Kumar case (supra) referred to in the Circular (Circular No. 4 of 1974, dated February 2, 1974) the Calcutta High Court did not accept the contention that an annual general meeting could be adjourned beyond the statutory period limits as laid down in sections 96 and 129 of the Act.

3. Inadequate Disclosures in Board’s Report:

In case the Companies fail to disclose or give facts and statements which are mandatorily required to be annexed to the Board’s Report.

Example: There is requirement to disclose the reason for not making adequate contribution towards CSR in Board’s Report. In case of M/s. Radhe Instrumentations Pvt. Ltd. and M/s. Pennwalt Ltd., NCLT Mumbai Bench accepted and compounded the default made by above companies.

4. Non appointment of Company Secretary & Chief Financial Officer:

In case where companies having paid-up share capital of INR 5 Crores or more fail to appoint a Whole-time Company Secretary [INR 10 Crores for other Key Managerial Persons (KMP)], such companies and every Director and KMP are liable for punishment with fine as per Section 203 (5) of the ACT.

Example: NCLT Bengaluru Bench, in case of Atyati Technologies Private Limited, has accepted the compounding application for default of non-appointing a Whole-time CS.

Updated till 5th January, 2019

One thought on “Compounding of Offences Under Companies Act, 2013

    1. Compounding penalty can be paid in 2 ways:

      1. Online Payment on the MCA Portal: Under “Pay Miscellaneous Fees” head, the payment can be made by selecting the kind of payment i.e. Penalty and entering the SRN, Particulars of Payment & Amount of fees, being the mandatory fields.
      However, online payment method can be used only in those cases where SRN is available.

      2. Another way is Physical Payment: The payment is to be made in the form of DD drawn in favor of ROC located in the same city or town as the office of the Registrar and to be submitted at the Payment counter of ROC.

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