Compounding of Offences Under Companies Act, 2013

Compounding of Offence under Section 441 of the companies Act, 2013 (Compounding of certain offences [Notified Date of Section-01/06/2016] Section 621A of the erstwhile Companies Act, 1956 dealt with composition of certain offences). Compounding is a settlement pact under which a defaulter or offender pays a certain amount to the concerned authority in place of getting disputation.

NCLT/RD decides a pay to be paid to authenticate compoundable offense. The paid amount is not a penalty and cannot be the reason for invalidation of the director. The fine should not be more than the amount prescribed by the relevant legal provision.

Advantages of Compounding

1.    Summary proceedings
2.    Less time consuming
3.    Does not burden court with cases
4.    Acts as a deterrent and prevents commission of offence
5.    Any offence punishable under the Companies Act,2013 committed by Company or any officer may be compounded by Tribunal or Regional Director where the maximum amount of fine imposed for such offence does not exceed Rs.25 Lakhs

Types of Offences under the Companies Act, 2013

1.    Compoundable offences

2.    Non-compoundable offences

3.    Any subsequent offence committed after the expiry of 3 years from the date of compounding shall be deemed to be a first offence.

Procedure For Compounding of Offence

1.    Convene Meeting of Board

2.    Determine the offence and calculate the fine to be paid by the company and/or officer in default as per the relevant section

3.    Pass the following resolutions


4.    Prepare the compounding application in triplicate. Application needs to be accompanied with:


5.    File e-form GNL-1 attaching the application along with prescribed fee with RoC [Rs.1000/- as per NCLT Rules,2016]

6.    Form GNL-1 can be used for compounding of maximum 8 persons excluding the company. If number of persons is greater than 8, then additional details can be provided in optional attachment.

7.    Joint application of company and officer in default is allowed

8.    Deliver enough hard copies of the compounding application to ROC

9.    Based on the amount of fine, ROC forwards the application to the NCLT or Regional Director with his comments

10.    Personal Hearing before NCLT or RD

11.    Payment of fees for compounding within the period mentioned

12.    Compounding fine shall not exceed the maximum fine imposed for the offence so compounded

13.    Passing of order by NCLT or RD

14.    Intimation of order of NCLT or RD to RoC within 7 days of receipt of order [Form INC 28]

Contents of Compounding Application

1.    General details about the company – Name, registered office address, date of incorporation, nature of business, main object of the company

2.    Facts of the case-nature of offence and period of default

3.    Relevant section which has been violated

4.    Fine prescribed in the section for violation

5.    The details as to how the default has been made good

6.    Date on which the default has been made good, wherever applicable.

7.    Prayer for compounding

Order of the Competent Authority

1.      Once the concerned authority receives the fixed amount, they would call out the applicants who had paid the aggregate compounding amount. The passed orders end with the words “The offence is therefore compounding now”. The order would be stamped, sealed and duly signed. The same copy of the order will be sent to ROC.  After the offence is compounded, it amounts to ‘acquittal’ and not ‘conviction’.

2.    Failure To Comply with The Compounding Order [Section 441 (5)]: The orders of the Tribunal or the Regional Director or any other central government authorized officer under sub-section (4) must be followed. Failing to comply leads to  the maximum amount of fine for the offence proposed to be compounded under this section shall be twice the amount provided in the corresponding section in which punishment for such offence is provided.

Compounding Before or After Institution of Prosecution

1.    Compounding Application can be filed either before or after the initiation of prosecution.

2.    An intimation shall be given by the company to the Registrar within seven days from the date on which the offence is so compounded (whether compounding is initiated before or after the institution of any prosecution)

3.    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.

4.    No prosecution shall be instituted in relation to such offence, either by the Registrar or by any shareholder of the company or by any person authorized by the Central Government against the offender in relation to whom the offence is so compounded

Difference Between Adjudication & Compounding

Particulars	Compounding	Adjudication
Relevant sections	Section 454 of Companies Act, 2013 read with Companies (Adjudication of Penalties) Rules,2019	Section 441 of Companies Act,2013
Office bearers	The Central Government may appoint any of its officers, not below the rank of Registrar, as Adjudicating Officers for adjudicating penalty in their respective jurisdiction	Competent Authority are National Company Law Tribunal or Regional Director (based on the threshold limit of fine prescribed) as the case maybe
Applicant	As per Section 454(3) Adjudicating officer can impose penalty on non-compliance or default under the provisions of Companies Act, 2013 and direct such Company, or officer who is in default, or any other person, to rectify the default, wherever he considers fit.	As per Section 441 of the Companies Act, the company or any of its officer having committed an offence may apply for compounding voluntarily
Application criteria	AO issues show-cause notice to company or officer in default. Opportunity of hearing is given. Order is passed	A company or officer in default on their own can apply for compounding
Timeline for application	Appeal against the adjudication order to be made to Regional Director within 60 days from the date of receipt of order	No appeal is allowed against Compounding Order
Penalties and prosecution	1.    Penalties are imposed by Adjudicating Authority without prosecution 2.    Penalties are fixed amount	1.    Payment of sum of money not exceeding the maximum fine prescribed in the relevant section 2.    Compounding Authority has discretion to impose an amount lesser than the fine prescribed
Nature of proceedings	Civil proceedings	Compounding helps to avoid criminal prosecution

Relevant Case Laws

A.    Viavi Solutions India Private Limited v. Registrar of Companies ([2017]203CompCas165) – The judgement of the Hon’ble NCLAT is of prime importance as it had stated various factors to be followed when an offence is compounded.  The Hon’ble NCLAT observed that NCLT can initiate prosecution because it has the power to compound offences.  The NCLT/RD should be able to see the bigger picture and situations.  Following are the factors to comply as per the Hon’ble NCLAT when the offence is compounded-


1.    Pahuja Takii Seeds Ltd. & Ors. v. Registrar of Companies (Company Appeal (AT) No. 80 of 2018) – The NCLAT was to determine:

A.    Whether the Companies Act, 2013 restrict the officers in default and the joint applications for compounding of offence.  

B.    To check if the joint applications for compounding of the same offence committed in different years can be filed.

As per the Section 441 (2) the Hon’ble NCLAT does not restricts filing a single application for compounding the same offence. It also does not restrict a joint application by company along with the defaulted officers.  Hon’ble NCLAT observes that “procedures are deemed to be permitted unless expressly barred.