The notion of compounding of offences is not new. Related provisions were also present in Section 621A of the Companies Act, 1956. While there is no definition of the word “compounding” given either in the Act 1956 or the Act 2013, however, in the legal sense compounding means “doing good the noncompliance/default”. It is an “agreement” for the offence committed by any company or any officer thereof.

Non-compliance with the provisions of the Companies Act, 2013 will attract penalties and/or imprisonment as provided under the Act. Further, offences under the Act have been categorised as Compoundable and Non-compoundable offence. Compounding of offence is a procedure whereby the entity or person committing default will file an application to the compounding authority with the consent that it has committed an offence and so that same should be accepted. The compounding authority may compound the offence and ask the defaulting party to deposit compounding fee as decided by it on a case to case basis. Once the said compounding fee is paid, the defaulting party will no longer be treated in default of the offence which has been so compounded. The provisions relating to compounding of offences under the Act are specified under Section 441 of Act.

Section 441 of the Act provides for compounding of following offences:

1. An offence punishable with fine only, or
2. An offence is punishable with fine or imprisonment or both.

The offences which cannot be compounded under the Act are the following :

1. An offence is punishable with imprisonment only.
2. An offence is punishable with both imprisonment and fine.

Jurisdiction to handle cases for the compound

An important precondition for filing application for compounding is to know where the application should be filed. This is given in section 441 itself:

1. In case the amount of fine in any offence is upto INR 2.5 million, the jurisdiction to compound that offence is with the concerned Regional Director (RD) or any officer authorised by the Central Government.
2. In case the amount of fine exceeds INR 2.5 million, the jurisdiction to compound that offence is with the specific Bench of the National Company Law Tribunal (NCLT)

Post compounding of an offence

1. No prosecution shall be filed either by any shareholder or by ROC or by any individual authorized by the Central Government.
2. Where the compounding of any offence is made after the institution of any prosecution, such compounding shall be brought in writing to the Registrar, to the notice of the Court in which the prosecution is incomplete. 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 released.
3. Payment of amount, as decided in the compounding order, to be made within the time specified in the order.

Penal Provisions

Any employee or officer of the company who has failed to follow any order made by the concerned authority under Section 441, shall be punishable with imprisonment for a term which may extend to 6 months, or with fine not exceeding 1 lakh rupees, or with both. Examples of offences compoundable under the Act :

1. Section 56 (6) – non-compliance relating to transfer and transmission of securities;
2. Section 64(2) – failure notice to be given to registrar for the alteration of share capital;
3. Section 99 – default in holding of Annual General Meeting;
4. Section 102(5) – not annexing explanatory statement to notice;
5. Section 117(2) – failure in the filing of resolutions and agreements with the Registrar of Companies;
6. Section 203(5) – Failure to appoint Key Managerial Personnel

Procedure for Compounding of Offences under the Companies Act, 2013

To file an application for compounding of offence by any officer or company in default:

1. A meeting of board members has to be organised. Board will calculate and specify the penalty sum as per relevant section and will issue a resolution to file an application with ROC.
2. An application then shall have to framed by the person or the company in attestation of the person in default in accordance to CLB Regulations
3. Then application as in format prescribed prepared in FORM GNL-1 shall have to be filed with ROC.
4. Enclose required documents being MOA, AOA, the Financials of the entity, Petition documents, Board resolution or documents as specified, etc.
5. On receipt of the application, the ROC shall accept or reject the application, on acceptance; it shall be forwarded to the concerned authority for hearing.
6. For compounding of the offence of alike nature applied before the concerned authority ROC restricts the applicant from filing any such application.

Recent Developments 

In order to uplift the ease of doing business in India and to lessen the pendency of cases filed with courts, the Ministry of Corporate Affairs has established an expert panel to give a report regarding simplification of the imposition of penalties for minor violations under the Act involving certain penalties related to corporate governance and technical defaults The panel has suggested that sixteen technical defaults and corporate governance offences be moved out of the area of courts. The panel has put forward that only fine should be levied in Twelve offences and for other four, either imprisonment or fine or both could be levied. The panel also suggested making revisions in penalties imposed on serious offences. Where a company or its officer or officers become aware of some default under the Companies Act, 2013 it would always be recommended to avail the benefit of compounding provisions under the Act so that the company remains fully compliant with the provisions of the Act.