Compounding of Offences under the Companies Act
Compounding lets a company and its officers settle an offence under the Companies Act, 2013 by paying a sum fixed by the Regional Director or the NCLT, instead of facing prosecution. It is available under Section 441 for offences punishable with fine, or with imprisonment or fine. We make the default good and file the application in Form GNL-1.
What it is
Compounding of offences is a way to close a criminal offence under company law without a trial. The company or officer admits the default, makes it good and pays a compounding sum. Once the offence is compounded, no prosecution can be started for it, and a prosecution already running ends.
Section 441 of the Companies Act, 2013 governs it. Depending on the offence, the compounding authority is the National Company Law Tribunal or the Regional Director. The application goes through the Registrar of Companies in Form GNL-1 on the MCA V3 portal, and the ROC forwards it with comments.
Who it applies to
Companies with a fine-based offence
Any company that has committed an offence punishable with fine, or with imprisonment or fine, or both. A classic example is failing to hold the AGM, punishable under Section 99 with a fine of up to ₹1 lakh plus ₹5,000 a day.
Directors and officers in default
Directors, the company secretary, CEO, CFO and other officers in default can apply in the same GNL-1. Each person’s role and period of default is set out in the application.
Companies facing a show cause notice
A notice from the ROC is often the trigger. Say a Faridabad trading company missed its AGM for two years running and the notice has just landed. Compounding before a complaint is filed keeps the matter out of court.
Compounding vs adjudication
Since 2018, many defaults under the Act have been converted from offences into civil penalties. These are dealt with by adjudication, not compounding. Know which one applies before you act.
| Compounding (Section 441) | Adjudication (Section 454) | |
|---|---|---|
| Applies to | Offences punishable with fine, or imprisonment or fine | Defaults carrying a penalty |
| Who decides | Regional Director or NCLT, depending on the offence | ROC as adjudicating officer |
| How it starts | Application by the company or officer in GNL-1 | Show cause notice from the ROC |
| Outcome | Compounding sum; no prosecution | Penalty order; appeal to the Regional Director within 60 days |
Small companies, One Person Companies, startups and producer companies pay half the penalty under Section 446B in adjudication.
Why it matters
It avoids a criminal record
A compounded offence does not go to trial, and no conviction follows. Directors skip the court dates entirely.
It unblocks other work
An open offence can hold up a funding round, a sale or a clean exit. Compounding of offences before the deal starts clears the way.
The cost is capped
The compounding sum cannot exceed the maximum fine for the offence, and any additional fee already paid under Section 403 is taken into account.
Documents required
The application
- Compounding application describing the offence and the facts
- Affidavit verifying the application
- Certified board resolution authorising the filing
Proof the default is made good
- SRN of the belated filing, or minutes of the meeting held late
- Copy of any ROC notice received
- Financial statements for the last three years
For signing and appearance
- DSC of the authorised director
- Memorandum of appearance or authority letter
- Details of each officer applying
How it works
Identify the offence and its punishment
We read the section you breached. Is it now a civil penalty, or still an offence that can be compounded? That answer sets the whole route.
Cure the default first
File the pending return or hold the overdue meeting. The authority will not compound a default that is still running.
File GNL-1 on the MCA V3 portal
We draft the application and file GNL-1 on the MCA V3 portal. The ROC adds its comments and sends it to the Regional Director or NCLT.
Appear at the hearing
The Regional Director or Tribunal hears the applicants and passes an order fixing the compounding sum. We prepare the papers and coordinate; where the hearing needs a practising advocate or company secretary to appear, a qualified professional signs and appears.
Pay and intimate the ROC
The sum is paid within the time in the order. The company then intimates the ROC within seven days of compounding and files the order in Form INC-28.
Timelines
File before prosecution
Compounding is allowed before or after prosecution starts. Before is far simpler. Once compounded, no prosecution can follow.
Allow a few months
Timing depends on the ROC’s comments and the authority’s hearing calendar. The NCLT route is generally longer than the Regional Director route. We give you a realistic window once we see the facts.
Intimate the ROC within 7 days
After compounding, the company intimates the ROC within seven days (Section 441) and files the order in Form INC-28.
What happens if you ignore it
Prosecution in the Special Court
The ROC can file a criminal complaint against the company and every officer in default.
A three-year lock
If the same or a similar offence was compounded within the last three years, it cannot be compounded again (Section 441(2)).
Funding and exit stall
An open default can stall funding, due diligence, a sale or an exit. Banks and investors ask about it.
Frequently asked questions
Which offences under the Companies Act can be compounded?
Offences punishable with fine, or with imprisonment or fine, can be compounded under Section 441. An offence with a mandatory jail term and no fine option is outside it. Many defaults are now civil penalties dealt with by adjudication under Section 454 instead. We check the current wording of the section you breached before deciding the route.
Who compounds the offence, the Regional Director or the NCLT?
It depends on the offence and its maximum fine. Section 441 gives the power to the National Company Law Tribunal for some offences and to the Regional Director, or an officer the Central Government authorises, for others. Either way, the application goes first to the ROC in Form GNL-1. We check which forum your section falls under before filing.
How much is the compounding fee?
The compounding sum is fixed in the order and cannot be more than the maximum fine for the offence. Any additional fee already paid under Section 403 for a late filing is taken into account. Separately, MCA filing fees apply to the forms. We give you an estimate before you file.
Can an offence be compounded if prosecution has already started?
Yes. Section 441 allows compounding before or after prosecution is instituted. If it is compounded after a case is filed, the court is informed and the accused is discharged. Compounding is not allowed where an investigation against the company has been started or is pending. Filing early, before a complaint, keeps things quicker and simpler.
Can the same offence be compounded twice?
Not within three years. Section 441(2) bars compounding of the same or a similar offence committed within three years of an earlier compounding. After three years, a repeat is treated as a first offence and can be compounded again. That is why we also fix the process that caused the default, so it does not recur.
What is the difference between compounding and adjudication?
Compounding settles a criminal offence; adjudication imposes a civil penalty. After the recent amendments, many defaults carry penalties decided by the ROC under Section 454 after a show cause notice. Appeals go to the Regional Director within 60 days. Compounding under Section 441 applies only where the provision still carries a fine as an offence. Knowing which applies saves a wasted filing.
Do directors need to file separate applications?
Not always. One GNL-1 can cover the company and its officers in default, such as directors, the company secretary, CEO or CFO. Each person’s role and the period of default are set out in the application. The compounding order then fixes a sum for each of them. We prepare one clear set of papers for all applicants.
What happens after the compounding order?
The company and officers pay the compounding sum within the time allowed, and the company intimates the ROC within seven days of compounding and files the order in Form INC-28. The order may also direct pending documents to be filed by a set date. Failing to follow that direction is itself an offence. Once everything is done, the matter is closed for good.
What it costs
Our fee plus the government fee that applies to your case, quoted before you commit. Tell us the situation and we will price it exactly.
Government cost has two parts: the MCA filing fee on the forms, which depends on your authorised capital, and the compounding sum fixed in the order. The sum cannot exceed the maximum fine for the offence, and any additional fee already paid for a late filing is taken into account.
Ready to begin?
Send us the ROC notice or tell us what was missed, and we will tell you whether to compound, and how.