Old Companies Act 1956 Defaults: Compounding or Adjudication Under Current Law?

Summary: The article considers a situation where a company committed and rectified a default under the Companies Act, 1956, with no proceeding pending, but the default is discovered later. It explains that Section 465 of the Companies Act, 2013 repealed the 1956 Act with effect from 30th January 2019, while Section 465(3) preserves the operation of Section 6 of the General Clauses Act, 1897. The article relies on the stated principle in State of Punjab v. Mohar Singh that repeal does not necessarily extinguish an existing liability. It further discusses the later decriminalisation of several company-law defaults and the principle in T. Barai v. Henry Ah Hoe and Rattan Lal v. State of Punjab concerning the benefit of a lighter subsequent punishment. The article identifies uncertainty over whether Section 454 adjudication can apply to a default originally committed under the 1956 Act, contrasts stricter and more liberal judicial approaches, and refers to Kanya Resorts, Naresh Kumar Gurjar v. SEBI, Naveen Aggarwal v. Union of India and the Deccan Chronicle Holdings matter. The practical recommendation is to disclose the old cured default, consider compounding under Section 621A of the 1956 Act, and not proceed directly under Section 454 of the 2013 Act without first checking with the Registrar’s office.

Old Companies Act, 1956 Default Found Today: Compounding or Adjudication?

Suppose a company made a mistake many years back, when the Companies Act, 1956 was still in force. The company fixed that mistake at that time itself. No case was pending, nothing was left open. Years later, during a routine check of the company’s records, someone finds this old, already-fixed mistake. Here is the twist: under the old law, this kind of mistake was treated as an “offence”, and the company would have had to “compound” it that means, pay a fee and get it closed through a formal application. But under today’s Companies Act, 2013, this same kind of mistake is no longer treated as an offence at all. It is now just a “penalty” matter, handled through a simpler process called “adjudication”, where an officer of the Registrar of Companies decides the amount to be paid. So the question is: should this old mistake now be compounded the old way, or should it be adjudicated the new way? This article explains the answer in simple terms.

Rule 1: The date of the mistake decides the law, not the date you found it

Just because you discover an old mistake today does not mean a new mistake has happened today. The law looks at the date the mistake actually took place. If it happened in 2011, the law of 2011 decides the company’s liability not the law of 2026. This comes from two provisions working together. Section 465 of the Companies Act, 2013 is the section that cancelled (“repealed”) the old Companies Act, 1956, with effect from 30th January 2019. But Section 465(3) says clearly that cancelling the old Act does not stop Section 6 of the General Clauses Act, 1897 from applying. In simple words, Section 6 says: even after an old law is cancelled, any liability, penalty, or ongoing legal process that had already started under that old law continues exactly as if the old law were still there. The Supreme Court said the same thing many years ago, in a case called State of Punjab v. Mohar Singh: cancelling a law does not erase a liability that a person or company already had under it. So the short point is the old mistake does not simply vanish because the old Act is gone.

Rule 2: If the punishment has become lighter, the company should usually get the benefit of the lighter punishment

This is the interesting part. Over the last few years, Parliament has been making a lot of small, technical mistakes under company law less serious. Many sections that used to say “punishable with fine” (meaning: this is a criminal offence, and you must go through compounding to close it) have been changed to say “liable to a penalty” (meaning: this is now just a civil matter, closed through simple adjudication, with no criminal angle at all). This change was made deliberately, based on two government committee reports one in 2018 and one in 2019 whose whole purpose was to take small, harmless, technical mistakes out of the criminal system. Now, the Supreme Court has a settled principle for exactly this kind of situation. In a case called T. Barai v. Henry Ah Hoe, the Court held that if a law changes later and reduces the punishment for the same wrongdoing, the person should normally get the benefit of that lighter, later punishment. A similar view was taken earlier in Rattan Lal v. State of Punjab. Applying this here: if the very same mistake, done today, would attract only a small penalty and no criminal process at all, it seems unfair that a company which made the identical mistake years ago and already fixed it should now be dragged through the old, criminal-style compounding process.

The real difficulty: which officer actually has the power to decide this?

Here is where the picture is not fully clear, and honest professional advice must say so. Section 454 of the Companies Act, 2013 gives the Registrar of Companies the power to adjudicate that is, decide and impose a penalty only for defaults that took place under the Companies Act, 2013. A mistake that happened entirely under the old 1956 Act was never, technically, a default “under” the 2013 Act. So there is a real doubt about whether the Registrar can use Section 454 at all for a purely old-Act mistake. On this point, courts have taken two different views, and professionals should know both. One view, taken by the Madras High Court in a case called Kanya Resorts, and by the Rajasthan High Court in Naresh Kumar Gurjar v. SEBI, is fairly strict: a brand-new legal process cannot simply be started today for a mistake that belonged entirely to the old, cancelled Act. The other view leans on Section 465(3) and Section 6 of the General Clauses Act discussed above, and says that since the liability itself survived the cancellation of the old Act, the company should still be able to get the matter formally closed today. A recent Punjab and Haryana High Court decision, Naveen Aggarwal v. Union of India, dated 11th May 2026, supports this second, more liberal reading though in that particular case, the investigation into the old mistake had already started before the old Act was cancelled, so it is not a perfect match for a case where nothing was pending at all. On the compounding side, the NCLT has, in fact, allowed old 1956-Act mistakes to be compounded even very recently for example, in the Deccan Chronicle Holdings case in January 2024 but again, that matter had some old proceeding already connected to it from before, unlike a fresh application filed only in 2026 with nothing pending.

What this firm would actually recommend

Putting all of this together, here is the simple, practical advice. First, do not hide the old mistake from a due diligence report just because it is old and already fixed it should still be disclosed honestly, along with the fact that it has been rectified and is not continuing. Second, do not assume that the company is stuck with the old, criminal-style compounding route just because the mistake happened under the old Act the change in the law is a genuine, strong point in the company’s favour. Third, if the company wants to formally close the matter rather than simply keep it on record as a disclosed, cured, old issue, the safer starting point today is still a compounding application under Section 621A of the old Act, because there is already some court and tribunal support for that route. But the application should clearly explain, in writing, that the mistake is old, non-continuing, and that the corresponding provision has since been made lighter asking the authority to keep that in mind. Filing straight for adjudication under Section 454, as if the mistake had happened under the 2013 Act, is the weaker option, and this firm would not recommend it without first checking informally with the Registrar’s office.

In one line

The date of the mistake decides which law applies to it, and that liability does not disappear just because the old Act has been cancelled but because Parliament has since made this kind of mistake much less serious, the company has a fair and reasonable argument to be treated gently, even though the law does not yet spell out, in so many words, exactly which door compounding or adjudication an old, cured, 1956-Act mistake should walk through today.

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Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at [email protected]).