Procedure For Compounding of Offences Under Companies Act, 2013

Relevant provisions of Companies (Adjudication of Penalties) Rules, 2014 (where applicable)  General Circulars and clarifications issued by the Ministry of Corporate Affairs (MCA) from time to time

Examine the nature of the default/offence to determine if it is compoundable.

Offences punishable with:

• fine only;
• fine or imprisonment; or
• fine or imprisonment or both are compoundable under Section 441.

Offences punishable with imprisonment only or imprisonment and fine are not compoundable.

If the offence involves a fine up to ₹25,00,000, the application shall be made to the Regional Director (RD). If the fine exceeds ₹25,00,000, the application shall be made to the National Company Law Tribunal (NCLT) having jurisdiction.

• take cognizance of the offence
• approve the filing of a compounding application; and
• authorize a Director/Company Secretary to sign and submit the application and appear before the authorities.

Draft a detailed application explaining:

• background of the company;
• nature and date of offence;
• reasons for the default;
• whether rectification has been done;
• prayer for compounding and assurance of future compliance.

Annex all necessary documents such as:

• certified copy of Board Resolution;
• affidavit and undertaking by authorized signatory;
• Memorandum of Appearance or Vakalatnama (if applicable);
• relevant filings, supporting evidences, and explanatory notes.

(a)  For RD matters (fine up to ₹25 lakhs):

• File the application electronically through e-Form GNL-1 on the MCA portal, addressed to the Regional Director through the jurisdictional Registrar of Companies (ROC).
• Pay prescribed MCA fees.

(b) For NCLT matters (fine above ₹25 lakhs): Submit a physical petition in Form NCLT-1, along with supporting documents and prescribed fees (demand draft or court fee stamps), to the relevant NCLT Bench. Serve copies on ROC and other parties, if required.

The ROC examines the application and facts of the case, then prepares and submits a

report to the RD or NCLT, commenting on:

• the background of the company and default;
• whether the offence has been rectified; and
• whether compounding is recommended.

The RD or NCLT may issue a notice and fix a hearing date. The authorized representative of the company must appear and present the case. The authority may seek further clarifications or documents during the hearing.

After considering the application, submissions, and ROC report, the RD/NCLT may  pass a compounding order, specifying the compounding fee payable and any further directions.

The company must pay the compounding fee within the prescribed time (as per order), generally via MCA Challan or Demand Draft, and submit proof of payment to the concerned authority and the ROC.

The company must file the compounding order with the ROC in e-Form INC-28 within 30 days from the date of the order. Delay in filing may attract additional penalties.

Once the offence is compounded:

• If prosecution has not been initiated, it cannot be initiated thereafter.
• If prosecution is pending, the ROC will move the Magistrate/Court to withdraw the prosecution.

Note: Compounding does not affect the liability for future violations of the same nature.

Details of the compounding of offences during the year must be disclosed in the Board’s Report under Section 134(3)(q) read with Rule 8 of the Companies (Accounts) Rules, 2014.