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Compounding Offenses Under Companies Act 2013

Compounding offences

Compounding offenses occurred when a company has done some violation of act or rules and willing to comply voluntarily. In this article, we will discuss the Compounding of offenses under companies act 2013.

Meaning of Compounding Offenses under Companies Act 2013

Non-compliance with Law results in offenses by Company or Officer in Default. The Offences can be of civil or criminal nature. To Compound means to settle a matter by paying money, instead of other liability. It is a form of Settlement Mechanism wherein one has to settle by paying the penalty instead of facing the prosecution for the offense committed. The word compounding of offense has not been defined under the Companies Act, 1956/2013. However, in layman’s language, it means “admission of guilt.”

In this process, the person may either on his own or receipt of notice of default or initiation of proceedings admit the commission of default and make an application for compounding of offense and agree to pay a penalty which may be ordered by the Central Government.

Benefits of Compounding Offenses under Companies Act 2013:

In case of compounding of an offense under the Companies Act, the accused is not required to appear personally and can be discharged upon payment of a requisite penalty. However, in case of prosecution for an offense in a criminal court, the accused has to appear before the Court at every hearing which is time-consuming and expensive.

Jurisdiction for Compounding of Offence of Offenses under Companies Act 2013:

The Power to Compound offense rests with NCLT[1]/ Regional Director/ Special Court authorized by Central Government:


Process for Compounding offenses under companies act 2013

  • Hold a Board Meeting as per Companies Act, 2013 and SS-1 for considering the application for compounding of offense and payment of a penalty as per the relevant section.
  • Pass the resolution for compounding of offense and authorize anyone director of the Company for preparation and signing of application &documents. The company will appoint a professional for following up with the matter with authority.
  • The Company is required to prepare an application for compounding. The application is required to be accompanied by an affidavit by the Company or authorized officers making the application for compounding of offense along with the relevant documents.

Also, Read: Mandatory Compliances under Companies Act 2013.

Filling of Form with ROC:

According to Section 441, an application for compounding of the offense shall be made to Registrar of Companies, who shall forward the same to NCLT or RD or any person as may be authorized by the Central Government. Application for compounding is required to be filed in e-form GNL-1.

Hearing before Authority:

The NCLT/Regional Director after examining the matter will pass an order on the date of hearing. The hearing can be attended by Director/Company secretary/ or any other authorized officer of Company or by an authorized representative like the advocate or a practicing CS/ CMA/ CA. The Regional Director or the NCLT is required to abide by the rules of natural justice and give the company and the officer in-default, a reasonable opportunity of being heard. 

  • One the order has been passed, the compounding fees are required to be paid inappropriate account by way of challan and receipt of challan should be produced before the compounding authority

List of Offences which can be compounded:

Following are some of the offenses which can be compounded under the provisions of Companies Act:

  • Failure was complying with the requirements relating to Commencement of business.
  • Default in complying with the requirements laid down by the act, relating to the formation of companies.
  • Default in complying with the provisions of this section relating to securities to be dealt with in the stock exchanges.
  • Contravention of provisions relating to the issue of a prospectus.
  • Violation of provisions relating to the issue of shares at a discount.
  • Fraudulently issuing duplicate share certificates by a company.
  • Failure in complying with the provisions of transfer and transmission of securities.
  • Default in complying with the provisions of this section relating to securities to be dealt in the stock exchanges.
  • Committing default in complying with the order of Tribunal.
  • Failure to send a quarterly report on winding up and call the meeting by company liquidator.
  • Failure to file financial statements with the Registrar.
  • Contravention of the provisions of Chapter XI relating to appointment and qualifications of directors.
  • Default in a publication of resolution to wind up voluntarily.
  • Default in transferring the amount of unpaid dividend account.

List of Offences which cannot be Compounded:

  • Where the investigation has already been initiated or is pending.
  • Where similar offense has been committed by the person who has previously been compounded and a period of three years has not expired.
  • Any offense which is punishable by imprisonment or with imprisonment and fine

Also, Read: Key Managerial Personnel Companies Act 2013.

Narendra Kumar

Experienced Finance and Legal Professional with 12+ Years of Experience in Legal, Finance, Fintech, Blockchain, and Revenue Management.

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