Compounding of Offenses Under the Companies Act, 2013: A Practical Guide for Indian Companies

Under Section 441 of the Companies Act, 2013, Indian companies can settle certain legal violations by compounding offenses—paying penalties instead of facing prosecution. 

We explain the statutory basis, eligibility, procedure, and strategic benefits of compounding for corporate compliance.

Indian companies may inadvertently fail to comply with statutory obligations—such as delays in filing returns, non-appointment of key managerial personnel, or missing prescribed deadlines for corporate meetings. Under the Companies Act, 2013, these instances are treated as offenses for which the firm can be held accountable.

To rectify such lapses, companies have the option to apply for compounding of offenses, as provided under Section 441 of the Act. This provision allows the company or its officers in default to settle the offense by paying a monetary penalty, thereby mitigating the risk of prolonged legal proceedings and facilitating timely compliance regularization.

CBDT introduces simplified compounding guidelines under Income-tax Act

In line with the Union Budget 2024 announcement on simplifying compounding procedures in India, the Central Board of Direct Taxes (CBDT) released revised guidelines for the compounding of offenses under the Income-tax Act, 1961, on October 17, 2024.

The revised guidelines apply to both pending and new compounding applications. Key updates include the removal of offense categorization, elimination of restrictions on the number of times an application can be filed, acceptance of fresh applications after rectifying earlier defects, and the inclusion of offenses under Sections 275A and 276B within the scope of compounding.

The revised framework also removes the earlier time limit of 36 months for filing a compounding application. Furthermore, compounding charges have been rationalized by eliminating interest on delayed payments and introducing a standardized rate—TDS-related offenses, a uniform rate of 1.5 percent per month.

ALSO READ: Guide to India’s TDS Rates for FY 2025-26

Statutory basis and meaning of compounding

Compounding is a statutory mechanism that permits companies or their officers to resolve certain violations by paying a financial penalty instead of facing prosecution. It applies only to offenses that are compoundable under law and aims to reduce litigation while promoting voluntary compliance. Once compounded, the offense is considered legally resolved.

Types of offense under the Companies Act, 2013

Under the Companies Act, 2013, Section 441 classifies compounding offenses into two primary types:

• Compoundable offenses: Offenses punishable with a fine only, or with a fine or imprisonment or both. These can be settled through compounding.
• Non-compoundable offenses: Offenses that involve imprisonment only or imprisonment and a fine. These must go through judicial prosecution and cannot be compounded.

Authorized authorities and jurisdiction

Two primary authorities are empowered to handle compounding matters in India.

FAQs on compounding offenses

Q. What are some of the common compoundable offenses?

The following are some of the offenses that are compoundable under the provisions of the Indian corporate law:

• Delay in filing annual returns: Companies in India are required to file their annual returns with the Registrar of Companies (RoC) using electronic Form MGT-7. Delays in this filing constitute a compoundable offense.
• Delay in filing financial statements: Companies must submit their annual financial statements through e-Form AOC-4. Failure to do so within the prescribed timeline is also a compoundable violation.
• Failure to appoint a company secretary or chief financial officer (CFO): Not appointing key managerial personnel, as mandated under the Companies Act, 2013, is a noncompliance subject to compounding.
• Non-maintenance of statutory registers: Companies are obligated to maintain statutory registers containing essential information related to their structure, shareholders, board meetings, and operations. Failure to maintain or update these registers accurately is considered an offense.
• Non-convening of Annual General Meeting (AGM) within the prescribed timeline: Except for one-person companies, all entities must hold an AGM annually within six months from the end of the financial year, and no more than 15 months should elapse between two successive AGMs. Missing this deadline is a compoundable offense.

Q. Who can apply for compounding rectification?

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The compounding process under the Companies Act, 2013, may be initiated by the following:

• The company itself
• Any officer in default
• The Registrar of Companies (RoC)

This provision enables both internal and external parties to trigger the offense rectification mechanism. It ensures that lapses are addressed promptly, whether identified voluntarily by the company or flagged by the regulatory authority.

Q. What is the procedure for addressing a compounding offense?

The following process is required to be followed for compounding of offenses:

1. Identify the compliance lapse(s).
2. Preparation of necessary documentation along with an application and proof of rectification of the offense.
3. File the compounding application in e-Form GNL-1 along with the necessary documents with the authority concerned. e-Form GNL-1 serves as an application submitted to RoC. The form can be downloaded from the Ministry of Corporate Affairs’ (MCA) website. Click here: MCA Services> e-Filing> Company Forms Downloads
4. Follow up with the authorities on the application and attend the hearing (if required).
5. Upon approval, the company must pay the compounding fee within the stipulated time.
6. The company must file the order with the RoC in Form INC-28. e-Form INC-28 is critical in recording changes mandated by the NCLT, Regional Director (RD), or other authorized bodies. It ensures that the company’s updated status is officially reflected with the RoC.

Q. What is the application fee?

For compounding applications or the consolidated compounding applications filed, irrespective of the year of offense, the applicant shall deposit a non-refundable Compounding Application Fee as follows:

1. Single compounding application—INR 25,000 (US$291.57) (per application).
2. Consolidated compounding application – INR 50,000 (US$583.14) (per such application).

(US$1 = INR 85.74)

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