Compounding of Repeated Offences Under Companies Act, 2013

 

Introduction: What’s at Stake for Companies?

Compounding is a fast-track fix under the Companies Act, 2013—pay a fine and sidestep prosecution. It’s a smart choice for first-time slips: delay in AGM, late filings, or register lapses. But there’s a catch: commit the same offence again within three years? You cannot compound the second time. This provision targets serial offenders, strengthening long-term compliance. We'll unpack how, why, and when this rule matters to your business.

1. What Is Compounding Under the Companies Act?

• Definition: A mechanism under Section 441 to settle offences by paying a fine via the NCLT or Regional Director (RD), avoiding prosecution 

• Eligibility:

  • Compoundable: Offences punishable by fines only, or fines + imprisonment 

  • Non-compoundable: Pure imprisonment offences or imprisonment + fine 

• Authorities:

  • RD handles fines ≤ ₹25 lakh; NCLT steps in for larger penalties 

2. How the “Three-Year Bar” Works

🔒a. Statutory Provision

• Section 441(2) prohibits compounding if the same or similar offence was compounded in the past three years 

• Section 454A flags acts repeated within three years as “repeated defaults,” attracting enhanced penalties taxguru.in.

🔄b. Practical Implication

1. First Offence (e.g., late AGM):

   • Company compounds → pays fee → offence closed.

2. Repeat Offence (within 3 years):

   • Now non‑compoundable; must face full adjudication or prosecution.

Example: If X Ltd delayed AGM in June 2023 and compounded it, a similar delay in April 2025 can’t be compounded due to the three‑year bar.

3. Why the Three‑Year Rule? Policy & Compliance

• Prevents complacency: Companies can’t “repeat and comp compound.” 

• Promotes accountability: Subsequent offences draw stricter penalties, nudging firms to improve compliance.

• Aligns legal provisions: Sections 441(2) and 454A share the same “three-year clock,” pushing for consistent interpretation 

4. Key Legal & Procedural Details

✅ Compoundable vs Repeated

• Compoundable offences: Fines only or fines + imprisonment (non‑mandatory) 

• Repeated: Same offence within three years under Section 454A .

⚖️ Authority & Fee

• RD: When max fine ≤ ₹25 lakh.

• NCLT: For fines > ₹25 lakh 

📝 Application Procedure

1. Board resolution authorising application

2. File Form GNL‑1 with ROC + ₹1,000 fee 

3. ROC reviews and forwards to RD/NCLT

4. Authority hears and prescribes compounding fee

5. Pay fee; file Form INC‑28 within 7 days 

6. On delay or non‑compliance, penalty doubles

🛡 Officer’s Liability

• Officer in default can apply separately or jointly with the company 

• Prior compounding by either company or officer triggers bar for that party 

5. When Can You Still Compound?

• If first offence wasn't compounded (but adjudicated), the second may still qualify—since Section 441(2) applies only to compounding cases .

• If the repeated offence is different in nature, it's considered a fresh matter .

6. Example & Quick Gloss

Scenario	Status Yet?	Compoundable?	Action Required
1	X Ltd late AGM compounded in Mar '23	N	No (bar until Mar '26)
2	X Ltd late AGM penalised (adjudicated) Aug '23	Y	Yes (future same offence)
3	X Ltd delays AGM & fails file register in '25	Y for AGM, Y for register	Yes

7. Why This Matters to You

• 🛑 No shortcuts: Stop relying on compounding—build strong compliance systems post-first compounding.

• ⚙️ Proactive strategy: Decide between compounding and adjudication based on long‑term risk.

• 🚨 Legal advice needed: Interpret “similar offence” and “officer in default” carefully. Seek expert counsel.

8. Real‑World Impact & Stats

• MCA decriminalised ~16 offences in 2019–20, shifting from prison to civil penalties 

• A single ₹25 lakh fine can rise to ₹50 lakh for defaulting on compounding orders .

• NCLAT consistently affirms three‑year bar and joint compounding rights 

9. 5 Practical Tips to Navigate the Rule

1. Track compounding dates: Maintain a three‑year timeline for each default type.

2. Post‑compounding compliance: Immediately close the root cause to avoid repeat.

3. Evaluate outcome routes: Weigh short‑term compounding vs long‑term adjudication.

4. Joint officer applications: Streamline exposure with joint filings.

5. Consistent record‑keeping: Maintain compounding & adjudication files for audit & ROC.

✅ Conclusion

The three‑year compounding bar under Sections 441(2) and 454A is not merely procedural—it’s a compliance driver. While compounding offers fast relief, it comes at the price of lost future compounding rights. Smart companies will use it wisely: fix issues, keep records, and fortify governance to stay in good standing.

🔍 FAQs

Q1: What offences can be compounded under Section 441?
A: Those punishable by fine only, fine + imprisonment (non‑mandatory), or fine + imprisonment + both 

Q2: If the company compounds once, can officers compound again?
A: No, if either party compounds the same offence within three years, compounding is barred for that person .

Q3: Does the three‑year bar apply to adjudication?
A: No. Adjudication sits separate; the bar only applies to compounding.

Q4: What if fine was adjudicated but not compounded first?
A: Section 441(2) only applies to compounded cases; adjudicated offences don’t trigger the bar, so future compounding may be possible .

Q5: What penalty for missing INC‑28 after compounding?
A: OC‑failure leads to double the maximum fine under Section 441(5).

Keywords: compounding repeated offences, Companies Act 2013, Section 441, Section 454A, three‑year bar, compoundable offences, adjudication, corporate compliance.