Compounding of Offences Under Companies Act — Section 441 Procedure

Compounding of offences under Section 441 of the Companies Act 2013 is a mechanism by which a company or officer in default can pay a sum of money to settle a criminal offence committed under the Companies Act — avoiding prosecution and conviction in a criminal court. Here is the complete guide to compounding under the Companies Act.

What Is Compounding?

• Compounding converts a criminal proceeding into a financial payment — the offender pays a specified amount and the matter is closed without a criminal conviction
• Not all offences are compoundable — only "compoundable offences" (those punishable with fine only, or with imprisonment up to 2 years and fine) can be compounded
• Non-compoundable offences (involving fraud, serious mismanagement) cannot be compounded

Jurisdiction for Compounding

• Regional Director (RD): Compounding of offences where the maximum fine prescribed does not exceed ₹5 lakh
• NCLT (National Company Law Tribunal): Compounding of offences where maximum fine exceeds ₹5 lakh, or where imprisonment is involved
• In cases where prosecution has already started in a criminal court — the court itself may compound on application

How to Apply for Compounding

• File an application in the prescribed form with the Regional Director or NCLT (as applicable)
• The application must disclose: details of the offence, provisions violated, facts leading to the violation, whether it was inadvertent or deliberate, and the relief sought
• Pay the compounding fee as directed by the RD/NCLT — typically the maximum penalty prescribed for the offence, or a portion of it
• The RD/NCLT issues a compounding order — after which the offence is treated as settled and no prosecution can be initiated for that specific violation

Common Offences That Are Compounded

• Failure to file annual returns (MGT-7, AOC-4) within due date
• Delay in filing resolutions with ROC (Form MGT-14)
• Failure to appoint Company Secretary when mandatory
• Holding Board/General meetings not as per requirements
• Non-maintenance of statutory registers

Conclusion

Compounding of offences under Section 441 provides an important escape route for companies with genuine compliance lapses — avoiding criminal prosecution by payment of the compounding fee. SPOTON provides compounding application services and Companies Act default resolution for companies across Kerala. Contact us for expert corporate compliance services.