Section 441 · Companies Act, 2013

Compounding of Offences — A Legal Alternative to Prosecution

A statutory mechanism enabling companies and officers in default to settle non-compliance matters by paying a compounding fee, thereby avoiding prolonged criminal proceedings before special courts.

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NCLTFine > ₹25 Lakhs

Regional DirectorFine ≤ ₹25 Lakhs

e-Form GNL-1Filing with ROC

e-Form INC-28Post-order intimation

Compounding of offences is a settlement mechanism whereby a company or its officer in default, upon committing an offence punishable with fine under the Companies Act, 2013, may approach the competent authority — NCLT or Regional Director — to pay a compounding fee in lieu of prosecution. The compounded amount does not constitute a penalty and shall not be the basis for disqualification of any director.

§ 441, Companies Act 2013 · As amended by Companies (Amendment) Act 2019

Legislative Framework

Section 441 — Quick Reference

Sub-Section Overview

§ 441(1)(a) Where maximum fine exceeds ₹25 lakhs — NCLT shall compound the offence.

§ 441(1)(b) Where maximum fine does not exceed ₹25 lakhs — Regional Director or officer authorised by Central Government shall compound.

§ 441(2) A company or officer may file application before or after institution of prosecution. Prosecution, if any, shall be stayed pending the compounding order.

§ 441(3)(a) Every application for compounding shall be made to the Registrar of Companies who shall forward it to the NCLT or RD as the case may be.

§ 441(3)(b) Where offence is compounded, intimation shall be given to the RoC within 7 days from the date the order is available to the applicant.

§ 441(4) Any officer or director compounding an offence shall be disqualified from office if investigation under Sections 210–229 is pending.

§ 441(5) If same offence is committed again after compounding — the company/officer shall be liable to twice the penalty for such second offence. Period of 3 years is counted from date of compounding order.

§ 441(6) Offences punishable with imprisonment only, or with imprisonment and fine, are not compoundable — notwithstanding anything in CrPC, 1973.

Frequently Asked Questions

Common Queries on Compounding

Can a company file a compounding application after prosecution has been initiated? +

Yes. Section 441(2) expressly provides that a compounding application may be filed either before or after institution of any prosecution. Where prosecution has been initiated, it shall be stayed upon filing and the proceedings shall abate upon the compounding order being made.

Can the company and its officers in default file a joint compounding application? +

Yes. The NCLAT has upheld the maintainability of a joint application by the company and its officers in default. There is no bar under Section 441 against such a combined application, and it is in fact procedurally efficient.

Does compounding result in director disqualification under Section 164? +

No. The compounding fee paid is explicitly not a penalty. Payment of a compounding amount does not attract disqualification under Section 164 of the Companies Act, 2013.

What happens if the same offence is repeated after compounding? +

If a second or subsequent offence of the same nature is committed, the company or officer is liable to pay twice the penalty prescribed for the first offence. However, if more than three years have elapsed since the date of the compounding order, the subsequent offence is treated as a first offence and no doubling of penalty applies.

Can NCLT or RD reject a compounding application? +

Yes. The NCLT or Regional Director, after hearing the parties, may reject the application giving reasons in a speaking order. Rejection may occur if the offence falls under non-compoundable categories, investigation is pending, or the application does not satisfy the statutory conditions.

How is the ₹25 lakh threshold determined — by actual fine levied or maximum prescribed fine? +

The threshold is determined by the maximum amount of fine that may be imposed under the relevant section of the Act — not the actual fine levied or proposed in the application. This is the critical benchmark for determining whether the matter goes to the RD or the NCLT.

Compounding of Offences — A Legal Alternative to Prosecution

Sub-Section Overview

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