Not every lapse under the Companies Act, 2013 has to end in prosecution. Where the default is punishable with fine only (or fine and imprisonment as an alternative, not both together), the company and its officers can apply to have the offence compounded — settled by paying a prescribed sum instead of facing a criminal trial. This is one of the more useful, and more underused, remedies available to a company that has discovered a lapse and wants to regularise it before the Registrar’s notice turns into a prosecution. This guide walks through what is compoundable, who has jurisdiction, and the practical filing sequence.

Compounding of offences under the Companies Act is governed by Section 441, which replaced the erstwhile Section 621A of the Companies Act, 1956. Under Section 441(1), any offence committed by a company or any officer of a company under the Act — whether committed before or after the commencement of the Companies (Amendment) Act, 2020 — may, on application, be compounded by:

  • the National Company Law Tribunal (NCLT), or
  • the Regional Director (RD) or any officer authorised by the Central Government, where the maximum amount of fine which may be imposed for the offence does not exceed ₹25 lakh.

Compounding operates as a settlement mechanism: the defaulting party pays a prescribed sum to the competent authority in lieu of prosecution, and on payment the proceedings (or the possibility of proceedings) for that offence are concluded.

Which Offences Can Be Compounded

CategoryCompoundable?
Punishable with fine onlyYes
Punishable with fine or imprisonment (i.e., imprisonment as an alternative to fine)Yes
Punishable with imprisonment onlyNo
Punishable with both imprisonment and fineNo
Same offence already compounded once, and 3 years have not elapsed sinceNo — barred for a second compounding within 3 years
Offence under investigation, inquiry, or inspection, or in respect of which such investigation/inspection has been orderedNo, while the investigation is pending

A second application within three years of an earlier compounding for the same offence, by the same company or officer, is treated as if it had never been compounded — Section 441(5) — meaning the default reverts to being liable to the full penalty/prosecution exposure rather than a fresh compounding at concessional terms.

Jurisdiction — Regional Director vs. NCLT

The forum depends purely on the quantum of the maximum fine prescribed for the offence, not on the company’s size or the nature of the default:

Maximum fine prescribed for the offenceCompounding Authority
Up to ₹25 lakhRegional Director (or officer authorised by the Central Government)
More than ₹25 lakhNational Company Law Tribunal (NCLT)

The compounding fee itself cannot exceed the maximum fine prescribed under the Act for that offence — Section 441(1), proviso. In practice, the RD or NCLT exercises discretion within that ceiling based on factors such as the period of default, whether it is a first or repeat lapse, and the company’s overall compliance record.

Step-by-Step Process

  1. Board meeting. Convene a board meeting to pass resolutions to (a) authorise filing a compounding application, (b) authorise a director or officer to sign and represent the company, and (c) appoint a CS/CA/advocate to appear before the RD or NCLT.
  2. Prepare the application. Draft the compounding application together with a supporting affidavit verifying the facts of the default, the period of delay, and the reasons.
  3. File e-Form GNL-1 with the jurisdictional Registrar of Companies, along with:
    • the compounding application and verifying affidavit;
    • Memorandum/Power of Attorney authorising the professional to appear;
    • certified copy of the board resolution;
    • copy of any notice or show cause already received from the RoC, if applicable; and
    • other documents evidencing the default and its rectification (e.g., the belated form now filed).
  4. Deliver the physical application along with the GNL-1 acknowledgment and fee challan to the RoC, since the compounding application itself is still examined in physical/hybrid form even though GNL-1 is filed electronically.
  5. RoC forwards the file. Based on the maximum fine involved, the RoC forwards the application with its comments and recommendation to the RD (fine ≤ ₹25 lakh) or to the NCLT (fine > ₹25 lakh).
  6. Personal hearing. The RD or NCLT Bench grants a personal hearing to the applicant (and, where relevant, the RoC) before passing a speaking order.
  7. Payment of compounding fee. On the order being passed, the compounding fee has to be deposited within the timeline specified in the order — typically a short window, and delay can result in the compounding being treated as not having taken effect.
  8. Intimate the order to the RoC. File e-Form INC-28 to notify the RoC of the RD/NCLT order compounding the offence, closing out the default on record.

Practical Notes

  • The GNL-1 filing fee itself is nominal (a flat fee, separate from the compounding fee eventually payable under the RD/NCLT order) — the real cost exposure is the compounding fee fixed by the authority, capped at the statutory maximum fine for that offence.
  • Compounding does not erase the underlying default — the belated form or filing still has to be made (e.g., a delayed MGT-7 or AOC-4 still has to be filed with the applicable additional fee); compounding only settles the criminal/penal exposure for having defaulted in the first place.
  • Immunity schemes and compounding are not the same route. A scheme such as CCFS-2026 gives concessional additional fee and, in defined circumstances, immunity from penalty for the underlying filing default without a separate compounding application; compounding under Section 441 is the standing, non-scheme remedy that exists independent of any time-bound relief scheme, and is typically used once a show cause notice or adjudication has already been triggered.
  • Investigation is a hard bar. If the Serious Fraud Investigation Office (SFIO) or the Registrar has ordered an inspection or investigation into the company in relation to the offence, compounding is not available until that investigation/inspection process is concluded.
  • Officers in default are compounded individually. Where multiple officers (e.g., multiple directors, the CFO, the CS) are in default for the same lapse, each officer’s compounding is considered on its own facts, though they are usually dealt with together in a single application.

Key Takeaways

  • Only offences punishable with fine only, or with fine or imprisonment as an alternative, are compoundable under Section 441 — offences carrying imprisonment only, or imprisonment plus fine, cannot be compounded.
  • The Regional Director compounds offences where the maximum fine does not exceed ₹25 lakh; anything above that goes to the NCLT.
  • The compounding fee is capped at the maximum statutory fine for the offence and is fixed by the authority after a personal hearing.
  • The process runs through e-Form GNL-1 (application to RoC) and closes with e-Form INC-28 (intimation of the compounding order).
  • A second compounding of the same offence within 3 years is barred, and compounding is unavailable while an investigation or inspection into that offence is pending.

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