A comprehensive guide to understanding defaults, offences, and the legal framework — from in-house adjudication to Special Court prosecution.
The Companies Act, 2013 classifies every default along three fundamental axes — determining punishment type, whether settlement is permitted, and whether police can arrest without a warrant.
Penalty means in-house adjudication via the Registrar of Companies. Fine or imprisonment means adjudication by a court of competent jurisdiction.
Offences punishable with fine only, or fine or imprisonment, are compoundable. Those with mandatory imprisonment alongside fine are non-compoundable.
Only offences punishable as fraud under Section 447 are cognizable — authorised SFIO officers may arrest without a warrant. All other offences are non-cognizable under Section 439.
RoC issues SCN, provides hearing opportunity, and passes order with reasons. Appeal to Regional Director within 60 days.
Fine ≤₹25L: Regional Director. Fine >₹25L: NCLT. Fraud (Sec 447): SFIO / Special Court. Non-compoundable offences go to court directly.
No Penal Provision? Where no specific punishment is provided, the general penal provision under Section 450 applies — a penalty of ₹10,000, with a further penalty of ₹1,000 per day for continuing default (maximum ₹2 lakh for the company and ₹50,000 for each officer in default), adjudicated by the RoC under Section 454.
The in-house adjudication mechanism empowers the Registrar to impose penalties directly — without involving courts — making it faster and more efficient.
RoC issues notice asking why penalty should not be imposed. Natural justice demands proper opportunity to be heard.
Noticee submits reply electronically within the specified period. Physical appearance only if RoC directs.
If noticee desires oral hearing, appearance in person or via authorised representative may be granted.
RoC passes order within 30 days (no appearance) or 90 days (where person appeared). Penalty cannot be below statutory minimum.
Penalty paid through MCA portal. Order copy sent to Central Government and published on website.
If aggrieved, appeal must be preferred within 60 days from receipt of the order. RD's decision is final and binding under the Act.
For OPC, Small Company, Start-up Company and Producer Company, penalty shall not exceed one-half of the penalty specified, subject to a maximum of ₹2 lakh for the company and ₹1 lakh for an officer in default.
Where default relates to non-filing of Annual Return or Financial Statements, and is rectified within 30 days of SCN, no penalty shall be imposed and proceedings are deemed concluded.
Compounding is a settlement mechanism allowing the offender to pay a sum in lieu of prosecution — avoiding litigation and criminal record for procedural lapses.
Compounding is a statutory settlement mechanism by which the offender pays a determined sum in lieu of prosecution, avoiding lengthy litigation. Authority lies with NCLT or Regional Director based on the fine amount.
Cannot be compounded if investigation is initiated or pending under the Act
Similar offence can only be compounded once in 3 years
If compounded before prosecution, no prosecution shall be instituted
If compounded after prosecution filed, ROC notifies court and accused is discharged
Order must be filed with ROC within 7 days of receipt
Jurisdictional split: Maximum fine up to ₹25 lakhs → Regional Director. Above ₹25 lakhs → NCLT. Application first filed with ROC who forwards to appropriate authority.
Company and/or officers file the compounding application with Registrar.
RoC prepares comments and forwards to RD (≤₹25L) or NCLT (>₹25L).
Authority scrutinizes application, schedules hearing, applicant appears.
Order specifying compounding sum is passed. Applicant must follow all directions.
Pay fee and file certified copy with RoC within 7 days of receipt.
Submit order proof for discharge. If the court doesn't discharge, file a Revision Petition u/s 438 BNSS, 2023 (earlier Sec 397 CrPC) within 90 days.
Under Section 439, the nature of offence determines who can initiate prosecution and with what urgency.
Authorised SFIO officers can arrest without warrant (Sec 212(8)). Relates to offences punishable as fraud under Section 447.
Court must grant permission before police investigate. Complaint filed by RoC, member, or Central Govt. person.
Common defaults and their classification, authority, and compoundability at a glance.
| Default Type | Punishment | Compoundable? | Authority | Limitation |
|---|---|---|---|---|
| Non-filing Annual Return (Sec 92) | Penalty | In-house | RoC | Waived if filed within 30 days of SCN |
| Non-filing Financial Stmts (Sec 137) | Penalty | In-house | RoC | Waived if filed within 30 days of SCN |
| Fraud — Section 447 | Fine + Imprisonment | Non-compoundable | SFIO / Special Court | 6 months to 10 years |
| False statement (Sec 448) | Punishment under Sec 447 | Non-compoundable | Special Court | Treated as fraud under Sec 447 |
| Non-compliance (general — Sec 450) | Penalty | In-house | RoC | Max ₹2L company / ₹50K officer |
| Failure to register charges (Sec 77 r/w Sec 86) | Penalty | In-house | RoC | ₹5L company / ₹50K officer |
| Default in holding AGM (Sec 96) | Fine | Compoundable | RD (≤₹25L) | 3-year bar on repeat |
Key legal questions arising in practice around adjudication, compounding, and prosecution under the Companies Act.
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