Compoundable Offences under the Companies Act 2013

Last Updated at: Oct 30, 2020
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Under the Limited Liability Partnership (LLP) Act, the Ministry of Corporate Affairs (MCA) has moved to decriminalize some compoundable crimes including trivial, administrative or technical violations.


The committee has suggested amendments to 46 penal provisions, “so as to either remove criminality, or to restrict the punishment to only fine, or to allow rectification of defaults through alternative methods”, an official release said. The proposals are aimed at further de-clogging of the criminal justice system in the country.


If you want to understand the scope of the compoundable offences under the Companies Act of 2013, getting in touch with a corporate lawyer will be your best bet. If you are business owner, then you must adhere to all the mandatory compliances to stay away from such punishments.

The word compoundable is where the aspect of the offence and the remedy levied on the offence changes its scope. An offence can be classified into criminal and civil and this concept is very common even to the layman. The next concept of classification under the civil and criminal is compoundable offence and non-compoundable offence. So what does this concept mean? Let us simplify it, compoundable offences are nothing but offences in which the punishment would be in a monetary form. It actually gives a leverage of not appearing before the court and further the offender can be discharged after the payment of the fees which usually will be below or equal to the maximum fee prescribed by the particular act.

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So what is the role of compoundable offence per the Companies Act? This is the point where Section 441 of the Companies Act comes into the picture. The Act deals with compoundable offences and can be a  shortcut to avoid litigation. This actually is a positive point as it creates a situation for business houses to earn a win-win situation, bearing in mind the cost of litigation and most importantly the time being consumed in a litigation scenario. It can be taken into consideration that the most viable option is to pay the fee for the offence and get discharged. This law came into existence after the Sachar committee report where the report mentioned a few leniencies towards the offenders as the offence of a major scale remained to be a technical issue or minor offence in the process.

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Non-compliance to any of the provision in the Companies Act will usually have four types of punishment:

  1. Offence penalized with fine
  2. Offence penalized with fine or imprisonment
  3. Offence penalized with imprisonment only
  4. Offence penalized with both fine and imprisonment

The offences classified under the first two divisions are capable of compounding under Section 441 of the Companies Act, 2013. The next two i.e., 3 and 4 are non-compoundable offences. These are in place just to make the process get more efficacy and to stop backlogging of cases.

The more recent development in this concept is to deal with the ease of doing business in India. The Ministry of Corporate Affairs made a slew of changes in achieving the goal of improving business in India. Among those changes, the Ministry to reduce the litigation of minor offences, which are more basically due to technical or due to corporate governance have implemented a panel to decide on the nature of offences which can be classified to be compoundable. This is one of the remarkable developments in recent years in this area.

So this is a very good development, but who is the competent authority to do the compounding process. The compounding authority is majorly classified on the amount of the penalty. The penalty disparity lies at the cliff of 5,00,000 rupees. The amount below the cliff would usually be dealt with by the Regional Director and all those above it is given to the NCLT. It is mandatory to move an application of compounding to the Registrar of Company and he is the competent authority to pass the application either to the NCLT or RD. Post compounding, the Registrar of Company have to be notified within 7 days regarding the compounding process.

So, the concluding point on the issue is that a company can be intact and fully functioning even when there is some technical issue or a minor error using the compoundable offences under the Companies Act 2013.

You must realize that compoundable offences must be avoided under normal circumstances. However, if the situation is unprecedented and extraordinary, then you should take a smart decision. A compoundable business may hurt you financially, and you must assess the situation objectively if you want to plan out the best possible course of action.