The Step-by-Step Process for Compounding of Offences
Setindiabiz makes the compounding process seamless by handling your application from board resolution to final order. Get your defaults settled quickly without prosecution! 📋
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Step-1: Rectify the Default
Before applying for compounding under Section 441, rectify your non-compliance. This involves filing overdue returns, settling pending fees, or completing missed compliances. The Registrar of Companies (ROC) will require proof of rectification, such as the SRN of filed forms or payment receipts. This is mandatory and shows your commitment to compliance! ⚖️
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Step-2: Pass Board Resolution
To begin the compounding application process, a board meeting must be held in accordance with the Companies Act. During this meeting, a resolution should be passed to acknowledge the offence, determine the fine amount, and authorise a director to sign Form GNL-1. Additionally, a CS/CA/lawyer should be appointed to represent the company before the compounding authority. Remember to have a certified copy of this resolution readily available. 📝
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Step-3: Prepare Application & Documents
Compile all required papers for submission and draft a detailed petition. This petition, which serves as the core application, must clearly explain the facts of the case, details of the default, and reasons for non-compliance. You should attach all necessary annexures, including an affidavit verifying the petition, the MOA/AOA, evidence of default rectification, financial statements, and the Board Resolution. 📄
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Step-4: File Form GNL-1 with ROC
Submit online application to Registrar File e-Form GNL-1 electronically on the MCA portal with ₹1,000 fee. Enter details of up to 8 persons per form. ROC will scrutinise documents, calculate the maximum fine as per the relevant sections, and may seek clarifications. This initiates the official compounding process under Section 441! 💻
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Step-5: ROC Forwards to Authority
Application sent to NCLT or Regional Director. After verification, ROC forwards your application with comments to the appropriate authority. Regional Director handles cases up to ₹25 lakhs fine under the Companies (Amendment) Act 2019. NCLT handles higher amounts. Authority is decided based on the maximum fine prescribed for the offence! 🏛️
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Step-6: Attend Hearing
Present your case before the authority, NCLT/RD, which will fix the hearing date and send notice. Your authorised representative must appear, admit the contravention, and explain the circumstances. Authority considers the nature of the offence, intention, default period, and the company's financial condition before deciding the compounding amount as per Section 441! ⚡
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Step-7: Pay Compounding Fee
Settle the prescribed amount online. Once the order is passed, pay the compounding fee through the MCA portal within the stipulated time. The fee won't exceed the maximum fine prescribed for that offence. Keep payment proof ready. This completes the settlement, and you will receive an honourable discharge from prosecution. 💰
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Step-8: File Form INC-28
Intimate ROC about compounding order. Within 7 days of receiving the order, file Form INC-28 with ROC along with a certified copy of the compounding order. This updates official records and prevents future prosecution for the compounded offence. Your compliance record is now clear under the Companies Act! ✅
Timing of Filing Adjudication Application
A crucial timing consideration: Compounding applications can be filed either before or after prosecution begins. If filed after prosecution has started, the Registrar must notify the court, which may result in the offender's discharge. Once compounded, no new prosecution can be initiated for that offence. The company must inform the ROC within seven days using Form INC-28.
Important Case Laws - Compounding of Offences
Here are some landmark judgments that have clarified the key principles and procedures for compounding of offences under the Companies Act, 2013.
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Viavi Solutions India Private Limited v. Registrar of Companies ([2017]203CompCas165)
This NCLAT judgment is crucial as it laid down the guiding factors for authorities to consider while deciding on a compounding application. The ruling stated that the NCLT or Regional Director must look at the bigger picture and the specific circumstances of the case. Key factors include the nature and gravity of the offence, the period of default, whether the default was intentional, the financial condition of the company, and whether the default has been rectified before filing the application.
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Pahuja Takii Seeds Ltd. & Ors. v. Registrar of Companies (Company Appeal (AT) No. 80 of 2018)
In this case, the NCLAT settled a major procedural question regarding the filing of compounding applications. The Tribunal ruled that Section 441 does not prohibit filing a single, joint application for the same offence committed over multiple years by a company, along with its officers in default. The NCLAT observed that procedures are deemed to be permitted unless they are expressly barred by law.
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M/s. Cinepolis India Pvt Ltd & Ors. v. Registrar of Companies (Company Appeal (AT) No.137 of 2017)
The NCLAT here clarified the scope of compoundable offences, particularly those punishable with both imprisonment and fine. It is held that while offences punishable with 'imprisonment only cannot be compounded, those punishable with "imprisonment or fine or both" can be compounded by the NCLT. However, for such cases, the NCLT must follow the procedure laid down in Section 441(6), which includes taking permission from the Special Court.
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RSPL Ltd., (Company petition no. 20/ALD of 2017)
This case highlights the importance of bona fide intent in making good a default. The company had filed its cost audit report after a significant delay of four years. The NCLT allowed the compounding application, noting that even though the company acted late, it demonstrated a genuine effort to rectify the non-compliance.
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S Viswanathan v. State of Kerala (1993) 113 STC 182 (Ker HC DB)
This judgment established the finality of a compounding order. The Kerala High Court held that once an offence has been compounded, neither the department nor the assessee can challenge the order later. The department is barred from reopening the case even if it is later discovered that the actual suppression of facts was much higher than what was considered during compounding.
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S V Bagi v. State of Karnataka (1992) 87 STC 138)
Similar to the principle of finality, this case established that a person who has voluntarily agreed to the composition of an offence cannot subsequently challenge those same proceedings by filing an appeal.