Imposition of Minimum Penalty Not Mandatory in Compounding of Offences

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Ministry of Corporate Affairs (“MCA”), on 1st June, 2016, notified Section 441 of the Companies Act, 2013 (“Act”) related to compounding of certain offences under the Act. Further, MCA constituted National Company Law Tribunal (“NCLT”) and National Company Law Appellate Tribunal (“NCLAT”) on 1st June, 2016 to handle the corporate civil matters under the Act and for vesting it with various powers including Compounding of Certain Offences under Section 441 of the Act.

Compounding is not defined under the Act, however, in accordance with Black’s Law Dictionary, to “Compound” means “to settle a matter by a money payment, in lieu of other liability”.


  • UW International Training & Education Centre for Health Private Limited, the petitioner company filed a suo-motu application to Delhi NCLT with respect to delay in issue of share certificate to the subscribers of the Company, resulting in non-compliance of the time prescribed under Section 56(4)(a) of the Act i.e. two months.
  • The penalty for the aforementioned non-compliance is provided under Section 56(6) of the Act as a fine which shall not be less than twenty- five thousand rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with fine not less than ten thousand rupees but which may extend to one lakh rupees.
  • The contention of the petitioner in this case was that the said delay was beyond their control and not on account of any malafide intentions. However, the amount of penalty imposed by NCLT was lesser than that as prescribed under Section 56(6) mentioned above.


The main issues raised in front of NCLT were:

  • Whether NCLT can levy a higher or lower penalty in compounding cases than the penalties as prescribed under the Act?
  • What are the guiding principles for imposing penalty in compounding cases?


  • NCLT in its order in respect of the application of UW International Training & Education Centre for Health Private Limited held that the sentencing or penalty provisions prescribed under the Act cannot be lowered or altered in cases of prosecution holding the defaulter guilty. However, principle of imposing minimum fine on compounding matters is not mandatory. NCLT noted that compounding of offence can be accepted by a Court even by admonishing the defaulter or issuing a warning. NCLT further noted that the procedural delay of issuance of share certificates cannot be discounted and accordingly imposed a penalty of Rs. 10,000/- on company and defaulting officers as opposed to penalty prescribed under section 56(6) of the Act.
  • It is pertinent to note that NCLAT in the matter of Viavi Solutions India (P.) Ltd. v. Registrar of Companies, NCT Delhi & Haryana dated 28th February, 2016 laid down that NCLT is required to notice the relevant factors while compounding any offence, such as gravity of offence, malafide intention, maximum punishment prescribed, report of Registrar of Companies (ROC), period of default, suo motu compounding or after ROC notice/imposition of the punishment.
  • Thus it can be concluded that, in suo motu compounding cases, NCLT may, based on the aforementioned factors, impose a lower penalty than as prescribed under the penalty provisions of the Act.
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