Compounding of offences under the company law - An easy way of settling disputes

In India, litigations are increasing day by day and Courts are becoming overburdened. Compounding of offences is a mechanism which helps in reducing the burden on Courts, since parties to the litigation, by mutual agreement, settle the disputes amicably with or without the intervention of Courts. Thus, compounding saves parties from the sluggish judicial process which is bursting at the seams and larger good is sought to be achieved by providing for compounding of offences.

India is known as the most legislated country where hundreds of enactments are in the statute book, requiring the people to comply with. Multiplicity of law tends to allow people to evade compliance. This gives rise to prosecutions. Consequently, the Courts are overburdened and Cases are mounting day by day. On the one hand, pending Cases remain pending for years and, new Cases are instituted every day. As a result, aggrieved persons suffer and the guilty persons are rarely brought to book. Under these circumstances, compounding of offences is the best course of action as it helps avoiding litigation by mutual understanding and agreement between the parties to settle disputes outside the Court. The Parliament has introduced the concept of compounding of offences in various economic and commercial laws, and this has proved to be a silver lining   around the cloud, since compounding saves time and energy. The disputes end at their point of origin and parties need not to go to Courts and thus, burden of Courts is reduced. Compounding of offences helps not only in reducing the burden of the Courts, but also in imparting justice to the aggrieved parties.


Compounding means an agreement or amicable settlement between the accused whereby the complainant agrees not to sue the accused. The accused and the complainant then make a joint application to the Court that the parties have agreed that the Case may not be proceeded with. Thus, in compounding, mutual agreement between the parties is essentially required. However, when the Government imposes fine under the provisions of an economic law, there is no need of any agreement as such. Generally, offences which are of private nature and relatively not serious are made compoundable.

Some scholars are of the view that compounding of offences allows the guilty persons with money power to purchase freedom by paying small compounding fee. This act of such people is putting premium on misconduct. They believe that the purpose of law is to punish the guilty and not to make him free against money power. On the other hand, there is a school of thought who believe that compounding is a justifiable act when there is an amicable agreement between the parties concerned and offences involved are not grave enough to warrant severe punishment.


Parties are saved from hassle of spending a lot of money, time and energy in a lengthy in a lengthy legal proceeding. In India, thousands of Cases are pending in the Courts and if disputes are settled amicably through compounding, the time and energy of the Courts can be saved.


Compoundable offences are the offences which can be compromised and the Complainant can agree to have the charges dropped against the accused. However, such compromise should be a bona fide and not for any consideration to which the complainant is entitled to.

Section 320 of the Code of Criminal Procedure, 1973 (Act II of 1974), looks at the Compoundable Offences as less serious Offences. The Code classifies them in them in two categories, as follows:

  1. Offences compoundable without the permission of the Court: for example: Offences involving adultery, Offences causing hurt, defamation, criminal trespass.
  2. Offences compoundable with the permission of the Court: for example: Offences of theft, criminal breach of trust, voluntary causing grievances, assault on a woman with the intention of outraging her modesty, dishonest misappropriation of property of others.


Application for Compounding the offences shall be made before the same Court before which, the trial is pending. Once an offence has been compounded, it shall have the same effect, as if the accused has been acquitted of the Charges.


All cognizable offences cannot be compounded. Regarding the cognizable offences, a police officer has the power to make an arrest without a warrant and to start an investigation even without the permission of the Court.

The police can file First Information Report (FIR) only for cognizable offences. Such offences are not compoundable. Therefore, any offence committed by a company or an officer shall not be compoundable if investigation against such company or officer has been initiated or is pending.

In non-compoundable offences, no compromise is allowed. Even the Court is not empowered to compound such Offences. Complete trial is held which ends with the acquittal or conviction of the offender, based on the evidence produced.


Section 441 of the Companies Act, (Act XVIII of 2013) empowers the National Company Law Tribunal (NCLT)/ Regional Director to compound certain Offences. These powers are as follows:

Offences Which Are Compoundable

Any offence committed by a Company or any officer, which is punishable under the Companies Act, (Act XVIII of 2013)with fine only, may either before or after the institution of any Prosecution, to be compounded by –

  1. The National Company Law Tribunal (NCLT)
  2. Regional Director (when the maximum amount of fine which may be imposed for such Offence does not exceed five lakh rupees)

Offences Which Are Not Compoundable

Any offence committed by a company or any officer, which is punishable under the Companies Act, (Act XVIII of 2013) with imprisonment only, or with imprisonment and also with fine, shall not be compoundable.

Any offence by any company or its officer shall not be compounded if the investigation against such Company has been instituted or is pending under the Act.

If a person has already compounded an offence, he is not eligible to apply for compounding of an offence of a similar nature for a period of three years from the date of compounding of first offence.


  1. Every application for the compounding of offences committed under the Companies Act, (Act XVIII of 2013), shall be made to the Registrar, who shall forward the application accompanied with the comments thereon, to the National Company Law Tribunal (NCLT) or the Regional Director or any Officer authorized by the Central Government, as the Case may be.
  2. Where any offence is compounded, either before or after the institution of any Prosecution, intimation thereof shall be given to the Registrar, by the company not exceeding seven days from the date on which the said Offence is Compounded.
  3. Where an Offence is compounded before the institution of any Prosecution, no Prosecution shall be instituted in relation to such Offence, against the offender in relation to whom the Offence is so compounded.
  4. Where the Compounding of any Offence is made after the institution of any Prosecution, such Compounding shall be brought by the Registrar in writing, to the notice of the Court in which the Prosecution is pending and on such notice of the Compounding of Offence being given, the Company or its Officer in relation to whom the Offence is so compounded shall be discharged.


Compounding of offences is a shortcut method of avoiding litigation. Since litigation is a costly way of settling the disputes and Compounding enables reconciliation between the transgressors and transgressed. It is a mechanism of settlement of disputes in amicable way for the purpose of averting Prosecution against the accused. But there are scholars who think otherwise. They believe that through Compounding the guilty persons purchase their freedom by paying small Compounding fees that put premium on misconduct. Thus, they feel that Compounding gives way to unethical actions, since the wrong doers use their money power to avert their Offences. They believe that the Compounding of offences is not an amicable way to the settlement of disputes. There is no denying the fact that all Offences are not compoundable. Sanguinely, it can be concluded that the system of Compounding of offences would be useful in reducing the burden of the Courts.

By: Navin Kumar Jaggi & Aashna Suri


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