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Monday, January 31, 2011


Provisions and procedure for Compounding of offences, which are punishable under Companies Act, 1956 are stipulated under section 621A of the act. The meaning of word compounding of offence is not defined under Companies Act, 1956. However if we try to analyze the section 621A, we can draw one clear interpretation i.e. “It`s nothing but admission of guilt” In the process of compounding, the person may either Suo Moto or on receipt of notice of default/initiation of prosecution, admits the commission of default and make an application for compounding of the concern offence. The defaulters agree to pay penalty which may be ordered by the Central Government. We will try to analyze the provisions and procedure of compounding.

Before turning to the procedural part, we must understand the basic provisions relating to compounding and authorities to be approached for compounding of offence. Accordingly following are the important provisions pertaining to Compounding of Offences.

I. Applicability: - Only those offences which are punishable with either Penalty or Penalty or imprisonment i.e. where it is at discretion of the court to impose penalty or imprisonment, are compoundable under section 621A. In other words offence which is specifically punishable with imprisonment only or imprisonment plus fine is non-compoundable.

Similarly, offence must not be a subsequent offence committed within period of 3 years from Compounding of offence of similar nature. It means if an offence is compounded in favour of a person and if that person commits that offence once again within span of three (3) years from the previous compounding then the subsequent offence shall not be eligible for compounding. However if the period of 3 years has lapsed from previous compounding then the subsequent offence shall be considered as fresh offence and shall be eligible for compounding.

II. Jurisdiction: - the power of Compounding of offence is conferred upon Company Law Board and Regional Director. Where the maximum amount of fine which may be imposed for the commission of the offence does not exceed ` 50,000/- that offence is compounded by the Regional Director. All other applications for compounding of offences shall be entertained and tried by the Company Law Board. The Regional Director acts under direction, control and supervision of the Company Law Board.

III. Penalty: - Penalty, which may be imposed under the order of compounding by the CLB or RD shall not exceed the maximum amount of fine which may be imposed for commission of that offence. Means if the maximum fine for an offence is 10 times of basic fees, then the penalty shall not exceed the 10 times of basic fees.

The fine imposed under the order of Compounding is considered as additional fees and payable under section 611 (2) and not regarded as penalty. This has a significant implication for qualifications and disqualifications of Directorship.

IV. Effects of Compounding: - Compounding has very significant impacts. They are as follows;

i. Once the offence is compounded, no further prosecution shall be initiated either by registrar or shareholder or any other person in respect of that offence.

ii. If the offence is committed for non filing of any return or document with registrar, then that return or documents needs to be filed with the registrar along with fees and additional fees as may be imposed under the order and within such time frame as may be stipulated under the order.

iii. If any prosecution is going in any court in respect of the offence, then on successful compounding of the same, the person against whom the prosecution is going on shall be discharged.

iv. Failure of compliance with the order of Compounding is an offence punishable with imprisonment of six months or fine not exceeding ` 50,000/- or with both.

v. Once the offence is compounded, the intimation of compounding needs to be given to the Registrar within period of seven days from the day on which the offence is so compounded.


1. The procedure for compounding of offence under section 621A can be suo moto or on initiation of prosecution by government authorities i.e. Registrar of Companies. A petition is required to be prepared in form no. 1 of Companies (court) Rules, 1959 (Please refer annexure I). Following documents are required to be attached with petition;

  • Board resolution authorizing director for filing petition.
  • Affidavits duly notarized
  • Power of attorney / Memorandum of Appearance
  • Sometimes Copies of 3 years attested financial statements.
  • Copy of agreement (if any)

2. E-form No. 61 is required to be filed with Registrar of Companies.

3. The complete set for petition is to be prepared in triplicate

i. One for filing with Registrar of Companies

ii. One for presenting in Company Law Board/Regional Director

iii. One as an acknowledgment.

4. Once the form 61 is filed and physical set of petition is submitted with the ROC, he forwards the same with his comments for Compounding.

5. After that application can be made to the CLB or RD as the case may be for compounding of offence.

6. Once the order of Compounding is passed, the same needs to be filed with the registrar of companies in e-form 21.


The question may be asked by management of the Company that, if no notice for default has been received by the Company, then why should company go for compounding? In such cases a very important reference can be given to Part 1 of Schedule XIII of Companies Act, 1956. Part 1 of schedule XIII stipulates the conditions to be full filled for the appointment of a Managing or Whole Time Director or a Manager without the approval of the central government. According to clause (a) sub-clause (vi) if a person has been punished with imprisonment for any period or a fine exceeding ` 1000/- he shall be disqualified to be appointed as Managing Director or a Whole Time Director or as a Manager.

And therefore if it is found out that by negligence any provisions have been violated, immediately Compounding should be sought to prevent unnecessary further damage.




Petition No. ________/2011


__________ Limited

…………………………. (Petitioner)


___________ (ROC)

…………………………. (Respondent)




1. Name of the company.

2. Date of incorporation and registration number of the company

3. Registered office of the company

4. Capital structure of the company

5. The authorized capital as on 31st march ________ (latest year ending)

6. Issued, subscribed and paid-up capital as on 31st march ________

7. Present business of the company:

8. Facts of the case

9. Section of default and other details of non-compliance.

10. Submissions

11. Representation on behalf of the company

12. Prayer

13. Signature

* The petition is required to be printed on ledger paper.

Saturday, January 29, 2011


A company is an artificial legal person. The practical procedure for incorporation of a Company is very simple, but a special attention is required to be given in the area of share capital requirement for each form of business and availability of name. Normal capital requirement for incorporation of a company is ` 1,00,000/- for a private limited Company and ` 5,00,000/- for a Public Limited Company. However, there are certain names which require higher amount of authorized share capital (Please see Annexure I). Similarly there are certain kinds of business activities which require higher Authorized share Capital such as broking Company, which requires ` 10,00,000/- as Authorized share Capital. In case of confusions it is recommended that the pre-incorporation preparation be made by the Company Secretaries in consultation of government authorities working in the office of Registrar of Companies in order to avoid unnecessary delay in work and for the better interest of the client. Now, whenever a client comes for incorporation of a private limited company following procedure is to be followed;

1. Firstly it is very important to know who are going to act as Directors and shareholders of the Company. There must be minimum two Directors and two shareholders in a private limited Company.

2. Every person who is desirous to act as a director must obtain a Director Identification Number (DIN) from DIN authorities, New Delhi.

3. For the purpose of obtaining DIN, an application needs to be prepared. The person who wishes to act as Director must deposit with the Company secretary one photocopy of Address proof and one photocopy of Identity proof. One passport size photograph is also needed for affixing on DIN application. (Please refer annexure II)

4. Usually, in normal case the DIN application is approved in 3-4 days from the date of application. Meanwhile the application for availability of the name in e-Form Number 1A can be made by using PAN for saving time.

5. After receipt of necessary documents application can be made for ascertain availability of name for the proposed company. Usually the promoters are predetermined about the name of their company, but it is duty of the company secretary to make sure that the desired name is not prohibited or granting of the name is conditional. Accordingly application is required to be made to the Registrar of Companies in e-Form Number 1A.

6. As a standard practice a note, justifying desirability of the name may be given as an optional attachment. However preparation of the note is not compulsory.

7. A filing fees of ` 500/- is required to be paid either online or offline in the authorized bank.

8. After Filing of fees, Service Request Number is generated which is our reference number for tracking the progress of Application. Service Request Number is system generated and same can be using track transaction facility provided on MCA portal at www.mca.gov.in

9. If the professional wants to save time, payment of fees by online mode is better option as offline mode is time consuming and involves unnecessary manual work.

10. According to provisions of Companies Act, 1956 a period of 30 days is provided to ROC for approval/rejection of the Name availability application. However, practically it takes not more than a week’s time for approval of the name. If the name is rejected, the reasons for rejections are provided and accordingly reapplication can be made. No fee is required to be paid for resubmission. However only two resubmissions are allowed on one Service Request Number. If the application is rejected for third time, then fresh application is required to be made by paying fees of ` 500/- again.

11. Once the name is made available Company secretary needs to prepare Memorandum and Articles of Association. These two documents are very important from the point of view of prospects of the Company. All the governing power to the Director’s is conferred under Memorandum and Articles of association.

12. Usually in the offices of Company secretary drafts for the memorandum and articles is available. However, according to me a good professional should sit with the promoters and discuss the proposed activities of the Company before drafting of Clauses especially of Memorandum of Association. This improves the quality of work and satisfies the clients.

13. Each Memorandum and Articles have subscription pages in the end. This pages needs to be signed by the promoters. In case if the promoter is illiterate, the Company secretary should tell him the details written on the page and its significance.

14. The Registrars of Companies have been advised to ensure at the time of registration of a new company that the subscribers to the memorandum and the articles of association tally with the list of promoters / first director stated in the application for availability of name and in case, one or more of the promoters are not interested to participate in the promotion of a new company at a later state. “No objection letter” from such promoter(s) is made available to the Registrar, while submitting the documents for registration. The Registrars of Companies are also being advised to dispose of applications for availability of name ordinarily within 14 days of the receipt of application and to correspond with the applicant promoter(s), in this behalf” No. 27/1/89-CL-III dated 17-02-1989: (1989) 65 Com Cases 575 (St.)

15. Power of attorney is not necessary to be executed for incorporation of a company. However since the Company Secretary is acting on behalf of promoters and representing the promoters in the office of registrar of Companies, generally as a prudent practice power of attorney is executed in the name of Company Secretary.

16. Consent to act as Director is required to be prepared as an attachment to e-Form Number 32.

17. Three e-Forms are required to be filled up, namely

i. E-Form No. 1 – Declaration for compliance with all the formalities with the process of incorporation. It is filed pursuant to section 33 (1) and (2) of the Companies Act, 956. This form is required to be digitally attested by the promoter.

ii. E-Form No. 18- Notice of Address of Registered Office. In this form clear address of the Proposed Registered office of the Company is specified. The address of the police station within whose jurisdiction that address falls is also required to be given.

iii. E-form No. 32 - Appointment of Directors. Consent to act as Director/Managing Director is required to be filed as attachment to this form.

18. A necessary Registration fee is required to be paid. Stamp Duty is also required to be paid. Amount of Stamp duty depends upon Amount of Authorized Share Capital. The rate of stamp duty differs from state to state and therefore different amounts are there for stamp duty, according to each state.

19. Once the application is made to the registrar, he scrutinizes the documents. If any irregularities found in the documents, registrar shall intimate about it and in such case corrections are required to be carried out. Once all documents are free from errors and if registrar found them in order, he issues Certificate of Incorporation.

20. Certificate of incorporation contains Name of the Company and it Corporate Identification Number (CIN). CIN is unique in nature and same is used for all further filing with the ROC by that company.


S. No.

Key Words

Required Authorized Capital



` 5 Crore


International, Globe, Universal, Continental, InterContinental, Asiatic, Asia being the first word of the name

` 1 Crore


If any of the words at (2) above is used within the name(with or without brackets)

` 50 Lakh


Hindustan, India, Bharat being first word of the name

` 50 Lakh


If any of the words at (4) above is used within the name(with or without brackets)

` 5 Lakh


Industries / Udyog

` 1 Crore


Enterprises, Products, Business, Manufacturing

` 10 Lakh


Following documents are being enclosed at the time of filing application for DIN:

Proof of identity (Tick against the document being enclosed)


Election (voter identity) card

Driving license

Income-tax PAN card

Others-Please Specify

Proof of residence (Tick against the document being enclosed)


Election (voter identity) card

Ration card

Driving license

Electricity bill

Telephone bill

Bank account statement

Others-Please Specify