Non-Compliances, Penalties and Adjudications: formula sheet

Key formulas

Repeated default (Sec 454A)

Penalty for repeat default = 2 × penalty provided for that default

Applies if the same person commits such default again within 3 years from the date of the order imposing the earlier penalty by the adjudicating officer or Regional Director.

Lesser penalty (Sec 446B)

Penalty ≤ ½ × penalty specified, capped at ₹2,00,000 (company) and ₹1,00,000 (officer in default or other person)

Applies to One Person Company, small company, start-up company and Producer Company, where a penalty is payable. The words are 'not more than one-half'.

Adjudication appeal (Sec 454)

Appeal to Regional Director within 60 days of receiving the order

The adjudicating officer must give a reasonable opportunity of being heard before imposing any penalty.

Non-compliance with adjudication order (Sec 454(8))

Company: fine ₹25,000 to ₹5,00,000. Officer or other person in default: imprisonment up to 6 months, or fine ₹25,000 to ₹1,00,000, or both

Applies if the order under sub-section (3) or (7) is not complied with within 90 days of receiving its copy.

Offences non-cognizable (Sec 439)

Every offence is non-cognizable, except those in Sec 212(6)

Court takes cognizance only on written complaint of the Registrar, a shareholder or member, or a person authorised by the Central Government. SEBI-authorised complaints are allowed for issue and transfer of securities and non-payment of dividend.

Statement of affairs (Sec 274)

File objections and statement of affairs within 30 days of the Tribunal's order; Tribunal may allow 30 more days

Failure means forfeiting the right to oppose. Officers face imprisonment up to 6 months or fine ₹25,000 to ₹5,00,000, or both.

Section 450: residual penalty

Penalty = ₹10,000 + ₹1,000 per day after the first day of continuing contravention; maximum ₹2,00,000 (company) and ₹50,000 (officer in default or other person)

Applies only when no penalty or punishment is provided elsewhere in the Act. It covers the company, every officer in default, or any other person.

Section 447: punishment for fraud (amount at least ₹10 lakh or 1% of turnover, whichever is lower)

Imprisonment: 6 months to 10 years; fine: not less than the amount involved, up to 3 times the amount involved

If the fraud involves public interest, imprisonment is not less than 3 years. Fraud includes any act, omission, concealment or abuse of position done with intent to deceive, whether or not there is wrongful gain or loss.

Section 447: lesser fraud

Amount below the threshold and no public interest: imprisonment up to 5 years, or fine up to ₹50 lakh, or both

The threshold is ₹10 lakh or 1% of turnover, whichever is lower.

Section 441: compounding

Compounded by the Tribunal; or by the Regional Director or authorised officer if the maximum fine does not exceed ₹25 lakh

The sum specified cannot exceed the maximum fine for the offence. Offences punishable with imprisonment only, or with imprisonment and also with fine, are not compoundable.

Section 441(2): repeat offence

No compounding of a similar offence within 3 years of the earlier compounding

An offence after 3 years is treated as a first offence. Intimation of compounding goes to the Registrar within 7 days.

Section 446B: lesser penalty

Penalty ≤ ½ of the specified penalty, subject to a maximum of ₹2,00,000 (company) and ₹1,00,000 (officer in default or other person)

Applies to One Person Companies, small companies, start-up companies and Producer Companies.

Section 92(5): annual return default

₹10,000 + ₹100 per day of continuing failure; maximum ₹2,00,000 (company) and ₹50,000 (officer in default)

A specific penalty, so section 450 does not apply to it.

Lesser penalty rule

Penalty under 446B ≤ ½ × penalty specified in the provision

Applies to penalty (not imprisonment) for non-compliance of a provision of the Act. The words are "not more than one-half", so it is a ceiling.

Cap for the company

Maximum = ₹2,00,000

Applies to the covered company itself, after halving.

Cap for officer in default or other person

Maximum = ₹1,00,000

Applies to each officer in default or any other person in respect of the company.

Covered entities

OPC | small company | start-up company | Producer Company

A company outside these four types gets no relief under this section.

Start-up company test

Private company + incorporated under 2013 Act or 1956 Act + recognised as start-up by DPIIT notification

From the Explanation to the section.

Appointment of adjudicating officers (s.454(1)-(2))

Central Government order in Official Gazette; officers not below rank of Registrar; jurisdiction specified

Appointment is by the Central Government, not by the Tribunal or the Registrar of Companies on its own.

Powers of adjudicating officer (s.454(3))

Impose penalty on company, officer in default or any other person + direct rectification where he considers fit

The order must state the non-compliance or default.

Proviso for s.92(4) and s.137(1)/(2) defaults

Default rectified before, or within 30 days of, issue of notice → no penalty; proceedings deemed concluded

Applies only to annual return filing (s.92(4)) and financial statement filing (s.137(1) or (2)) defaults.

Hearing (s.454(4))

Reasonable opportunity of being heard before imposing any penalty

Must be given to the company, the officer in default or any other person concerned.

Appeal (s.454(5)-(7))

Appeal to Regional Director within 60 days from receipt of copy of order

Regional Director may confirm, modify or set aside after hearing the parties.

Non-compliance with order (s.454(8))

Company: fine ₹25,000 to ₹5,00,000. Officer or other person: imprisonment up to 6 months or fine ₹25,000 to ₹1,00,000, or both

Applies if the order under (3) or (7) is not complied with within 90 days of receipt of the copy.

Repeated default (s.454A)

Same default again within 3 years of the order → twice the penalty

The three years run from the date of the order of the adjudicating officer or Regional Director.

Section 435(1): Establishment

Central Government may establish or designate Special Courts for offences under the Act, except under Section 452

The purpose is speedy trial.

Section 435(2): Composition

Imprisonment of 2 years or more → Sessions Judge or Additional Sessions Judge; other offences → Metropolitan Magistrate or Judicial Magistrate of the First Class

Magistrate is appointed by the Central Government with the concurrence of the Chief Justice of the High Court.

Section 436(1)(a): Territorial jurisdiction

Triable by the Special Court for the area of the company's registered office

If there are several, the High Court specifies one.

Section 436(1)(b): Detention by Magistrate

Judicial Magistrate: up to 15 days in the whole; Executive Magistrate: up to 7 days in the whole

Then the accused is forwarded to the Special Court.

Section 436(3): Summary trial

Offence punishable with imprisonment up to 3 years → may be tried summarily; sentence cannot exceed 1 year

If a longer sentence may be needed, the court records an order, recalls witnesses and holds a regular trial.

Section 439(1): Nature of offences

Every offence is non-cognizable, except those in Section 212(6)

Applies notwithstanding the Code of Criminal Procedure, 1973.

Section 439(2): Cognizance

Only on written complaint of the Registrar, a shareholder or member, or a person authorised by the Central Government

SEBI-authorised person may complain for offences on issue and transfer of securities and non-payment of dividend. Not applicable to a prosecution by a company of its officers.

Section 440: Transitional

Until a Special Court exists → Court of Session, Metropolitan Magistrate or Judicial Magistrate of the First Class

High Court may transfer cases under section 407 of the Code.

Section 424: Tribunal procedure

Not bound by CPC, 1908; guided by natural justice; powers of a civil court on listed matters

Orders are enforced as a decree; proceedings are judicial proceedings.

Offences that can be compounded

Compoundable = offence NOT punishable with imprisonment only, and NOT with imprisonment and also fine

Section 441(1) and 441(6). Fine-only offences, and those where the punishment is imprisonment or fine, qualify.

Who compounds

Tribunal: any compoundable offence. Regional Director / authorised officer: maximum fine ≤ ₹25 lakh

Section 441(1)(a) and (b). The Regional Director is an officer appointed by the Central Government.

Cap on the compounding sum

Sum specified ≤ maximum fine for the offence

First proviso to section 441(1). Additional fee paid under section 403(2) is taken into account.

No compounding during investigation

Investigation initiated or pending under the Act ⇒ no compounding

Third proviso to section 441(1).

Three-year bar

Similar offence within 3 years of earlier compounding ⇒ cannot compound

Section 441(2). An offence after three years from the earlier compounding is deemed a first offence.

Application route

Application → Registrar → (with comments) → Tribunal / Regional Director

Section 441(3)(a).

Intimation after compounding

Company informs Registrar within 7 days of compounding

Section 441(3)(b).

Effect of compounding

Before prosecution: no prosecution. After prosecution: Registrar tells court; offender discharged

Section 441(3)(c) and (d).

Non-compliance with filing direction

Maximum fine becomes twice the amount in the section creating the offence

Section 441(5), where an officer or employee fails to obey an order under 441(4).

Condonation of delay

Central Government may condone delay, for reasons recorded in writing

Section 460(a): late application to the Central Government. Section 460(b): late filing with the Registrar.

Quick revision

• Flow: default, consequence, forum, remedy.
• Section 446B covers One Person Companies, small companies, start-up companies and Producer Companies.
• Under Section 446B, the penalty is not more than one-half of the specified penalty.
• Section 446B caps: ₹2,00,000 for a company and ₹1,00,000 for an officer in default or any other person.
• Section 454: the Central Government appoints adjudicating officers not below the rank of Registrar.
• The adjudicating officer must give a reasonable opportunity of being heard before imposing a penalty.
• Appeal against an adjudicating officer's order goes to the Regional Director, within sixty days of receiving the order.
• The Regional Director may confirm, modify or set aside the order appealed against.
• Failure to comply with the order within ninety days attracts a fine for the company of ₹25,000 to ₹5,00,000.
• For an officer or other person in default, the same failure attracts imprisonment up to six months, or fine of ₹25,000 to ₹1,00,000, or both.
• Section 435: Special Courts are established; a Sessions Judge or Additional Sessions Judge sits for offences punishable with imprisonment of two years or more.
• Section 436: a Special Court may try in a summary way offences punishable with imprisonment up to three years, but cannot sentence beyond one year in that trial.

Common mistakes

• Treating penalty and fine as the same thing. Fix: Penalty comes through adjudication by an officer of Registrar rank or above. Fine and imprisonment come from a court. Use the section's own wording.
• Making only the company liable. Fix: Check the section for 'officer who is in default'. Most provisions name both, as in section 178(8).
• Applying section 450 when the provision already has its own penalty, such as section 92(5). Fix: Read the provision first. Section 450 applies only if no penalty or punishment is provided elsewhere.
• Charging the daily amount from day one. Fix: The base sum covers day one. Daily amounts start from day two, so multiply by (days − 1).
• Applying section 446B to every private company. Fix: Only OPCs, small companies, start-up companies and Producer Companies qualify. Check the type first.
• Writing that the penalty is exactly half. Fix: The section says "not more than one-half". Write that the penalty is limited to half, subject to the cap.
• Saying the appeal lies to the NCLT Fix: Under s.454(5), the appeal against an adjudicating officer's order goes to the Regional Director.
• Writing the appeal period as 30 days or 90 days Fix: Remember: appeal 60 days; no-penalty rectification window 30 days from notice; compliance with order 90 days.
• Saying any person can file a complaint for an offence under the Act. Fix: Section 439(2) limits complaints to the Registrar, a shareholder or member, or a person authorised by the Central Government. SEBI-authorised persons fit only the provisos.
• Treating offences under Section 452 as triable by Special Courts. Fix: Section 435(1) excludes offences under Section 452.

Exam tips

• Start every answer with the provision breached. The paper rewards provision, analysis, conclusion.
• Name both the company and the officer in default, with separate amounts.
• Use the exact section wording: penalty, fine, imprisonment. Do not interchange them.
• For small companies, OPCs, start-ups or Producer Companies, always test Sec 446B.
• Show date arithmetic for three-year or 60-day and 90-day periods.
• Begin every answer by stating whether the provision has its own penalty. This decides whether section 450 applies.
• Write the numbers in a short working line: base, daily sum, days, cap. Marks are given for method.
• In fraud questions, quote the test of ₹10 lakh or 1% of turnover, whichever is lower, and check public interest.