Compliance Management, Audit and Due Diligence · Non-Compliances, Penalties and Adjudications

Penalties and Punishments under the Companies Act 2013

Updated 11 October 2026 · Fact-checked

A penalty is a money sum imposed through adjudication for a civil default. Punishment means fine and/or imprisonment imposed by a court for an offence. Section 450 is the residual provision: where no specific penalty is given, the company and officers in default face ₹10,000 plus ₹1,000 per day, capped at ₹2,00,000 and ₹50,000.

Understand Penalties and Punishments under Companies Act 2013

The Companies Act, 2013 enforces compliance through consequences. The words used are not interchangeable. You must use them precisely in a written answer.

A penalty is a monetary sum payable for a contravention. It is imposed by an adjudicating authority, not by a criminal court. Section 92(5) is an example: late filing of the annual return attracts a penalty.

A punishment is imposed for an offence. It can be a fine, imprisonment, or both. A fine is money, but it is imposed by a court after a prosecution. Imprisonment takes away liberty. Section 447 (fraud) is an example.

Some provisions give their own penalty or punishment. For the rest, section 450 acts as a safety net. It applies when a company, an officer or any other person contravenes the Act or its rules, or a condition of any approval, sanction, consent or exemption, and no penalty or punishment is provided elsewhere in the Act.

Two more points matter. Offences that are not punishable with imprisonment only, or with imprisonment and also with fine, can be compounded under section 441. And section 446B gives lesser penalties to One Person Companies, small companies, start-up companies and Producer Companies.

Key rules to remember

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.

How to solve Penalties and Punishments under Companies Act 2013 questions

Use this order for any case-based question on penalties and punishments. It keeps provision, analysis and conclusion separate, as examiners expect.

1Identify the contravention from the facts. Name the provision breached, for example a late filing, a false statement or an unapproved act.
2Check whether that provision has its own penalty or punishment. If yes, apply it. If not, apply section 450.
3Classify the consequence: a penalty (adjudication), or a punishment (fine and/or imprisonment through a court).
4Identify who is liable: the company, officers in default, or any other person.
5Compute the amount. Take the base sum, add the daily amount for continuing default, and apply the cap.
6Check for relief: lesser penalty under section 446B if the company is an OPC, small, start-up or Producer Company, and compounding under section 441 if eligible.
7Write the conclusion in one clear line with the amount or term, and add a compliance point such as filing the overdue document.

Quickest way: Four-question check

When to use it: Use when time is short and the case has a single default with a clear company type.

Does the provision name its own penalty? If not, use section 450.
Is it fraud? Test the amount against ₹10 lakh or 1% of turnover, whichever is lower, and check public interest.
Compute: base + daily sum × (days − 1), then cap at the limit.
If the company is an OPC, small, start-up or Producer Company, halve the penalty and apply the ₹2,00,000 and ₹1,00,000 caps.

Common mistakes in Penalties and Punishments under Companies Act 2013

Applying section 450 when the provision already has its own penalty, such as section 92(5).
Students remember section 450 as the general penalty and use it everywhere.
Fix: Read the provision first. Section 450 applies only if no penalty or punishment is provided elsewhere.
Charging the daily amount from day one.
The words 'for each day after the first' are missed.
Fix: The base sum covers day one. Daily amounts start from day two, so multiply by (days − 1).
Forgetting the cap.
Students stop once the arithmetic is done.
Fix: Always compare with the maximum. Under section 450 it is ₹2,00,000 for a company and ₹50,000 for an officer in default or other person.
Saying all offences can be compounded.
Compounding is learnt as a general relief.
Fix: Offences punishable with imprisonment only, or imprisonment and also with fine, cannot be compounded. Fraud under section 447 falls in this group.
Using the same section 447 punishment for every fraud.
The second proviso for smaller frauds is overlooked.
Fix: Test the amount against ₹10 lakh or 1% of turnover, whichever is lower, and check public interest before choosing the punishment.
Calling a penalty a punishment, or the reverse.
Both words appear in the Act and seem alike.
Fix: Use 'penalty' for adjudicated money sums and 'punishment' for court-imposed fine or imprisonment.

Worked examples

Example 1

Veda Textiles Pvt. Ltd., a company that is not small and not a start-up, contravenes a provision of the Companies Act for which the Act gives no penalty. The contravention continues for 31 days. Its managing director is the officer in default. Compute the penalty on the company and on the officer.

Show the solution

The provision has no specific penalty, so section 450 applies.
Base penalty is ₹10,000, which covers the first day.
Continuing contravention: a further ₹1,000 for each day after the first. Days after the first = 31 − 1 = 30.
Further penalty = 30 × ₹1,000 = ₹30,000.
Total = ₹10,000 + ₹30,000 = ₹40,000.
Check the caps: company ₹2,00,000 and officer ₹50,000. ₹40,000 is below both.
Section 450 imposes liability on the company and every officer in default, so both are liable.

Answer: Penalty of ₹40,000 on the company and ₹40,000 on the managing director as officer in default. Neither exceeds the cap. The company should also rectify the contravention.

Example 2

Ananya Foods Pvt. Ltd. is a small company. It files its annual return 12 days late. Under section 92(5), compute the maximum penalty on the company. Then state the effect of section 446B.

Show the solution

Section 92(5) gives a specific penalty, so section 450 does not apply.
Base penalty is ₹10,000, covering the first day.
Days after the first = 12 − 1 = 11. Further penalty = 11 × ₹100 = ₹1,100.
Penalty under section 92(5) = ₹10,000 + ₹1,100 = ₹11,100. This is below the ₹2,00,000 cap.
Section 446B applies to small companies. The penalty cannot exceed one-half of the specified penalty, subject to ₹2,00,000 for a company.
One-half of ₹11,100 = ₹5,550. This is below ₹2,00,000.

Answer: The penalty under section 92(5) is ₹11,100. As a small company, the penalty under section 446B is not more than ₹5,550.

Exam tips

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.
Add a practical point: file the overdue document, pay the penalty, and consider compounding if eligible.
Keep penalty, fine and imprisonment separate in the text. Precise terms show command of the subject.

Practice questions from Non-Compliances, Penalties and Adjudications

Penalties and Punishments under Companies Act 2013: frequently asked questions

What is the difference between penalty and punishment under the Companies Act, 2013?

A penalty is a money sum imposed for a contravention, usually through adjudication. Punishment is a fine and/or imprisonment imposed by a court for an offence. The Act uses each term in different provisions, so use them carefully.

When does section 450 apply?

It applies when a company, officer or any other person contravenes the Act, its rules, or a condition of an approval, sanction, consent or exemption, and no penalty or punishment is provided elsewhere in the Act. It is a residual provision.

Can every offence under the Companies Act be compounded under section 441?

No. Offences punishable with imprisonment only, or with imprisonment and also with fine, cannot be compounded. Also, no compounding is allowed if investigation against the company has been initiated or is pending under the Act.

Who can compound an offence under section 441?

The Tribunal can compound. The Regional Director or an officer authorised by the Central Government can do so where the maximum fine for the offence does not exceed ₹25 lakh. The application is made to the Registrar, who forwards it with comments.

What is the punishment for fraud under section 447?

For fraud of at least ₹10 lakh or 1% of turnover, whichever is lower, imprisonment is 6 months to 10 years, with fine of the amount involved up to three times that amount. If public interest is involved, imprisonment is at least 3 years.