Three different things are routinely called the same thing. Adjudication is what happens when a provision says a person shall be liable to a penalty — it is civil, and the Registrar imposes it. Compounding is what happens when a provision says an offence is punishable with a fine — it is criminal, and you apply to buy peace. Condonation excuses a delay where the underlying act was otherwise lawful. Choosing the wrong one costs a quarter and achieves nothing, because the authority you have applied to has no jurisdiction over what you have asked it to do.
- The commonest error is applying to compound a default under section 92 or section 137. Those were decriminalised. They now carry penalties, not fines, so there is no offence to compound and the Regional Director cannot help you.
- Compounding threshold: the Regional Director where the maximum fine does not exceed ₹25 lakh; the NCLT above that. The figure was raised from ₹5 lakh by the Companies (Amendment) Act, 2019.
- The Companies Compliance Facilitation Scheme, 2026 is live until 31 August 2026 — overdue annual filings at normal fee plus only ten per cent of the accumulated additional fee, with immunity where no adjudication order has yet been passed.
- Section 446B halves the penalty for a one person company, a small company, a start-up or a producer company, capped at ₹2 lakh for the company and ₹1 lakh for an officer. It applies to penalties, not to compounding sums.
- Appeals to the Regional Director are mostly dismissed. In one recent monthly compilation all ten appeals failed, with directions to the Registrar to take further action.
First, the scheme that closes on 31 August 2026
What it gives you:
| Relief | Detail |
|---|---|
| Regularise overdue filings | Normal filing fee plus only ten per cent of the accumulated additional fee — a ninety per cent waiver. Covers MGT-7, MGT-7A, AOC-4 and all its variants, ADT-1, FC-3 and FC-4, and the legacy 1956 Act forms |
| Immunity for sections 92 and 137 | Proceedings are concluded and no penalty is leviable if the filing is made before an adjudication notice is issued, or within thirty days of one. No relief where an adjudication order has already been passed |
| Dormancy | Form MSC-1 under section 455 at fifty per cent of the normal fee |
| Closure | Form STK-2 at twenty-five per cent of the applicable fee |
| No separate application | Filing the overdue form is itself sufficient. Unlike the 2020 scheme there is no immunity certificate to apply for |
Five categories are excluded: companies against which a final strike-off notice under section 248 has been issued; companies that have themselves applied for strike-off; companies already holding dormant status; companies dissolved under a scheme of amalgamation; and vanishing companies.
Which route applies
Read the provision that has been breached. If it says the person shall be liable to a penalty, the default is civil and the route is adjudication. If it says the offence is punishable with fine, or with fine or imprisonment or both, it is an offence and the route is compounding. That single reading decides everything else.
| Adjudication — section 454 | Compounding — section 441 | Condonation — sections 460 and 87 | |
|---|---|---|---|
| Nature | Civil penalty | Criminal offence, bought off | Delay excused; the act itself was lawful |
| Who starts it | The Registrar, on inquiry, inspection, form scrutiny or complaint — or the company invites it voluntarily | The defaulter applies | The defaulter applies |
| Authority | The Registrar, as adjudicating officer | Regional Director where the maximum fine does not exceed ₹25 lakh; the NCLT above that | Central Government; the Regional Director for section 87 |
| Form | Notice and reply on the e-adjudication platform; appeal in Form ADJ | Form GNL-1 to the Registrar, who forwards it with comments | Form CG-1 for section 460; Form CHG-8 for section 87 |
| Outcome | Penalty, plus a direction to rectify | A compounding sum. Prosecution is barred and any accused stands discharged | The delay is excused and the underlying form is then filed |
| Appeal | To the Regional Director within 60 days | To the NCLAT from an NCLT order; a Regional Director order by writ | Writ |
| Can it be avoided | Yes, for sections 92(4), 137(1) and 137(2) — rectify before the notice or within thirty days of it, and the proceedings are concluded with no penalty | No, though making good the default first is expected | Not applicable |
| Repeat default | Section 454A — twice the penalty within three years | Section 441(2) — a similar offence cannot be compounded within three years |
The mirror error is treating an adjudication order as something to be negotiated. It is not. The Registrar has no discretion to go below the computed penalty, except through section 446B.
Compounding, step by step
- Make good the default firstNot a statutory requirement, but settled practice and the way the authorities approach it. Applications have been dismissed where the default remained unrectified, and a demonstrable bona fide effort to make good has been treated as supporting the application.
- Pass the board resolutionsTo apply for compounding, to authorise a director or officer to represent the company, and to appoint the professional who will appear.
- Draft the application with a verifying affidavitThe affidavit is not a formality. It is what the Regional Director reads first.
- File Form GNL-1 with the RegistrarGNL-1 migrated to MCA21 V3 on 14 July 2025. Attach the application, the affidavit, the board resolution, the memorandum of appearance, any show-cause notice received, the memorandum and articles, the latest audited balance sheet, and details of any previous compounding.
- Pay the filing fee, and understand that it is not the compounding sumThe GNL-1 fee is a slab fee by nominal share capital and runs to a few hundred rupees. The compounding sum is separate and is fixed by the order.
- The Registrar forwards it with his commentsUnder section 441(3)(a). Those comments matter, and they are why making good the default first is worth the delay.
- Attend the hearingPersonal hearing before the Regional Director or the NCLT bench. Quantum has been approached through criteria including the gravity of the default, whether it was intentional, how long it ran, and the financial condition of the company.
- Pay within the time specified in the orderFailure has its own consequence: under section 441(5) the defaulter becomes liable to twice the maximum fine provided for the offence.
- Close it outFile Form INC-28 with the order, and intimate the Registrar within seven days of the compounding under section 441(3)(b). Where a prosecution was pending, the Registrar informs the court and the accused stands discharged.
Adjudication, step by step
Adjudication now runs on an electronic platform. Rule 3A of the Companies (Adjudication of Penalties) Rules, 2014, in force from 16 September 2024, requires the notice, the reply, the hearing and the order to be handled through it. That has changed the texture of the process: it is faster, more mechanical, and there are a great many more orders.
- The noticeIn writing on the e-adjudication platform, stating the default and the penal provision. The reply window is fifteen to thirty days, extendable by a further fifteen.
- The replyA written representation with documents uploaded to the platform.
- The hearingOnly if the adjudicating officer considers one necessary, and conducted electronically.
- The orderWithin thirty days where there was no hearing, ninety where there was. It imposes the penalty under section 454(3)(a) and may direct rectification under section 454(3)(b).
- The escape, for three provisions onlyFor defaults under sections 92(4), 137(1) and 137(2), the proviso to section 454(3) means that if the default is rectified before the notice or within thirty days of it, no penalty is leviable and the proceedings are concluded. This is the single most useful provision in the section and it is regularly missed.
- PaymentOn the platform, credited to the Consolidated Fund of India.
- The appealIn Form ADJ to the Regional Director within sixty days of receipt of the order, with the fee and a certified copy. Defects can be cured within fourteen days, twice.
- What happens if you ignore itSection 454(8): if the penalty is not paid within ninety days, the company faces a fine of ₹25,000 to ₹5 lakh and the officer imprisonment of up to six months or a fine of ₹25,000 to ₹1 lakh, or both.
Condonation, and the narrowing of section 87
| Situation | Form and authority | Afterwards |
|---|---|---|
| Delay in making an application to the Central Government or filing a document with the Registrar — section 460 | Form CG-1 to the Central Government, with the board resolution, the application setting out the cause, an affidavit and the supporting documents | File Form INC-28 within thirty days of the order, then file the underlying form |
| Delay in intimating satisfaction of a charge, or an omission or misstatement in the charge particulars — section 87 | Form CHG-8 under Rule 12 of the Registration of Charges Rules. The power is delegated to the Regional Director. Requires an affidavit of indemnity | Form INC-28 within thirty days, then Form CHG-4 |
Relief for small companies, one person companies and start-ups
Section 446B provides that where a penalty is payable by a one person company, a small company, a start-up company or a producer company, or by an officer of one in default, the penalty shall be not more than one half of that specified, subject to a maximum of ₹2 lakh for the company and ₹1 lakh for the officer. A start-up for this purpose is a private company recognised as such under the DPIIT notification.
Three limits on it are worth knowing. It applies to penalties, not to fines, so it does nothing for a compounding sum. The relief is the lower of half the specified penalty and the cap, so a small company facing the section 92(5) maximum of ₹2 lakh pays ₹1 lakh, not ₹2 lakh. And it does not obviously displace section 454A, so a repeat default within three years may still attract twice the reduced penalty — a point that does not appear to have been settled.
What is actually being penalised
Roughly 1,150 adjudication orders were passed in FY 2024-25, about a third of everything then on the MCA portal. The distribution is instructive: around 225 orders under sections 92 and 137 for annual filings, 175 under section 12 on the registered office, 83 under section 90 on significant beneficial owners, 55 under section 134, 45 under section 172, 40 under section 203 on key managerial personnel, and smaller numbers under sections 135, 89, 179, 62, 29, 42, 155 and 56.
Four shifts are visible across 2025 and 2026:
- Rule 8(3) orders at scale. A large and growing volume of orders penalising incorrect particulars in an e-form, through section 450, typically ₹10,000 on the company and ₹10,000 on one director. Several Registrars are running this systematically, and against current-year filings rather than only legacy ones. This is now among the most frequent order types.
- Section 203(5) produces the largest routine penalties. Where a company has failed to appoint a whole-time company secretary or other key managerial personnel, the company almost always reaches the ₹5 lakh cap.
- Section 149 enforcement has become systematic against listed and large unlisted companies on independent directors and the woman director requirement.
- Duplicate DIN orders under section 155 against individuals, in one instance five separate people penalised by a single Registrar on a single day, ranging from about ₹80,000 to over ₹5 lakh.
Questions we are asked
This month, use the facilitation scheme — normal fee plus ten per cent of the additional fee, and immunity if no adjudication order has been passed. It closes on 31 August 2026. After that you are into adjudication, and if the Registrar moves first you may also be facing strike-off and director disqualification.
No, not for any recent year. Section 137 was decriminalised. It carries a penalty, so the route is adjudication, not compounding. An application in Form GNL-1 would be misconceived.
It depends on the maximum fine for the offence, not on the amount you expect to pay. Up to ₹25 lakh it is the Regional Director; above that it is the NCLT. The threshold was raised from ₹5 lakh by the Companies (Amendment) Act, 2019.
Almost certainly not. Section 87 was narrowed in 2018 and no longer covers delay in creating a charge. Section 77 gives thirty days, extendable to sixty and then a hundred and twenty with additional fees, and once that closes there is no route. This is one of the few genuinely unforgiving deadlines in the Act.
Get the route right before you file
Send us the default and we will tell you whether it is adjudication, compounding or condonation, what it is likely to cost, and whether the scheme closing on 31 August still covers you.
Written by MPS & Associates, Company Secretaries, on the law as it stood on 3 August 2026. It draws on the Companies Act, 2013, the Companies (Adjudication of Penalties) Rules, 2014 and MCA General Circulars 01/2026, 02/2026 and 03/2026. The circular details are taken from secondary reporting because the MCA site would not serve the documents directly. Statutes, rules, thresholds and due dates change, and a proposition that holds for one company may not hold for another whose facts differ. Nothing in this article is legal, secretarial or tax advice, it is not an opinion on any set of facts, and no professional relationship arises from reading it. Please see our Disclaimer.