The Companies Act 2013 was not only a procedural law but also a compliance-based legislation which intended to ensure transparency, accountability and good corporate governance in India. Non-compliance with its provisions can result in hefty fines, prosecution, director disqualification and in some cases, imprisonment. Most companies, startup, private companies closely held companies for that matter, tend to underestimate the statutory compliance, with the misconception that a few days delay or perhaps one or two omissions won’t do much harm. But the reality is that even a small lapse can snowball into big legal and financial troubles.
This blog describes major penalties under the Companies act, 2013 and why it proves very expensive to be non-compliant and the measures which a company can take to protect itself.
Why You Must Comply with the Companies Act,2013
The purpose of is to safeguard:
- The interests of the shareholders
- Creditors and investors
- Public trust in the functioning of corporations
- Regulatable government income and expenditure
Non-compliance is detrimental to this system and hence is punished rigorously.
Major Non-Compliances Under the Companies Act, 2013
- Non-submission of annual returns (Section 92)
- Non-submission of the Balance Sheet and other documents (Section 137)
- Failure to appoint an auditor (Section 139)
- Late submission of forms to ROC
- Non-maintenance of statutory registers (Section 88)
- Omission to hold the Annual General Meeting – AGM (Section 99)
- Related party transaction non-compliance (Section 188)
- Fraud Related Non-Compliance (Section 447)
- Director disqualification for non-compliance (Section 164)
- Non-compliance with CSR requirements (Section 135)
- Non-maintenance of books of accounts u/s 128
- Failure to Conduct board Meeting as required by Law (Section 173)
- Non-disclosure of interest of director (Section 184)
- Non-Filing of Director KYC / Dir-3 KYC.
- Non-compliance of share allotment & PAS-3 filing requirements
Hidden Costs of Non-Compliance
Noncompliance doesn’t just lead to statutory penalties, but also to:
- Erosion of trust from banks and investors
- Challenges in obtaining funding
- Regulatory attention and examinations
- Legal fees
- Business interruption
Why Choose My Legal Business LLP?
At My Legal Business LLP, routine filing is not enough for us. We serve as your ongoing compliance partners. What Sets Us Apart:
- End-to-end ROC and MCA compliance management
- Hands-on, commercial legal guidance
- Exclusive service for startups, SMEs, corporates
- Advance notifications and risk alerts
- Economical compliance options
Conclusion
Breach of the Companies Act, 2013 is way costlier than complying with it. As MCA is getting more digitally enabled and ROC is more stringent in compliance, companies can no longer afford to be nonchalant or dilatory in their compliance. A forward-looking compliance strategy not only prevent fines, but also builds corporate credibility, good governance and sustainability.
FAQs
Does a non-compliance under Companies Act, 2013 amount to a criminal offence?
Unfortunately, it is unclear from your question which section of the Companies Act,2013 is applicable. It possibly meant that some violations of the Companies Act could be criminal offence.
However, serious violations such as:
- Fraud (Section 447)
- Submission of false statements
- Oppression, mismanagement, or castration of funds continue to lead to criminal ability, including imprisonment and hefty fines.
Can penalties be waived by ROC?
In general, no.
The penalty cannot be waived at the discretion of the Registrar of Companies (ROC). Fines are levied strictly by the law.
Relief is possible only through:
- Compounding of offences (Section 441)
- Amnesty / settlement schemes announced by MCA (e.g., CFSS)
- Statutory provisions for reduced penalties
Ordinary requests for waiver will not be entertained.
Do small companies get penalty exemptions?
They do not get exemptions, but relief is provided.
Small companies, One Person Companies and Start-ups are eligible for reduced penalties (generally 50 % of the usual penalty), subject to the maximum amount prescribed under the law.
However:
- Compliance requirements remain mandatory
- Filing obligations cannot be ignored
Is ignorance of law a valid defence?
No.
The principle of “ignorance of the law is no defense to prosecution” applies ignorance of law is not an excuse.
Even if:
The default was unintentional
- The director was unaware
- There was reliance on staff or consultants
Liability still arises.
Are directors personally liable for company defaults?
Yes.
Under the Act, penalties are often imposed on:
- The company, and
- Officers in default (directors, CS, CFO, managers)
In many cases, directors are personally fined, and repeated defaults may lead to disqualification.
What happens if ROC notices continuous default?
ROC can take progressive enforcement action, including:
- Issuing notices and adjudication orders
- Imposing increasing penalties
- Initiating prosecution (for serious cases)
- Striking off the company under Section 248
- Disqualifying directors under Section 164(2)
Can penalties be compounded?
Yes, for certain offences.
Under Section 441, offences punishable with fine only or fine + imprisonment can be compounded.
Compounding:
- Avoids prolonged litigation
- Requires approval of RD or NCLT
- Is subject to payment of compounding amount
Serious offences like fraud cannot be compounded.
Is late fee different from penalty?
Yes, very different.
| Late Fee | Penalty |
| Automatic | Requires adjudication |
| Fixed per day | Discretion within limits |
| No hearing | Opportunity of being heard |
| Paid at filing | Paid after order |
Late fee applies immediately on delayed filing, while penalties follow a formal process.
Can a company operate after director disqualification?
Practically and legally risky.
If all directors are disqualified:
- Company cannot validly function
- Banks may freeze accounts
- Contracts become questionable
- ROC may initiate strike-off
Immediate steps must be taken to regularise directors.
Are OPCs exempt from penalties?
No.
OPCs enjoy:
- Fewer compliance requirements
- Extended timelines
But:
- Penalties still apply if you do not comply
- They are not penalty-free entities
Can penalty orders be appealed?
Yes.
An appeal may be made before the Regional Director (RD) within 60 days of service of the order of adjudication.
RD has the authority to:
- Confirm
- Modify
- Set aside the penalty
Is imprisonment compulsory for all offences?
Only for the serious crimes such as those below can imprisonment be imposed:
• Fraud
• Repeated serious defaults
• Breach of public interest
Routine non-compliance now goes mostly to financial penalties.
Can non-compliance influence the company valuation?
Absolutely,
Compliance status is taken into account by investors, lenders and acquirers in their due diligence.
Non-compliance can:
- Reduce valuation
- Delay funding or acquisition
- Lead to adverse audit remarks
- Create contingent liabilities
- Ongoing or past defaults remain punishable
Can a retrospective fine be imposed?
The penalties are for breaches during the period and are not affected by when they are discovered.
However:
• The law is not applied retroactively unless it expressly states so.
• Ongoing or past defaults remain punishable
Is ROC strict about compliance now?
Yes, significantly.
The MCA uses:
- AI-based scrutiny
- Data analytics
- Auto-generated alerts
Mismatch in filings, non-filing trends, and financial anomalies are quickly flagged.
Can dormant companies ignore compliance?
No.
Dormant companies must:
- File annual dormant status returns
- Maintain minimum directors
- Pay prescribed fees
Dormancy reduces burden but does not eliminate compliance.
What if compliance default was unintentional?
In most civil penalty cases, intent is irrelevant.
Even accidental or technical defaults attract penalties, though:
- Adjudicating officer may impose minimum penalty
- Reduced penalty provisions may apply
How can companies avoid heavy penalties?
Best practices include:
- Timely statutory filings
- Compliance calendars
- Professional compliance audits
- Engaging Company Secretaries / legal advisors
- Periodic internal reviews
Prevention is far cheaper than penalties.
Do the compliant need to be professionally assisted?
Highly recommended.
As companies grow, compliance becomes:
- Complex
- Time-sensitive
- Interlinked across laws
Professional support ensures:
- Accuracy
- Risk mitigation
- Strategic compliance planning
- Peace of mind for directors
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