Compounding and adjudication are two different routes for two different kinds of default, and you usually do not get to pick. Adjudication under Section 454 applies where the Companies Act treats a default as a civil penalty: an adjudicating officer issues an order, you pay the penalty, and no court is involved. Compounding under Section 441 applies where the default is still a criminal offence: you pay a compounding amount to settle the matter and avoid prosecution. After years of decriminalisation, most routine ROC defaults now fall under adjudication, and compounding is reserved for the offences that remain criminal.
| Question | Adjudication (Section 454) | Compounding (Section 441) |
|---|---|---|
| Applies to | Defaults the Act makes punishable with a penalty | Offences that are still criminal in nature |
| Who decides | The adjudicating officer (Registrar) | Regional Director or NCLT, depending on the offence |
| Court involved? | No | It is a way to keep the matter out of prosecution |
| Outcome | A penalty order | The offence is settled on payment |
| Can you choose it? | It is applied to you | You apply for it |
What adjudication of penalties means
Over the last several years the law has steadily moved technical, procedural defaults out of the criminal system and into a civil penalty regime. When a default falls in that regime, there is no prosecution and no court. An adjudicating officer, normally the Registrar of Companies, issues a notice, hears the company, and passes an order imposing the penalty the section prescribes. You pay it, and the matter ends. An appeal lies to the Regional Director if you disagree.
This is now the path for most everyday lapses, such as late or missed filings. It is faster and less damaging than a criminal proceeding, but the penalty itself is not negotiable in the way a compounding amount can be.
What compounding of offences means
Compounding is for defaults that the Act still treats as offences carrying a fine. Instead of letting the matter run as a prosecution, the company or officer applies to have the offence compounded. The Regional Director handles offences below a threshold, and the NCLT handles the rest. If compounding is allowed, a compounding amount is fixed, you pay it, and you avoid a prosecution and a conviction.
The value of compounding is not only the money. It is closing the matter cleanly, so the company is not carrying an open criminal proceeding into a funding round or a due diligence.
The real difference
The cleanest way to think about it: adjudication is the system handing you a civil penalty, while compounding is you settling a criminal offence before it becomes a prosecution. They are not two prices for the same thing. They attach to different categories of default. The first question is never “which is cheaper”, it is “which regime does my default actually sit in”.
Which one applies to your default
Start with the section you have breached and read what it prescribes. If it says the company and officers “shall be liable to a penalty”, you are in the adjudication regime, and the route is a penalty order, not a compounding application. If it still speaks of a fine or imprisonment, the offence is criminal, and compounding is the route worth exploring. Because so many sections were re-cast as penalties, a default that would once have been compounded is, today, simply adjudicated.
One practical point on timing. If your problem is years of pending annual filings, the cheapest fix in 2026 is neither route on its own. It is the Companies Compliance Facilitation Scheme, which waives 90 percent of the additional fees if you file within the window. Clear the backlog under the scheme first, then deal with any residual penalty or offence. See our guide to the Companies Compliance Facilitation Scheme 2026.
Frequently asked questions
Should I compound an offence or pay the adjudication penalty?
You usually cannot choose. Adjudication applies where the Companies Act prescribes a civil penalty, and compounding applies where the default is still a criminal offence. Read the section you have breached: if it prescribes a penalty, it is adjudicated; if it prescribes a fine, compounding is the route.
What is the difference between compounding and adjudication?
Adjudication under Section 454 is the imposition of a civil penalty by an adjudicating officer, with no court involved. Compounding under Section 441 is the settlement of a criminal offence on payment of a compounding amount, which avoids prosecution.
Who decides a compounding application?
The Regional Director compounds offences below a prescribed threshold, and the National Company Law Tribunal handles the rest, depending on the nature and seriousness of the offence.
Has decriminalisation changed this?
Yes. Many offences have been re-cast as civil penalties, so defaults that were once compoundable are now simply adjudicated. Compounding now mainly matters for the offences that remain criminal.
Reviewed by CS Sapna Malpani, a practising Company Secretary in Bangalore who handles default regularisation, adjudication and compounding for private companies. This is general information, not legal advice. About Sapna Malpani.
Last reviewed: May 2026.