Consistency and proportionality govern company law compounding, while orders based on the wrong penalty regime require remand.

In company law compounding, the authority must apply the correct statutory penalty regime for the relevant default period and assess consistency, proportionality, gravity, duration, and comparable cases before fixing the amount. A materially higher compounding amount for similarly placed defaults may be interfered with where no adequate justification exists, while a higher amount may still stand for prolonged or repeated defaults if it remains reasonable. Where the order applied an erroneous penalty structure across accounting years governed by different Companies Acts, it could not be sustained and the matter was remitted for fresh consideration under the correct framework.

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Issues: (i) whether the compounding orders fixing different amounts for similar defaults under the Companies Act required interference on grounds of consistency and proportionality; (ii) whether the order relating to contravention of the provisions governing preparation and filing of annual accounts and balance sheets suffered from a legal error warranting remand.

Issue (i): whether the compounding orders fixing different amounts for similar defaults under the Companies Act required interference on grounds of consistency and proportionality.

Analysis: The power to compound offences under the Companies Act is wide, but the authority must consider the nature and gravity of the default, whether the lapse was intentional, the maximum punishment prescribed, the report of the Registrar of Companies, the period of default, whether the default was made good, and whether the conduct prejudiced members, creditors, or the public. Where similarly placed defaulters face similar allegations and similar grounds are shown, consistency in compounding is required. A materially higher compounding amount without adequate justification, when analogous matters had been dealt with at a lesser amount, calls for interference. However, where the default is prolonged or repeated, a higher amount may still be justified if it remains within a reasonable proportion of the maximum penalty.

Conclusion: The compounding amounts in the connected matters were modified in part where inconsistency was shown, but the dismissal of challenges in the remaining matters was upheld where no sufficient ground for interference was made out.

Issue (ii): whether the order relating to contravention of the provisions governing preparation and filing of annual accounts and balance sheets suffered from a legal error warranting remand.

Analysis: The default covered different accounting years falling under different statutory regimes. For the periods governed by the Companies Act, 1956, the applicable punishment was fine up to the amount prescribed under the relevant provision, while for the later period the penalty under the Companies Act, 2013 had to be applied. The impugned order failed to notice the correct penalty structure for all relevant years and, therefore, proceeded on an erroneous basis. In such circumstances, the proper course was not to finally fix the amount at the appellate stage but to remit the matter for fresh consideration after taking into account the relevant statutory punishments and the materials on record.

Conclusion: The order on this issue could not be sustained and the matter was remitted for fresh decision.

Final Conclusion: The common judgment granted partial relief by moderating some compounding amounts, left some challenges undisturbed, and sent one matter back for reconsideration in accordance with the correct statutory framework.

Ratio Decidendi: In compounding matters under company law, the decision-maker must apply the correct statutory regime for the relevant period and impose a proportionate, consistent amount having regard to the gravity of the default and comparable cases; an order based on an erroneous penalty structure cannot stand.

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