Companies Act 1956 Defaults Discovered Today: Which Legal Framework Applies — Compounding or Adjudication?

Picture this scenario: a company committed a procedural lapse several years ago, at a time when the Companies Act, 1956 was still the governing legislation. The company identified the issue and remedied it at that very point in time. No legal proceedings were initiated, no matter remained pending, and the issue appeared to be entirely behind them.

Then, during a routine compliance audit or due diligence exercise conducted in 2026, the same old lapse resurfaces on paper. No fresh violation has occurred. The original error was corrected long ago. Yet its discovery now raises a pointed legal question — one that sits squarely at the intersection of repealed legislation, surviving liabilities, and a substantially reformed penal framework under company law.

The legal complexity arises from a fundamental transformation in how such defaults are treated. Under the Companies Act, 1956, the lapse in question was classified as a criminal offence, requiring formal compounding — a process involving a fee, a written application, and approval by a designated authority. Under the Companies Act, 2013, however, the equivalent default has been reclassified entirely. It is no longer a criminal offence. It is treated as a civil penalty matter, resolved through a comparatively straightforward adjudication mechanism administered by the Registrar of Companies.

This raises the central question this article addresses: when an old, already-remedied default under the Companies Act, 1956 is discovered today, should it be compounded under the old regime or adjudicated under the new one?

Rule 1: The Date of the Default Governs the Applicable Law — Not the Date of Discovery

The first and foundational principle to understand is this — the legal framework applicable to a default is determined by when the default occurred, not by when it is discovered or brought to the attention of any authority.

Discovering an old lapse in 2026 does not transform it into a 2026 default. The error, its legal character, and the liability it carries are all anchored to the point in time when it actually took place. If the lapse occurred in, say, 2010 or 2012, the Companies Act, 1956 as it existed at that time is the law that governs the nature and extent of the company's liability.

This principle finds its statutory basis in two provisions operating in combination.

Section 465 of the Companies Act, 2013 is the provision that formally repealed the Companies Act, 1956, with effect from 30th January 2019. However, Section 465(3) contains a critical savings clause. It expressly preserves the operation of Section 6 of the General Clauses Act, 1897.

What does Section 6 of the General Clauses Act, 1897 say? In essence, it establishes that the repeal of a statute does not obliterate liabilities, penalties, or legal proceedings that had already arisen or commenced under the repealed law. Those matters continue as though the repealed law remains in force for those specific purposes.

The Supreme Court articulated this position clearly in State of Punjab v. Mohar Singh, holding that the repeal of a legislation does not automatically extinguish a liability that had crystallised under it prior to repeal.

The practical takeaway is straightforward: the old default does not evaporate simply because the Companies Act, 1956 has been repealed. The liability that arose under the 1956 Act survives its repeal by virtue of Section 465(3) of the Companies Act, 2013 read with Section 6 of the General Clauses Act, 1897.