50% PENALTY IS NOT APPLICABLE TO SMALL COMPANIES IF THEY ARE HOLDING AND SUBSIDIARY COMPANIES OF A SMALL COMPANY

 50% PENALTY IS NOT APPLICABLE TO SMALL COMPANIES IF THEY ARE HOLDING AND SUBSIDIARY COMPANIES OF A SMALL COMPANY

SECTION 446B: 50% PENALTY FOR SMALL COMPANIES, WITH A CATCH

Section 446B lets the Adjudicating Officer impose not more than half the specified penalty on a small company, One Person Company, startup or producer company, subject to a maximum of ₹2 lakh for the company and ₹1 lakh for each officer. The ROC order shows it working: ₹3 lakh became ₹1.5 lakh, and ₹50,000 became ₹25,000.

THE ROC ORDER SHOWS THE CATCH.

50% PENALTY IS NOT APPLICABLE TO HOLDING AND SUBSIDIARY COMPANIES OF SMALL COMPANIES

 A small company under Section 2(85) is a private company with paid-up capital up to ₹10 crore and turnover up to ₹100 crore (thresholds effective 1 December 2025), but the definition excludes holding and subsidiary companies. A startup with an Indian subsidiary, or a company that is itself a subsidiary of a foreign parent, therefore does not get the half-penalty, however small its numbers. Group structure, not size, decided the outcome.

WHO ELSE QUALIFIES

Beyond small companies, Section 446B covers One Person Companies, producer companies and startup companies recognized by the Central Government.

A DPIIT-RECOGNISED STARTUP

 A DPIIT-recognized startup that is a subsidiary of a foreign parent is a useful example: it fails the small company test because it is a subsidiary, but it can still claim half-penalty relief as a startup. Mention every applicable category in the reply to the show cause notice, with supporting documents such as the DPIIT certificate.

#R V SEKAR FCS, LLB 79047 19295,