The German-owned company also faces a bill of between £3 million and £8 million for compensating those affected by the poor sales practices, which lasted between June 2010 and December 2013.
It has asked 465,000 people to contact them because it believes they may have received the wrong information when choosing their energy tariff. The average payment to those affected is likely to be around £67.
Regulator Ofgem said that E.ON failed to properly train and monitor its staff and those it employed through third party telesales agencies, leading to incorrect information being provided to customers on the doorstep and over the phone.
Some of the breaches continued until last December, despite earlier pledges from E.ON that it would make changes and improvements to its processes.
E.ON UK chief executive Tony Cocker saw his annual bonus cut by 26% last year as a result of the failings but has said he will not resign. Other directors who were directly involved have seen their bonuses cut by 50%.
Mr Cocker said as part of overhauling its sales operations the company has ended face-to-face sales and outbound residential telephone cold calling.
He added: "It is completely unacceptable that we may have been unclear with customers about their tariff choices and as a result those customers may not have made the best choices for them.
"There was no organised attempt to mislead, and Ofgem has acknowledged this, but that does not excuse the fact we did not have in place enough rules, checks and oversight."
Rather than pay the penalty to the Treasury, E.ON will hand around £35 to 333,000 of its customers who are normally recipients of the Warm Home Discount.
Ofgem said E.ON's sales agents failed to ask consumers if they were in debt or credit on their account and did not account for seasonal variations in consumption. They also failed to ask customers if they had an Economy 7 meter.
The regulator said: "All of these failings can lead to inaccurate estimates of charges and mean a licensee is not providing accurate information to a consumer."
Between June 2010 and 2012, the commission structure for some external telesales agencies rewarded them for their sales performance only, without considering whether the sales had been made in a compliant way.
Ofgem added: "This encouraged agents to maximise sales in any way possible. This increased the likelihood of misselling occurring."
The regulator said the company's management failed to take steps to ensure that its agents were compliant with rules or to provide adequate training.
Since 2010, Ofgem has imposed £100 million in fines and redress on energy companies for various rule breaches, including £39 million for misselling.
Among other energy companies, npower said in December it would pay £3.5 million in redress to customers after it was found to have breached rules.
Scottish Power paid £8.5 million to customers last year while EDF made £4.5 million available through a redress scheme in 2012. Last year, SSE was issued with a £10.5 million penalty for "prolonged and extensive" mis-selling.
Energy Secretary Ed Davey said: "It's right that if energy companies aren't fair to their customers, then they're penalised - and their customers benefit.
"That's why we introduced legislation to ensure Ofgem can take tough action in these cases, including making the company pay compensation to the people affected."