FRAUD AND OTHER PUNISHMENTS

One might say the Companies Act, 2013 is more about dealing with corporate fraud than regulating companies. Section 447 is most talk about provision of this Act and many sections refer to this section directly.

FRAUD (EXPLANATIONS TO SECTION 447):

For the purpose of Section 447, in relation to affairs of a company or a body corporate, a fraud includes:

ü  any act, or

ü  omission, or

ü  concealment of any fact, or

ü  abuse of position;

• with intent to deceive, or
• to gain undue advantage from, or
• to injure the interests of;
  • the company or
  • its shareholders, or
  • its creditors, or
  • any other person
    • by any person, or
    • by any other person with connivance in any manner;

ü  whether or not:

• any wrongful gain, or
• any wrong loss.

Wrongful Gain:

Wrongful gain means the gain by unlawful means of property to which the person gaining is not legally entitled.

Wrongful loss:

Wrongful loss means the loss by unlawful means of property to which the person losing is legally entitled.

PUNISHMENT FOR FRAUD (SECTION 447):

Any person who is found guilty of fraud shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to ten years and shall also be liable to fine which shall not be less than the amount involved in the fraud but which may extend to three times the amount involved in the fraud.

This imprisonment and fine does not rescue the accused from any liability including repayment of any debt under this Act or any other law for the time being in force.

PUNISHMENT FOR FALSE STATEMENT (SECTION 448):

If in any return, report, certificate, financial statement, prospectus, statement or other document or other document required by or for the purposes of any provision of this Act or rules made there under, any person makes a statement –

(a)  which is false in any material particulars, knowing it to be false; or

(b) which omits any material fact, knowing it to be material,

he shall be liable under Section 447.

Simply, knowing making a false statement in material fact or omit any material in a statement in relation to the Companies Act.

PUNISHMENT FOR FALSE EVIDENCE (SECTION 449):

If any person intentionally gives false evidence –

(a)  upon any examination on oath or solemn affirmation; or

(b) in any affidavit, deposition or solemn affirmation in or about winding up of any company under this Act, or otherwise in or about any matter arising under this Act,

he shall be punishable with imprisonment for a term which shall not be less than three years but which may extend to seven years and with fine which may extend to ten lakh rupees.

PUNISHMENT WHERE NO SPECIFIC PENALTY OR PUNISHMENT IS PROVIDED (SECTION 450):

If a company or any officer of a company or any other person contravenes any of the provisions of this Act or the rules made thereunder, or any condition, limitation or restriction subject to which any approval, sanction, consent, confirmation, recognition, direction or exemption in relation to any matter has been accorded, given or granted, and for which no penalty or punishment is provided elsewhere in this Act, the company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to ten thousand rupees, and where the contravention is continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which the contravention continues.

Simply, there is a fine up to ten thousand rupees and further fine up to one thousand for every day for continuing contravention.

PUNISHMENT IN CASE OF REPEATED DEFAULT (SECTION 451):

If a company or an officer of a company commits an offence punishable either with fine or with imprisonment and where the same offence is committed for the second or subsequent occasions within a period of three years, then, that company and every officer thereof who is in default shall be punishable with twice the amount of fine for such offence in addition to any imprisonment provided for that offence.

This section is not applicable to the offence repeated after a period of three years from the commitment of first offence.

PUNISHMENT FOR WRONGFUL WITHHOLDING OF PROPERTY (SECTION 452):

If any officer or employee of a company –

(a)  wrongfully obtains possession of any property, including cash of the company; or

(b) having any such property including cash in his possession, wrongfully withholds it or knowingly applies it for the purpose other than those expressed or directed int he articles and authorised by this Act,

he shall be punishable with fine which shall not be less be less than one lakh rupees but which may extend to five lakh rupees.

The complaint, under this Section may be filed by the company or any member or any creditor or contributory of the company.

The court, under this Section, may also order the officer or employee to deliver up or refund within a time fixed by it, any such property or cash. In case of his default to deliver up or refund, he may undergo imprisonment for a term which may extend to two years.

PUNISHMENT FOR IMPROPER USE OF “LIMITED” OR “PRIVATE LIMITED” (SECTION 453):

If any person or persons trade or carry on business under any name or title, of which the word “Limited” or the words “Private Limited” or any contraction or imitation thereof is or are the last word or words, that person or each of those persons shall, unless duly incorporated with limited liability, or unless duly incorporated as a private company with limited liability, as the case may be, punishable with fine which shall not be less than five hundred rupees but may extend to two thousand rupees for every day for which that name or title has been used.

ADJUDICATION OF PENALTIES (SECTION 454):

The Central Government may by an order published in the Official Gazette appoint Adjudicating Officers for adjudicating penalty under this Act.

The Central Government shall also specify their jurisdiction.

The Adjudicating Officer may by an order impose the penalties on the company and the officer who is in default stating any non – compliance of default under the relevant provision of the Act.

The adjudicating officer shall before imposing any penalty give a reasonable opportunity of being heard to the company or the officer who is in default.

Any person aggrieved by an order made by the adjudicating officer may prefer an appeal to the Regional Director having jurisdiction in the matter.

The Regional Director may after giving the parties to the appeal an opportunity of being heard pass such order as he think fit, confirming, modifying or setting aside the order appealed against.

Where company does not pay the penalty so imposed within a period of ninety days from the date of the receipt of the copy of the order, the company shall be punishable with fine which shall not be less than twenty – five thousand rupees but may extend to five lakh rupees.

Where an officer of the company who is in default does not pay penalty within a period of ninety days from the receipt of the copy of the order, such officer shall be punishable with imprisonment which may extend to six months or with fine which shall not be less than twenty – five thousand rupees but which may extend to one lakh rupees or with both.

Please note: I welcome your comments and feedback. This blog post is not a professional advice. Readers may share this post on social media by using buttons given here.