Determination of Punishment


The Companies Act, 2013 like most other laws dealing with offences did not have any scheme to determine the level of punishment. This is always the discretionary power of a court to determine a punishment within minimum (if any) and maximum punishment provided under law. Presently, the legislature and executives of the country want to control discretionary powers of the third organ – judiciary to all possible extent. Though discretion may result in higher corruption, subordinate courts governed by precedents and do very little use of discretion. The companies Amendment Act, 2017 introduces new Sections 446A to guide the discretionary powers. Amount of fine and/or imprisonment also reduced in several cases.

Section 91 of the Companies (Amendment) Act, 2017 introduces Section 446A and Section 446B.

Factors for determining the level of punishment

According to Section 446A, the court or the Special Court, while deciding the amount of fine or imprisonment under this Act, shall have due regard to the following factors, namely:—

(a) size of the company;

(b) nature of the business carried on by the company;

(c) injury to the public interest;

(d) nature of the default; and

(e) repetition of the default.

Courts usually for any crime, offence, and default consider injury, nature of a crime, offence of default and their repetition.

Section 446A, effectively creates an unknown number of classes to which a different level of punishment shall be fixed. It might not end discretionary powers of the court but outline five major factors on which court shall scale its discretion.

Lesser penalties

If a One Person Company or a small company fails to comply with the provisions of:

  1. sub-section (5) of section 92,
  2. sub-section (2) of section 117, or
  3. sub-section (3) of section 137,

such company and officer in default of such company shall be punishable with fine or imprisonment or fine and imprisonment, as the case may be, which shall not be more than one-half of the fine or imprisonment or fine and imprisonment, as the case may be, of the minimum or maximum fine or imprisonment or fine and imprisonment, as the case may be, specified in such sections.”

Newly introduced Section 446B effectively reduces these fine and imprisonment to half of the prescribed.

Section 92(5), 117(2) and 137(3), referred in Section 446B deal with Annual Return, the filing of resolution and agreements, and filing of copies of financial statements, respectively. In case of other defaults, fine or imprisonment as the case shall remain same.

Relief for fraudsters

Section 92 of the companies Amendment act, 2017 amends Section 447 of the Companies Act, 2013, in the following manner[i]:

“Without prejudice to any liability including repayment of any debt under this Act or any other law for the time being in force, any person who is found to be guilty of fraud involving an amount of at least ten lakh rupees or one percent of the turnover of the company, whichever is lower, 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:

Provided that where the fraud in question involves public interest, the term of imprisonment shall not be less than three years.

Provided further that where the fraud involves an amount less than ten lakh rupees or one percent of the turnover of the company, whichever is lower, and does not involve public interest, any person guilty of such fraud shall be punishable with imprisonment for a term which may extend to five years or with fine which may extend to twenty lakh rupees or with both.”

This amendment creates following three classes of fraud for the purpose of punishment:

  1. fraud involving an amount of at least ten lakh rupees or one percent of the turnover of the company, whichever is lower;
  2. where the fraud in question involves public interest, and
  3. fraud involves an amount less than ten lakh rupees or one percent of the turnover of the company, whichever is lower and does not involve public interest.

[i] Without prejudice to any liability including repayment of any debt under this Act or any other law for the time being in force, any person who is found to be 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:
Provided that where the fraud in question involves public interest, the term of imprisonment shall not be less than three years.
– Effective from 12th September 2013 to 8th February 2018.

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