The Seven “Punishments” in the
Companies Act 2013
CS Bilu Balakrishnan, Founder, CIER
This write-up invites
the attention of readers to the seven sections / provisions (Sections 447 to
453) in the Companies Act 2013 (which replaces the 1956 Act). It’s very
essential to understand these seven sections; and reading of this write-up will
be useful for every professional, student and all stakeholders too.
The new parent corporate
law “The Companies Act 2013” is mostly implemented by the Ministry of Corporate
Affairs (MCA), Govt. of India. Apart from knowing and learning the direct and
indirect provisions affecting your interest of topic, like: accounts, audit,
directors, KMP, loans etc., it’s very essential to know and learn the sword
sections (heavy consequences) in the Act. I had picked 7 such sections ranging
from Section 447 to Section 453 in the Companies Act 2013 (hereinafter “2013
Act” for brevity). I am limiting my write-up to the provisions to the Act, and
I request the readers to refer relevant rules, if any, before forming an
opinion.
Section 447 – Punishment
for fraud:
One of the most
frequently quoted sections in the 2013 Act is the Section 447 dealing with
“Punishment for fraud”. The term fraud is a commonly used one, but the new law
for company has a clear explanation for the term “fraud”, which is explained
below:
“fraud” in relation to
affairs of a company or anybody corporate, includes any act, omission,
concealment of any fact or abuse of position committed by any person or any
other person with the connivance in any manner, with intent to deceive, to gain
undue advantage from, or to injure the interests of, the company or its
shareholders or its creditors or any other person, whether or not there is any
wrongful gain or wrongful loss.”
Interestingly the law
also explains the terms “any wrongful gain or wrongful loss”, which runs as
under:
“wrongful gain”
means the gain by unlawful means of property to which the person gaining is not
legally entitled;
“wrongful loss”
means the loss by unlawful means of property to which the person losing is
legally entitled.
Thus, as per Section
447, 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. Where the fraud in question
involves public interest, the term of imprisonment shall not be less than three
years.
Section 448 – Punishment
for false statement:
This section corresponds
Section 628 of the 1956 Act, and one of the very important provision for the
practising professionals like CA, CS and CMAs who do pre-certification work and
attestation / audit assignments.
Section 448 says that,
if in any return, report, certificate, financial statement, prospectus,
statement or other document required by, or for, the purposes of any of the
provisions of this 2013 Act or the 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,
the, such person be
liable under section 447.
Thus every professional
who gives / signs / attests / certifies a return, report, certificate,
financial statement etc. under the 2013 Act will be punishable u/s.447 if the
criteria stated in Section 448 are attracted.
Section 449 – Punishment
for false evidence:
This section corresponds
Section 629 of the 1956 Act, and one of the very important section for
individuals giving an evidence under the 2013 Act.
Section 449 states that,
if any person intentionally gives false evidence—
(a) upon any examination
on oath or solemn affirmation, authorised under this Act; or
(b) in any affidavit,
deposition or solemn affirmation, in or about the 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.
Section 450 – Punishment
where no specific penalty or punishment is provided:
You may find many
Sections in the 2013 Act, where there is no specific penalty or punishment are
stated. It’s not happy news, as far as you come to know about Section 450,
which specifies penalty or punishment in such cases. This section corresponds
Section 629A of the 1956 Act.
According to Section
450, if a company or any officer of a company or any other person contravenes
any of the provisions of 2013 Act or the rules made there under, 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 (*penalty doubled from 1956 Act) after the first during which the
contravention continues.
Section 451 – Punishment
in the case of repeated defaults:
“Excellence should be a
Habit”, but not in the case of offences / defaults in the 2013 Act.
“Default should not be a habit” says the new law !
As per Section 451 of
the 2013 Act, 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.
Section 452 – Punishment
for wrongful withholding of property:
Section 452 corresponds
Section 630 of the 1956 Act. According to Section 452 of the 2013 Act, 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 (*introduced in the 2013 Act) in his
possession, wrongfully withholds it or knowingly applies it for the purposes
other than those expressed or directed in the articles and authorised by this
Act,
he shall, on the
complaint of the company or of any member or creditor or contributory thereof,
be punishable with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees.
The Court trying an
offence may also order such officer or employee to deliver up or refund, within
a time to be fixed by it, any such property or cash wrongfully obtained or
wrongfully withheld or knowingly misapplied, the benefits that have been
derived from such property or cash or in default, to undergo imprisonment for a
term which may extend to two years.
Thus, this Section
intends to safeguard the assets / properties of the company, including cash,
from wrongful withholding or misapplication.
Section 453 – Punishment
for improper use of “Limited” or “Private Limited”:
Section 453 is similar
to that of Section 631 of 1956 Act, which states that 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 (*introduced in the 2013 Act) for every day for which that
name or title has been used.
Thus, only companies
incorporated under the Act, shall use the words “Limited” or “Private Limited”
in the trade name.
To conclude, the most
interesting part of the above seven punishments in the new law is that, it
casts huge responsibility on the professionals and stakeholders dealing with
the company, and as you can see the penalty is also kept as high, when compared
to the 1956 law. Introducing the concept of “fraud” and giving an explanation
in the Act is a welcoming step. I am sure that the job of pre-certification,
attestation, audit and reporting will be a more hectic task in the light of few
of the above cited punishments in the Companies Act 2013.
The knowledge of such
punishments in the 2013 Act are also significant for company directors /
officers and all stakeholders in general !
