PENAL PROVISIONS UNDER COMPANIES ACT, 2013 – PART I

[Mr. M. GOVINDARAJAN]

Introduction

Non compliance of the provisions of any Act would definitely attract its penal provisions. Companies Act, 2013 (‘Act’ for short) is not an exception to this.  The penal provisions in the new Act are more and also more stringent.   The penalty amount is high when compared to the previous act.   The penal provisions in this Act may be classified into three categories as detailed below:

• Penal provisions for companies;
• Penal provisions for Officer who is in default;
• Penal provisions for persons other than companies and officer-in-default.

Even though the penal provisions in respect of an offence may be taken from the Act, the penal provisions are listed for the benefit of the readers.   In this article the penal provisions relating to officer-in-default are listed.

Officer who is in default

Section 2(60) of the Act defines the term defines the terms ‘officer who is in default’ for the purposes of any provision in this Act which enacts that an officer of the company who is in default shall be liable to any penalty or punishment by way of imprisonment, fine or otherwise, means any of the following officers of a company, namely:-

• Whole-time director;
• Key managerial personnel;
• Where there is no key managerial personnel, such director or directors as specified by the Board in this behalf and who has or have given his or  their consent in writing to the Board to such specification, or all the directors, if no director is so specified;
• Any person who, under the immediate authority of the Board or any Key Managerial Personnel, is charged with any responsibility including maintenance, filing or distribution of accounts or records, authorizes, actively participation in, knowingly permits, or knowingly fails to take active steps to prevent, any default;
• Any person in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act, other than a person who gives advice to the Board in the professional capacity;
• Every director, in respect of contravention of any of the provisions of this Act, who is awarded of such contravention by virtue of the receipt by him of any proceedings of the Board or participation in such proceedings without objecting to the same, or where such contravention had taken place with his consent or connivance;
• In respect of the issue of transfer of any shares of a company, the shares of a company, the share transfer agents, registrars and merchants bankers to the issue or transfer.

Penal provisions relating to Officer who is in default

1. Section 8 deals with the formation of companies with charitable objects.   Proviso to Section8 (11) provides that when it is proved that the affairs of the company were conducted fraudulently, every officer in default shall be liable for action under Section 447 (Punishment for fraud which will be discussed later);
2. Section 11 deals with the commencement of business etc.,  Section 11(2) provides that if any default is made in complying with the requirements of this section every officer who is default shall be punishable with fine which may extend to Rs.1000/- for every day during which the default continues;
3. Section 12 deals with the Registered Office of company. Section 12 (8) provides that if any default is made in complying with the requirements of this section, every officer who is in default shall be liable to a penalty of Rs.1000/- for every day during which the default continues but not exceeding Rs.1,00,000/-;
4. Section 15 deals with alteration of memorandum or articles to be noted in every copy.  If a company makes any default in complying with the provisions every officer who is in default shall be liable to a penalty of Rs.1000/-  for every copy of the memorandum or articles issued without such alteration;
5. Section 16 deals with rectification of name of company.   Section 16(3) provides that if a company makes default in complying with any direction given under sub-section (1), every officer who is in default shall be punishable with fine not less than Rs.5000/- but which may extend to Rs.1,00,000/-;
6. Section 17 deals with copies of memorandum, articles etc., to be given to members.  Section 17(2) provides that if a company makes any default in complying with the provisions of this Section, every officer of the company who is in default shall be liable for each default, to a penalty of Rs.1000/- for each day during such default continues or Rs.1,00,000/- whichever is less;
7. Section 39 deals with allotment of securities by company.   Section 39(5) provides that in case of any default officer who is in default shall be liable to a penalty, for each default, of Rs.1000/- for each day during which such default continues or Rs.1,00,000/- whichever is less;
8. Section 40 deals with securities to be dealt with in stock exchanges.   Section 40(4) provides that if a default is made in complying with the provisions of this section every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than Rs.50,000/- but which may extend to Rs.3,00,000/- or with both;
9. Section 46 deals with certificate of shares.   Section 46(5) provides that if a company with intent to defraud issues a duplicate certificate shares, every officer of the company who is in default shall be liable for action under Section 447;
10. Section 48 deals with variation of shareholders’ rights.   Section 10(5) provides that where any default is made in complying with the provisions of this section, every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 6 months or with fine which shall not be less than Rs.25,000/- but which may extend to Rs.5,00,000/- or with both;
11. Section 53 deals with prohibition on issue of shares at discount.   Section 53(3) provides that where a company contravenes the provisions of this section, every office in default shall be punishable with imprisonment for a term which may extend to 6 months or with fine which shall not be less than Rs.1,00,000/- but which may extend to Rs.5,00,000/- or with both;
12. Section 56 deals with transfer and transmission of securities.   Section 56(6) provides that where any default is made in complying with the provisions of this section, every officer of the company who is in default shall be punishable with fine which shall not be less than Rs.10,000/- but which may extend to Rs.1,00,000/-;
13. Section 59 deals with rectification of register of members.  Section 59(5) provides that if any default is made in complying with the order of the Tribunal under this section, every office of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than Rs.1,00,000/- but which may extend to Rs.3,00,000/- or with both;
14.  Section 60 deals with the publication of authorized, subscribed and paid up capital.   Section 60 (2) provides that if any default is made in complying with the requirements of this section every officer of the company who is in default shall be pay a penalty of Rs.5,000/- for each default;
15. Section 64 deals with the notice to be given to Registrar for alteration of share capital.  Section 64 (2) provides that any officer of the company who is in default contravenes the provisions of this section shall be punishable with fine which may extend to Rs.1,000/- for each day during which such default continues or Rs.5,00,000/- whichever is less;
16. Section 67 deals with the restrictions on purchase by company or giving of loans by it for purchase of its shares.   Section 67 (5) provides that if a company contravenes the provisions of this section, every office of the company who is in default shall be punishable with imprisonment for a term which may extend to 3 years and with fine which shall not be less than Rs.1,00,000/- but which may extend to Rs.25,00,000/-;
17. Section 68 deals with the power of company to purchase its own securities.   Section 68 (11) provides that if a company makes any default in complying with the provisions of this section or any regulation made by SEBI for the purposes of clause (f) of sub section (2), every office of the company who is in default shall be punishable with imprisonment for a term which may be extend to 3 years or with fine which shall not be less than Rs.1,00,000/- but which may extend to Rs.3,00,000/- or with both;
18. Section 71 deals with the debentures.   Section 71 (11) provides  that if any default is made in complying with the order of the Tribunal under this section, every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 3 years or with fine which shall not be less than Rs.2,00,000/- but which may extend to Rs. 5,00,000/-;
19.  Section 74 deals with repayment of deposits etc., accepted before commencement of this Act.  Section 74(3) provides that if a company fails to repay the deposit or part thereof or any interest thereon within the time stipulated in sub-section (1) or such further time as may be allowed by the Tribunal under sub-section (2), every officer of the company who is in default shall be punishable with imprisonment which may extend to 7 years or with fine which shall not be less than Rs.25,00,000/- but which may extend to Rs.2,00,00,000/- or with both;
20. Section 86 provides that if any company contravenes any provisions of Chapter VI (dealing with Charges), every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 6 months or with fine which shall not be less than Rs.25,000/- but which may extend to Rs.1,00,000/-;
21. Section 88 deals with the register of members etc.,   Section 88 (5) provides that if a company does not maintain a register of members or debenture holders or other security holders or fails to maintain them in accordance with the provisions of subsection (1) of sub section (2), every officer of the company who is in default shall be punishable with fine which shall not be less than Rs.50,000/- but which may extend to Rs.3,00,000/- and where the failure is a continuing one, with a further fine which may extend to Rs.1,000/- for every day, after the first during which the failure continues;
22. Section 89 deals with the declaration in respect of beneficial interest in any share.   Section 89 (7) provides that if a company, required to file a return under sub-section (6), fails to do so before the expiry of the time specified under the first proviso to sub section(1) of section 403, every officer of the company who is in default shall be punishable with fine which shall not be less than Rs.500/- but which may extend to Rs.1,000/- and where the failure is a continuous one, with a further fine which may extend to Rs.1,000/- for every day after the first during which the failure continues;
23. Section 91 deals with the power to close register of members or debenture holders or other security holders.  Section 91 (2) provides that if the register of members or of debenture holders or of other security holders is closed without giving the notice as provided in sub section (1) of after giving shorter notice than that so providing, or for a continuous or an aggregate period in excess of the limits specified in that sub section, every officer of the company who is in default shall be liable to a penalty of Rs.5,000/- for every day subject to a maximum of Rs.1,00,000/- during which the register is kept closed;
24. Section 92 deals with Annual returns. Section 92(5) provides that if a company fails to file annual return under sub section (4) before the expiry of the period specified under Section 403 with additional fee, every officer who is in default shall be punishable with imprisonment for a term which may extend to 6 months or with fine  which shall not be less than Rs.50,000/- but which may extend to Rs.5,00,000/- or with both;
25. Section 95 deals with place of keeping and inspection of registers, returns etc., Section 95 (4) provides that any inspection or the making of any extract or copy required under this section is refused, every officer of the company who is in default shall be liable, for each such default, to a penalty of Rs.1,000/- for every day subject to a maximum  of Rs.1,00,000/- during which the refusal or default continues;
26. Section 99 provides that if any default is made in holding a meeting of the company in accordance with section 96 or section 97 or section 98 or in complying with any directions of the Tribunal, every officer of the company, who is in default, shall be punishable with fine which may extend to Rs.1,00,000/- and in the case of a continuous default, with a further fine which may extend to Rs.5,000/- for every day during which such default continues;
27. Section 105 deals with proxies. Section 105 (3) provides that if default is made in complying with sub-section (2), every officer of the company who is in default shall be punishable with fine which may extend to Rs.5,000/-;
28. Section 111 deals with the circulation of members’ resolution. Section 111 (5) provides that if any default is made in complying with the provisions of this section, every officer of the company who is in default shall be liable to a penalty of Rs.25,000/-;
29. Section 117 deals with resolutions and agreements to be filed. Section 117 (2) provides that if a company fails to file the resolution or the agreement under sub-section (1) before the expiry of the period specified under Section 403, every officer of the company who is in default shall be punishable with fine which shall not be less than Rs.1,00,000/- but which may extend to Rs.5,00,000/-;
30. Section 118 deals with  the minutes of proceedings of general meeting, meeting of Board of Directors and other meeting and resolutions passed by postal ballot.  Section 118 (11) provides that if any default is made in complying with the provisions of this section in respect of any meeting, every of the company, who is in default shall be liable to a penalty of Rs.5,000/-;
31. Section 119 deals with inspection of minute books of general meeting.Section 119 (3) provides that if any inspection under sub-section (1) is refused, or if any copy required under sub-section (7) is not furnished within the time specified therein, every officer who is in default shall be liable to a penalty of Rs.5,000/- for each such refusal or default, as the case may be;
32. Section 121 deals with report on annual general meeting. Section121 (3) provides that if the company fails to file the report under sub-section (2) before the expiry of the period specified under Section 403, every officer of the company who is in default shall be punishable with fine which shall not be  less than Rs.25,000/- but which may extend to Rs.1,00,000/-;
33. Section 124 deals with unpaid dividend account. Section 124 (7) provides that if a company fails to comply with any of the requirements of this section, every officer who is in default shall be punishable with fine which shall not be less than Rs.1,00,000/- but which may extend to Rs.5,00,000/-;
34. Section134 deals with financial statement, Board’s report etc., Section 134 (8) provides that if a company contravenes the provisions of this section, every officer who is in default shall be punishable with imprisonment for a term which may extend to 3 years or with fine which shall not less Rs.50,000/- but which may extend to Rs.5,00,000/- or with both;
35. Section  136 deals with the right of member to copies of audited financial statement. Section 136 (3) provides that if any default is made in complying with the provisions of this section, every officer who is in default shall be liable to a penalty of Rs.5,000/-;
36. Section 147(1) provides that if any of the provisions of Section 139 to 146 (both inclusive) is contravened, every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 1 years or with fine which shall not be less than Rs.10,000/- but which may extend to Rs.1,00,000/-;
37. Section 148 deals with the Central Government to specify audit of items of cost in respect of certain companies. Section 148(8) provides that any default is made in complying with the provisions of this section, every officer of the company who is in default shall be punishable in the manner as provided in sub section (1) of section 147 (as at point No. 36);
38. Section 157 deals with the company to inform Director Identification Number to Registrar.  Section 157 (2) provides that if a company fails to furnish DIN under sub-section (1) before the expiry of the period specified under Section 403, every officer of the company who is in default shall be punishable with fine which shall not be less than Rs.20,000/- but which may extend to Rs.1,00,000/-;
39. Section 172 provides that if a company contravenes any of the provisions of Chapter XI, every officer of the company who is in default shall be punishable with fine which shall not be less than Rs.50,000/- but which may extend Rs.5,00,000/-;
40. Section 178 deals with the nomination and remuneration committee and stakeholders relationship committee.  Section 178 (8) provides that in case of any contravention of the provisions of Section 177 and this section, every officer of the company, who is in default, shall be punishable with imprisonment for a term which may extend on 1 year or with fine which shall not be less than Rs.25,000/- but which may extend to Rs.1,00,000;
41. Section 182 deals with prohibitions and restrictions regarding political contribution. Section 182 (4) provides that if a company makes any contributions in contravention of the provisions of this section, every officer, who is in default, shall be punishable with imprisonment for a term which may extend to 6 months and with fine which may extend to 5 times the amount so contributed;
42. Section 186 deals with loan and investment by company.  Section 186 (13) provides that if a company contravenes the provisions of this section, every officer, who is in default, shall be punishable with imprisonment for a term which may extend to 2 year sand with fine which shall not be less than Rs.25,000/- but which may extend to Rs.1,00,000/-;
43. Section 187 deals with investments of company to be held in its own name. Section 187 (4) provides that if a company contravenes the provisions of this section, every officer, who is in default shall be punishable with imprisonment for a term which may extend to 6 months or with fine which shall not be less than Rs.25,000/- but which may extend to Rs.1,00,000/- or with both;
44. Section 190 deals with contract of employment with Managing or Whole time directors.   Section190 (3) provides that if any default is made in complying with the provisions of subsection (1) or sub section (2) every officer of the company, who is in default, shall be liable to a penalty of Rs.5,000/- for each default;
45. Section 203 deals with the appointment of key managerial personnel. Section 203 (5) provides that if a company contravenes the provisions of this section, every officer, who is in default, shall be punishable with fine which may extend to Rs.50,000/- and where the contravention is a continuous one, with a further fine which may extend to Rs.1,000/- for every day after the first during which the contravention continues;
46. Section 206 deals with the inspection, inquiry and investigation.  The proviso to Section 206 (4)  provided that where the business of a company has been or is being carried on for a fraudulent or unlawful purpose, every officer of the company, who is in default, shall be punishable for fraud in the manner as provided in Section 447;
47. Section 206 (7) provides that if a company fails to furnish any information or explanation or produce document required under this section, every officer of the company, who is in default, shall be punishable with a fine which may extend to Rs.1,00,000/- and in the case of a continuing failure, with an additional fine which may extend to Rs.5,000/- for every day after the first during which the failure continues;
48. Section 221 deals with freezing of assets of company on inquiry and investigation. Section 221 (2) provides that  in case of any removal, transfer or disposal of funds, assets or properties of the company in contravention of the order of the Tribunal under sub-section (1) , every officer who is in default shall be punishable with imprisonment for a term which may extend to 3 years or with fine which shall not be less than Rs.50,000/- but which may extend to Rs.5,00,000/- or with both;
49. Section 222 deals with imposition of restriction upon securities. Section 222 (2) provides that where any securities in any company are issued or transferred or acted upon in contravention of an order of the Tribunal under sub-section (1) every officer of the company, who is in default, shall be punishable with imprisonment for a term which may extend to 6 months or with fine which shall not be less than Rs.25,000/- but which may extend to Rs.5,00,000/- or with both;
50. Section 242 deals with the powers of Tribunal. Section 242(8)  provides that if a company contravenes the provisions of sub-section (5), every officer of the company, who is in default shall be punishable with imprisonment for a term which may extend to 6 months or with fine which shall not be less than Rs.25,000/- but which may extend to Rs.1,00,000/- or with both;
51. Section 245 deals with class action. Section 245 (7)  provides that any company which fails to comply with the order passed by the Tribunal under this section, every officer of the company, who is in default, shall be punishable with imprisonment for a term which may extend to 3 years and with fine which shall not be less than Rs.25,000/- but which may extend to Rs.1,00,000/-;
52. Section 312 deals with notice of appointment of Company Liquidator to be given to Registrar. Section 312 (2) provides that if a company contravenes the provisions of sub-section (1), every officer of the company, who is in default, shall be punishable with fine which may extend to Rs.500/- for every day during which such default continues;
53. Section 338 deals with liability where proper accounts are not kept. Section 338 (1) provides that where a company is being would up, if it is shown that proper books of account were not kept by the company throughout the period of two period between the incorporation of the company and the commencement of the winding up, whichever is shorter, every officer of the company, who is in default, unless he shows that he acted honestly and that in the circumstances in which the business of the company was carried on, the default was excusable, be punishable with imprisonment for a term which shall not be less than one year but which may extend to 3 years and with fine which shall not be less than Rs.1,00,000/- but which may extend to Rs.3,00,000;
54. Section 392 provides that if a foreign company contravenes the provisions of Chapter XXII, every officer of the foreign company who is in default shall be punishable with imprisonment for a term which may extend to 6 months which shall not be less than Rs.25,000/- but which may extend to Rs.5,00,000/- or with both;
55. Section 403 deals with  fee for filing, etc., Section 403 (2) provides that where a company fails or commits any default to submit, file, register or record any document, fact or information under sub-section (1) before the expiry of the period specified in the first proviso to that sub section, the officers of the company who are in default, shall, without prejudice to the liability for payment of fee and additional fee, is liable for the penalty or punishment provided under this Act for such failure or default;
56. Section 405 deals with the power of Central Government to furnish information or statistics. Section 405 (4) provides that if any company fails to company with an order or knowingly furnishes any information or statistics which is incorrect or incomplete in any material respect, every officer of the company, who is in default, shall be punishable with imprisonment for a term which may extend to 6 months or with fine which shall not be less than Rs.25,000/- but which may extend to Rs.3,00,000/- or with both.

Punishment for fraud

In many provisions it is indicated that punishment would be imposable if the offence is as if it amounts to fraud under Section 447.  Section 447 provides that 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 6 months but which may extend to 10 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 3 times the amount involved in the fraud.  If the fraud in question involves public interest, the terms of imprisonment shall not be less than 3 years.

Conclusion

I hope that I have listed all the penal provisions related to Officer-in-default.  If any provision is missed the same may be informed. On analysis of the above penal provisions, any one can infer that the penalty imposable is very high. Imprisonment is common for most of the contraventions. Imprisonment up to 10 years is also provided.  Even in criminal cases 10 years imprisonment is rare except in murder cases. There is no rationality or justification to impose such severe punishments. The Chambers, federation of business entities, professional institutions, professionals etc., may analyze these provisions and recommend the new Government to make changes in the penal provisions in the Companies Act, 2013.

Discussions to this article

[hari johari]

1. Section 403 deals with  fee for filing, etc., Section 403 (2) provides that where a company fails or commits any default to submit, file, register or record any document, fact or information under sub-section (1) before the expiry of the period specified in the first proviso to that sub section, the officers of the company who are in default, shall, without prejudice to the liability for payment of fee and additional fee, is liable for the penalty or punishment provided under this Act for such failure or default;  What is the Penalty or punishment if docs to be filled late more than 300 days ???

[MARIAPPAN GOVINDARAJAN]

Dear Sir,

The penalty is depending upon the document to be submitted.  For example please see the point No. 29.  As per Section 117 resolutions and agreements are to be filed within the time specified in proviso to Section 403 (1).   If there is a failure Section 117 provides penalty for the company and officer-in-default as given in point No. 29.  

Regards,

M. Govindarajan