LESSER PUNISHMENT AND PENALTIES UNDER COMPANIES (AMENDMENT) BILL, 2020 – PART I

[Mr. M. GOVINDARAJAN]

Company Law Committee

The penal provisions under the Companies Act, 2013 are on the higher side.  Imprisonment is there for defaulting officer-in-default along with fine. Fine is imposed on the defaulting companies also.  This would retard the ease of living of the officers working in the corporate sector and also it is a problem for the law abiding corporate.  In view of this the Company Law Committee was constituted by the Central Government on 18.09.2019.  The Committee submitted its report to the Government during November, 2019. 

Based on the recommendations of the CLC and internal review by the Government, it is proposed to amend various provisions of the Act to decriminalize minor procedural or technical lapses under the provisions of the said Act, into civil wrong; and considering the overall pendency of the courts, a principle based approach was adopted to further remove criminality in case of defaults, which can be determined objectively and which otherwise

lack any element of fraud or do not involve larger public interest.

The Bill was introduced in Lok Sabha on 17^th March, 2020.

Contravention of section 8

Section 8(11) provides that if a company makes any default in complying with any of the requirements laid down in this section, the directors and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 3years or with fine which shall not be less than ₹ 25,000/- but which may extend to ₹ 25 lakhs, or with both.

• Now the amendment provides for fine which may be extended to ₹ 25 lakhs.

Contravention of section 16

Section 16 provides the procedure for rectification of the name of the company.  Section 16(3) provides that if a company makes default in complying with any direction given under sub-section (1), the company shall be punishable with fine of ₹ 1000/- for every day during which the default continues and every officer who is in default shall be punishable with fine which shall not be less than ₹ 5,000/-  but which may extend to ₹ 1,00,000/-.

• The amendment substituted Section 16(3) for new section.  In the section there is no penal provision.  The newly substituted section 16(3) provides that if a company is in default in complying with any direction given under sub-section (1)  the Central Government shall allot a new name to the company in such manner as may be prescribed and the Registrar shall enter the new name in the register of companies in place of the old name and issue a fresh certificate of incorporation with the new name, which the company shall use thereafter:

Provided that nothing in this sub-section shall prevent a company from subsequently changing its name in accordance with the provisions of section 13.

Contravention of section 26

Section 26 provides the matters that should be stated in the prospectus.  Section 26 (9) provides that if a prospectus is issued in contravention of the provisions of this section, every person who is knowingly a party to the issue of such prospectus shall be punishable with imprisonment for a term which may extend to 3 years or with fine which shall not be less than ₹ 50,000/-  but which may extend to ₹ 3,00,000/-, or with both.

• The amendment provides that every person who is knowingly a party to the issue of such prospectus shall be with fine which shall not be less than ₹ 50,000/-  but which may extend to ₹ 3,00,000/-.

Contravention of Section 40

Section 40 provides the procedure for the securities to be dealt with in stock exchanges.  Section 40(5) 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 fifty thousand rupees but which may extend to three lakh rupees, or with both.

• The amendment provides that every officer of the company who is in default shall be punishable with fine which shall not be less than ₹ 50,000/- but which may extend to ₹ 3,00,000/-.

Contravention of section 48

Section 48 deals with the variation of shareholders right.  Section 48(5) provides that where any default is made in complying with the provisions of this section, the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees, or with both.

• The amendment omitted Section 48(5) which provides imprisonment and fine for the company as well as officer in default.

Contravention of section 56

Section 56(6) provides that where any default is made in complying with the provisions of sub-sections (1) to (5), (in regard to transfer and transmission of securities) the company shall be punishable with fine which shall not be less than ₹ 25,000/- but which may extend to ₹ 5,00,000/- and every officer of the company who is in default shall be punishable with fine which shall not be less than ₹ 10,000/- but which may extend to ₹ 1,00,000/-

• The amendment substituted section 56(6) for new sub section which provides that where any default is made in complying with the provisions of sub-sections (1) to (5), the company and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees.
• The amendment reduced the penalty rate for company as well as officer-in-default.

Contravention of section 59

Section 59 provides the procedure for 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, the company shall be punishable with fine which shall not be less than ₹ 1,00,000/- but which may extend to ₹ 5,00,000/- and 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 ₹ 1,00,000/-  but which may extend to ₹ 3,00,000/-, or with both.

• The amendment omitted the provisions contained in section 59(5).

Contravention of section 64

Section 64(1) requires a company to issue notice to Registrar for alteration of share capital.  Section 64(2) provides that where any company fails to comply with the provisions of sub-section (1), such company and every officer who is in default shall be liable to a penalty of ₹ 1,000/- for each day during which such default continues, or ₹ 5,00,000/- whichever is less.

• The amendment reduce the penalty from ₹ 1000/- to ₹ 500/- and for continuing offence the maximum penalty for a company is ₹ 5,00,000/- and for officer-in-default the maximum penalty is ₹ 1,00,000/-

Contravention of section 66

Section 66 provides the procedure for reduction of share capital.  Section 66(11) provides that if a company fails to comply with the provisions of sub-section (4), [publishing of the order of tribunal confirming the reduction of share capital]  it shall be punishable with fine which shall not be less than ₹ 5,00,000/- but which may extend to ₹ 25,00,000/-.

• In this case the company only is liable for penalty not the officers of the company.  The amendment proposes to omit section 66(11).

Contravention of section 68

Section 68 deals with the power of companies to purchase its own securities (buy back of 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 the Securities and Exchange Board, for the purposes of clause (f) of sub-section (2), the company shall be punishable with fine which shall not be less than ₹ 1,00,000/- but which may extend to ₹ 3,00,000/- and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than ₹ 1,00,000/- but which may extend to ₹ 3,00,000/-, or with both.

• The amendment removed the punishment of imprisonment to the officer-in-default.  But the penalty is the same.

Contravention of section 71

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 ₹ 2,00,000/- but which may extend to ₹ 5,00,000/- or with both.

• The amendment proposes to omit section 71(11).

Punishment for contravention

Section 86(1) provides that if any company contravenes any provision of Chapter VI (Registration of charges), the company shall be punishable with fine which shall not be less than ₹ 1,00,000/- but which may extend to ₹ 10,00,000/- and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than ₹ 25,000/- but which may extend to ₹ 1,00,000/- or with both.

• The amendment proposes to substitutes section 86(1) for a new section.  The newly substituted section 86(1) provides that If any company is in default in complying with any of the provisions of this Chapter, the company shall be liable to a penalty of ₹ 5,00,000/- and every officer of the company who is in default shall be liable to a penalty of ₹ 50,000/-

Contravention of section 88

Section 88 requires the company to maintain register of members.  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 sub-section (1) or sub-section (2), the company and every officer of the company who is in default shall be punishable with fine which shall not be less than ₹ 50,000/- but which may extend to ₹ 3,00,000/-  and where the failure is a continuing one, with a further fine which may extend to one thousand rupees for every day, after the first during which the failure continues.

• The amendment proposes to substitutes section 88(5) for a new section.  The newly substituted 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 sub-section (1) or sub-section (2), the company shall be liable to a penalty of ₹ 3,00,000/- and every officer of the company who is in default shall be liable to a penalty of ₹ 50,000/-.

Contravention of section 89

Section 89 provides the procedure for declaration in respect of beneficial interest in any share.

Section 89(5) provides that if any person fails, to make a declaration as required under sub-section (1) or sub-section (2) or sub-section (3), without any reasonable cause, he shall be punishable with fine which may extend to ₹ 50,000/- and where the failure is a continuing one, with a further fine which may extend to ₹ 1,000/- for every day after the first during which the failure continues.

• The amendment proposes to substitute a new section for section 89(5).  The newly substituted section provides that if any person fails to make a declaration as required under sub-section (1)or sub-section (2) or sub-section (3), he shall be liable to a penalty of ₹ 50,000/-  and in case of continuing failure, with a further penalty of ₹ 200/- for each day after the first during which such failure continues, subject to a maximum of ₹ 5,00,000/-.

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 therein, the company and every officer of the company who is in default shall be punishable with fine which shall not be less than ₹ 500/- but which may extend to ₹ 1,000/- and where the failure is a continuing one, with a further fine which may extend to ₹ 1,000/- for every day after the first during which the failure continues.

• The amendment proposes to substitute a new section for section 89(7).  The newly inserted 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 therein, the company and every officer of the company who is in default shall be liable to a penalty ₹ 1,000/- for each day during which such failure continues, subject to a maximum of 5,00,000/- in the case of a company and ₹ 2,00,000/-  in case of an officer who is in default.

Contravention of section 90

Section 90 of the Act requires a company to maintain a register of significant beneficial owners in a company.

Section 90(10) of the Act provides that if any person fails to make a declaration as required under sub-section (1), he shall be punishable with fine which shall not be less than one lakh rupees but which may extend to ten lakh rupees and where the failure is a continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which the failure continues.

• The amendment substituted a new section for section 90(10).  The newly substituted section 90 (10) provides that If any person fails to make a declaration as required under sub-section (1), he shall be liable to a penalty of ₹ 50,000/-  and in case of continuing failure, with a further penalty of ₹ 1,000/- for each day after the first during which such failure continues, subject to a maximum of ₹ 2,00,000/-.

Section 90(11) of the Act provides that  if a company, required to maintain register under sub-section (2) and file the information under sub-section (4) or required to take necessary steps under sub-section (4A), fails to do so or denies inspection as provided therein, the company and every officer of the company who is in default shall be punishable with fine which shall not be less than ₹ 10,00,000/- but which may extend to ₹ 50,00,000/- and where the failure is a continuing one, with a further fine which may extend to ₹ 1,000/- for every day after the first during which the failure continues.

• The amendment bill proposes to substitute a new section for section 90(11).  The newly substituted section 90(11) provides that if a company, required to maintain register under sub-section (2) and file the information under sub-section (4) or required to take necessary steps under sub-section (4A), fails to do so or denies inspection as provided therein, the company shall be liable to a penalty of ₹ 1,00,00/- and in case of continuing failure, with a further penalty of ₹ 500/- for each day, after the first during which such failure continues, subject to a maximum of ₹ 5,00,000/- and every officer of the company who is in default shall be liable to a penalty of ₹ 25,000/- and in case of continuing failure, with a further penalty of ₹ 200/-  for each day, after the first during which such failure continues, subject to a maximum of ₹ 1,00,000/-

Contravention of section 92

Section 92 requires a company to file Annual Return within the time prescribed.  Section 92(5) provides that If any company fails to file its annual return under sub-section (4), before the expiry of the period specified therein, such company and its every officer who is in default shall be liable to a penalty of ₹ 50,000/-  and in case of continuing failure, with a further penalty of ₹ 100/- for each day after the first during which such failure continues, subject to a maximum of ₹ 5,00,000/-.

•  After amendment section 92 (5) provides that if any company fails to file its annual return under sub-section (4), before the expiry of the period specified therein, such company and its every officer who is in default shall be liable to a penalty of ₹ 10,000/- and in case of continuing failure, with a further penalty of ₹ 100/-  for each day after the first during which such failure continues, subject to a maximum of ₹ 2,00,000/- in respect of a company and ₹ 50,000/- in respect of an officer who is in default.

Contravention of section 105

Section 105 of the Act provides the procedure for proxies by a shareholder to attend the company on his behalf.  Section 105(5) provides that if for the purpose of any meeting of a company, invitations to appoint as proxy a person or one of a number of persons specified in the invitations are issued at the company's expense to any member entitled to have a notice of the meeting sent to him and to vote thereat by proxy, every officer of the company who knowingly issues the invitations as aforesaid or willfully authorizes or permits their issue shall be punishable with fine which may extend to ₹ 1,00,000/-.

• The amendment reduces the penalty from ₹ 1,00,000/- to ₹ 50,000/-.

Contravention of section 117

Section 117 of the Act requires a company to file resolutions and agreements with the Registrar of Companies.

Section 117(2) of the Act provides that if any company fails to file the resolution or the agreement under sub-section (1) before the expiry of the period specified therein, such company shall be liable to a penalty of ₹ 1,00,000/- and in case of continuing failure, with a further penalty of ₹ 500/- for each day after the first during which such failure continues, subject to a maximum of ₹ 25,00,000/- and every officer of the company who is in default including liquidator of the company, if any, shall be liable to a penalty of ₹ 50,000/- and in case of continuing failure, with a further penalty of ₹ 500/-  for each day after the first during which such failure continues, subject to a maximum of ₹ 5,00,000/-

• The amendment substitutes a new subsection for section 117(2).  The newly substituted section 117(2) provides that if any company fails to file the resolution or the agreement under sub-section (1) before the expiry of the period specified therein, such company shall be liable to a penalty of ₹ 10,000/- and in case of continuing failure, with a further penalty of ₹ 100/-  for each day after the first during which such failure continues, subject to a maximum of ₹ 2,00,000/- and every officer of the company who is in default including liquidator of the company, if any, shall be liable to a penalty of ₹ 10,000/- and in case of continuing failure, with a further penalty of ₹ 100/- for each day after the first during which such failure continues, subject to a maximum of ₹ 50,000/-.

Contravention of section 124

Section 124 of the Act provides for the treatment of unpaid dividend account.  Section 124(7) provides that if a company fails to comply with any of the requirements of this section, the company shall be punishable with fine which shall not be less than ₹ 5,00,000/- but which may extend to ₹ 25,00,000/- and every officer of the company who is in default shall be punishable with fine which shall not be less than ₹ 1,00,000/- but which may extend to ₹ 5,00,000/-.

• The amendment proposes to substitute a new section for section 124(7).  The newly substituted section124(7) provides that If a company fails to comply with any of the requirements of this section, such company shall be liable to a penalty of ₹ 1,00,00/- and in case of continuing failure, with a further penalty of ₹ 500/- for each day after the first during which such failure continues, subject to a maximum of ₹ 10,00,000/- and every officer of the company who is in default shall be liable to a penalty of ₹ 25,000/- and in case of continuing failure, with a further penalty of ₹ 100/- for each day after the first during which such failure continues, subject to a maximum of ₹ 2,00,000/-

Contravention of section 128

Section 128 requires a company to keep books of accounts.  Section 128 (6) provides that if the managing director, the whole-time director in charge of finance, the Chief Financial Officer or any other person of a company charged by the Board with the duty of complying with the provisions of this section, contravenes such provisions, such managing director, whole-time director in charge of finance, Chief Financial officer or such other person of the company shall be punishable with imprisonment for a term which may extend to 1 year or with fine which shall not be less than ₹ 50,000/- but which may extend to ₹ 5,00,000/- or with both.

• The amendment deleted the penalty of imprisonment and retain only penalty.

Contravention of section 134

Section 134 of the Act gives the procedure for preparation of the Financial statement, Board’s report etc.,  Section 134(8) of the Act provides that  if a company contravenes the provisions of this section, the company shall be punishable with fine which shall not be less than ₹ 50,000/- but which may extend to ₹ 25,,00,000/- and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than ₹ 50,000/-  but which may extend to ₹ 5,00,0000/- or with both.

• The amendment substituted a new section for section 134(8).   The newly substituted section 134(8) provides that If a company is in default in complying with the provisions of this section, the company shall be liable to a penalty of ₹ 3,00,000/- and every officer of the company who is in default shall be liable to a penalty of ₹ 50,000/-.

Contravention of section 135

Section 135 of the Act deals with the corporate social responsibility to be undertaken by the eligible companies.  Section 135(7) provides that if a company contravenes the provisions of sub-section (5) or sub-section (6), the company shall be punishable with fine which shall not be less than ₹ 50,000/- but which may extend to ₹ 25,00,000/- and every officer of such 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 ₹ 50,000/- but which may extend to ₹ 5,00,000/-, or with both.

• The amendment bill proposes to substitute a new section for section 135(7).  The newly substituted section 135(7) provides that If a company is in default in complying with the provisions of sub-section (5) or sub-section (6), the company shall be liable to a penalty of twice the amount required to be transferred by the company to the Fund specified in Schedule VII or the Unspent Corporate Social Responsibility Account, as the case may be, or one crore rupees, whichever is less, and every officer of the company who is in default shall be liable to a penalty of one-tenth of the amount required to be transferred by the company to such Fund specified in Schedule VII, or the Unspent Corporate Social Responsibility Account, as the case may be, or ₹ 2,00,000/-, whichever is less.

(To be continued.. in Part II)