Penalties - Offences & Penalties, Company Law | Company Law - B Com PDF Download

Punishment for Fraud (Section 447)

Explanation to Section 447 defines the term ‘Fraud’ as –

1. “fraud” in relation to affairs of a company or any body 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;
2. “wrongful gain” means the gain by unlawful means of property to which the person gaining is not legally entitled;
3. “wrongful loss” means the loss by unlawful means of property to which the person losing is legally entitled.

Fraud is punishable with imprisonment for a term of not less than six months but it may extend to ten years. The liability towards fine is not less than the amount involved in the fraud but it may extend to three times the amount. Where the fraud involves public interest ,the imprisonment shall not be less than three years. This is without prejudice to the repayment of any debt involved in fraud.

Punishment for False Statement (Section 448) 

Any person making a statement which is false in any material particulars knowing it to be false or omission to make material fact knowing it to be material, in relation to any return, report, certificate, financial statement, prospectus statement or other document required by the provisions of this Act or the rules made there-under, the punishment for the same is as applicable for fraud under Section 447.

Punishment for False Evidence (Section 449)

If any person intentionally gives false evidence upon any examination on oath or solemn affirmation authorised under this Act or in any affidavit, deposition or solemn affirmation in or about the winding up of any company, he shall be punishable with imprisonment for a term which shall not be less than three years but it may extend to seven years and with fine which may extend to rupees ten lakh.

Punishment Where No Specific Penalty or Punishment Is Provided (Section 450)

If a company or any officer of the company or any other person contravenes any of the provisions of proposed Act or the rules there-under or any condition, limitation, or restriction subject to which any approval is given or granted for which no penalty or punishment is provided elsewhere, then the company and every officer thereof who is in default or such other person is punishable with fine extending it to rupees ten thousand and where the contravention is a continuing offence, with a further fine extending it to rupees one thousand for every day during which the contravention continues.

Punishment In Case Of Repeated Default (Section 451)

In the case of repeated default committed for the second or subsequent occasions within a period of three years, then the company and every officer thereof who is in default is punishable with twice the amount of fine for such offence, in addition to any imprisonment for the same.

Punishment for Wrongfully Withholding Of Property (Section 452)

If any officer or employee of a company wrongfully obtains possession of any property including cash or having such property wrongfully withholding it or knowingly applies it for the purpose other than expressed or directed in the articles and authorised by this Act, then he shall, on the complaint of the company or any member or creditor or contributory thereof, be punishable with fine of not less than rupees one lakh but it may extend to rupees five lakh. The court trying an offence may also order restoration of property and in default thereof, the person is punishable with imprisonment for a period of two years.

Punishment for Improper Use of the Word “Limited” Or “Private Limited” (Section 453)

If any person carries on trade or business under the name or title of which the word “limited” or the words “private limited” or any construction or imitation thereof, unless duly incorporated with limited liability or as a private company with limited liability, as the case may be, is punishable with fine of not less than rupees five hundred but it may extend to rupees two thousand for every day during 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 as many officers of the Central Government, not below the rank of Registrar, as adjudicating officers for adjudging penalty under the provisions of this Act in the manner as may be prescribed.

The Central Government shall while appointing adjudicating officers, specify their jurisdiction in the order. The adjudicating officer may, by an order impose the penalty on the company and the officer who is in default stating any non-compliance or default under the relevant provision of the Act.

The adjudicating officer shall, before imposing any penalty, give a reasonable opportunity of being heard to such company and the officer who is in default. Any person aggrieved by an order made by the adjudicating officer may prefer an appeal in Form No. ADJ to the Regional Director having jurisdiction in the matter. Every appeal shall be filed within sixty days from the date on which the copy of the order made by the adjudicating officer is received by the aggrieved person and shall be in such form, manner and be accompanied by such fees as may be prescribed. The Regional Director may, after giving the parties to the appeal an opportunity of being heard, pass such order as he thinks fit, confirming, modifying or setting aside the order appealed against. When the company does not pay the penalty imposed by the adjudicating officer or the Regional Director 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 twentyfive thousand rupees but which may extend to five lakh rupees.

When an officer of a company who is in default does not pay the penalty within a period of ninety days from the date of 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.

Companies (Adjudication of Penalties) Rules, 2014

• Before adjudging penalty, the adjudicating officer shall issue a written
• A written notice to the company and to every officer of the company who is in default, to show cause, within such period as may be specified in the notice (not being less than fifteen days and more than forty five days from the date of service thereon), why the inquiry should not be held against him. Every notice issued under this sub-rule, shall clearly indicate the nature of noncompliance or default under the Act alleged to have been committed or made by such company and officer in default, as the case may be:
• While adjudging quantum of penalty, the adjudicating officer shall
• have due regard to the following factors, namely:-

(a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default;

(b) the amount of loss caused to an investor or group of investors or creditors as a result of the default;

(c) the repetitive nature of the default. 

Every appeal against the order of the adjudicating officer shall be filed in writing with the Regional Director having jurisdiction in the matter within a period of sixty days from the date of receipt of the order of adjudicating officer by the aggrieved party, in Form ADJ setting forth the grounds of appeal and shall be accompanied by a certified copy of the order against which the appeal is sought.