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Fraud and Offences Punishable under Companies Act 2013

Priyanka Bajpayee

| Updated: Nov 18, 2019 | Category: Company Registration, MCA Notification

Fraud-and-Offences-under-Companies-Act-2013

In India, Fraud and Offences have taken place in the form of financial, corporate frauds and scams which require the attention of the Lawmakers. Stringent provisions are taken to tackle the frauds and to evaluate the high standards in corporate governance. The increasing tendency of white-collar crimes now results in stiff penalties, impeccable punishments and effective enforcement of the law with the right spirit.

What is fraud reporting under the Companies Act 2013?

Section 143(12) to 143(15) of the Companies Act deals with provisions relating to reporting of Fraud, where the –

  • Statutory auditor,
  • Cost auditor and,
  • The Secretarial Auditor is responsible to detect Fraud.

In the case where the fraud is detected by the Auditor, they have to first inform the Board of Directors and then to the Central government[1].

As per Section 143 (12) of the Act, Fraud reporting is the reporting where the auditor has a reason to believe that an offence involving fraud is being or has been committed against the company by officers or employees of the company, the auditor shall immediately report the matter to the Central Government within such time and in such manner as prescribed under the Companies (Audit & Auditors), Rules, 2014.

Sections dealing in the Companies Act, 2013

Section 447 to Section 453 deals in Penalties and Punishment under the Companies Act 2013-

Section Provision
447 Punishment for Fraud
448 Punishment for False Statement
449 Punishment for false evidence
450 Punishment where no specific penalty is provided
451 Punishment in case of repeated defaults
452 Punishment for wrongful withholding of property
453 Punishment for inappropriate use of Limited or Private limited.

Section 447

Section 447 deals with the punishment for fraud i.e. if any person who is found to be guilty of fraud involving an amount of at least-

  • 10 lakh Rupees or,
  • 1% of Turnover of a Company, whichever is less

Penal Provision – Imprisonment for a term which shall not be less than –

  • Minimum-6 Months, However, the imprisonment of 3 years if the Fraud in question involves Public Interest.
  • Maximum-The imprisonment may extend to 10 years.

Fine – The fine shall not be less than the amount of fraud involved, which may extend to 3 times of the amount involved in the fraud.

As per the Proviso Inserted by the Companies Amendment Act 2017

Note – Provided where the fraud involves an amount less than the amount mentioned above-i.e.

  • 10 lakhs or 1% of the turnover whichever is lower,
  • Does not involve Public interest

Any person guilty of the above-mentioned fraud shall be punishable with imprisonment for a tenure which may extend to-

  • Imprisonment-5 years
  • Fine-May extend to 25 lakh rupees or both

Section 448

Section 448 deals with punishment for false statement i.e. if a person makes or gives a false statement or false material particulars (Knowing it to be false) or discard any material facts in any manner (Knowing it to be material) of the below-mentioned documents with its full knowledge-

  • Return or certificate under the Companies Act,2013
  • Prospectus under the Companies Act 2013
  • Statement/Documents prescribed to be made under the Companies Act 2013.

Punishment – liable for punishment as per Section 447 of the Companies Act 2013

Section 449

It deals in punishment for False Evidence i.e. if the person intentionally gives false evidence –

  • Upon any examination on oath,
  • Any affidavit/document submitted about the winding up of the company OR
  • Any matter related to the Companies Act.

Penal Provision –

  • Minimum – Imprisonment for a period of not less than 3 years.
  • Maximum 7 years

  Fine – Fine up to Rs 10 lakh.

Section 450

It deals with the punishment where no specific penalty is provided. i.e. if the employee or the officer commits any offence or contravenes the provision of the companies Act, where no specific penalty or punishment is provided.

Fine – Up to Rs.10,000 plus a fine up to Rs 1000 per day (if an offence is a Continuing one)

Section 451

It deals in case of repeated default i.e.If a company or an officer commits an offence punishable-

  • either with fine or
  • with imprisonment and
  • where the same offence is committed for the 2ndor ensuing occasions within a period of 3 years then-
  • The company and every officer who is in default shall be punishable with fine-Twice the amount of fine for such offence in addition to any imprisonment provided for that offence.

Applicability of the section is not to the offence repeated after a period of three (03) years from the commitment of the first offence.

Section 452

It deals with punishment for wrongful withholding of property i.e. if any officer, employee or ex-employee of the company has wrongfully obtained the possession of the property or wrongful withholding of the property.

It includes cash of the company.

Fine – A employee or officer will be punishable with fine which shall not be less than Rs 1 lakh which may extend to Rs 5 lakh

Section 453

It deals with the punishment for inappropriate use of the limited or private limited word without the registration/or removes the word limited or private limited while entering into a contract or acting on the behalf of the company.

Fine – He shall be punishable with fine which shall not be less than Rs 500 and may extend to Rs.2000 for every day for the time that name has been used.

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Priyanka Bajpayee

Priyanka Bajpayee has done Masters in International Business Law and well versed in content writing covering the area of legal and finance. Also, she has practical experience of almost 1.5 years in Legal compliance and secretarial work.

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