Select Your Location
An illegal association causes loss and encourages unlawful activities such as non-payment of taxes, thus affecting the company and the economy negatively. Section 464 of companies Act 2013 has defined the term “Illegal Association”. In this article, we shall have a detailed review of this section of the Companies Act.
Table of Contents
As per this section, if any association or a partnership firm consists of more than such number of persons as prescribed by law and engages in a profit-generating business without registering itself as a company under the Companies Act or is formed under any other law. Previously, Section 464 was recognised as section 11 of the Companies Act 1956.
Legal Meaning– An association contravening the provision of this section will be termed as an Illegal Association. Under this section, an illegal association may not mean an association for illegal purpose. It means that if any association is unregistered under law and termed as an illegal association, that doesn’t imply that the business is illegal or unlawful.
So to summarize it for you, illegal association means:
As per rule 10 of Companies (Miscellaneous) Rules, 2014, no association/partnership, can be formed of more than 50 persons for carrying on any business that engaged in profit generating business provided it is registered as a company under the Act or is formed under any other law.
Moreover, section 464 of the Act prescribes that Central Government has the power to raise such number of persons, maximum to 100.
It is worth mentioning here that this section will not apply to:
It may be noted here that in case 2 or more HUF carries on any profit generating business jointly and forms a firm of more than 50 people, then it would be covered under Section 464 of the Act. While calculating the number of members under HUF minor members, that mean persons below 18 years of age, won’t be counted.
In case any partnership form or association fails to comply with the provisions of this section, then the following consequences shall follow:
Each member associated with such illegal association or partnership firm would be liable for a fine of up to 1 lakh rupees. Further, he shall be personally liable for all liabilities incurred in such business.
There are certain essential points that one should be aware of in this section. They are as follows:
It is worth to note here that offences committed under this section of the Companies Act 2013 is compoundable for officers by Regional Director.
The Directors’ Liability of an Illegal Association is unlimited. Third-party can sue every director personally for recovery of their due.
Selling the shares of such association shall be an illegal activity. In case the shares are sold through brokers, then such broker can’t ask for commission. The buyer also can’t recover its money paid to the broker as commission.
Such illegal association not existing under the law cannot be wound up by a tribunal.
Here we look at a case law related to illegal association-
Case of Seth Badri Prasad and Otrs. Vs. Seth Nagarmal
In this case, an association was formed by cloth vendors when a regulation was passed in cloth control in Rewa state with a President and Pioneer. However, there was a sudden dispute on accounts, and the matter was taken to the trial court. On appeal, it was held by the apex court that as to the last contention of the learned counsel for the appellants, it was pointed out that under Indian Partnership Act 1932, an unregistered firm is not illegal, and there is no compulsion for a partnership firm to be registered, though the disabilities consequent on non-registration can be inconvenient.
With an illegal association comes loss and rises unlawful activities such as non-payment of taxes and such other issues. Therefore, it can be concluded that every company or association should comply with section 464 of the Companies Act 2013 as illegal association can affect the growth of the nation. Therefore its compliance is indispensable.
Read our article:Essential Post Incorporation Compliances for Companies
Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on corporate law. He is a creative thinker and has a great interest in exploring legal subjects.
Black money has been the subject of heated political debate in India for a long time. Successiv...
The Apex Court pronounced a judgement in the case titled Tata Motors Vs The Brihan Mumbai Elect...
Since economies are moving towards digitalisation and making it feasible to conduct transaction...
The Alternative Investment Funds (AIFs) Pro-rata and Pari-Passu Rights Proposal Consultation Pa...
The Financial Action Task Force, i.e. FATF (the Force), is the global money laundering and terr...
Advance tax refers to the payment of the tax liability before the end of the relevant financia...
On 11.12.15, the Hon’ble Delhi High Court (HC) pronounced a landmark judgement in the case ti...
Money laundering can be defined as the process of illegal concealment of the origin of money ob...
Every assessee in India is obligated to file an income tax return and make the timely payment o...
In the recent past, India has seen burgeoning demand for internet and smartphones. The rapid ri...
Are you human?: 3 + 9 =
Easy Payment Options Available No Spam. No Sharing. 100% Confidentiality
As per the Companies Act, 2013, A Charge is an interest or lien created on the assets or property of a Company o...
02 Nov, 2019
We are looking at the significance of ESI registration in this article but before that let’s understand its meani...
22 Jul, 2017
Red Herring Top 100 Asia enlists outstanding entrepreneurs and promising companies. It selects the award winners from approximately 2000 privately financed companies each year in the Asia. Since 1996, Red Herring has kept tabs on these up-and-comers. Red Herring editors were among the first to recognize that companies such as Google, Facebook, Kakao, Alibaba, Twitter, Rakuten, Salesforce.com, Xiaomi and YouTube would change the way we live and work.
Researchers have found out that organization using new technologies in their accounting and tax have better productivity as compared to those using the traditional methods. Complying with the recent technological trends in the accounting industry, Enterslice was formed to focus on the emerging start up companies and bring innovation in their traditional Chartered Accountants & Legal profession services, disrupt traditional Chartered Accountants practice mechanism & Lawyers.
Stay updated with all the latest legal updates. Just enter your email address and subscribe for free!
Chat on Whatsapp
Hey I'm Suman. Let's Talk!