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Punishment for fraudulent activities in a company

Punishment for fraud:

punishment

Not having prejudice to any liability which includes the repayment of any debt under this act or any other law for the time being in force, any person who founds to be guilty of fraud, would be punishable with the imprisonment for a term which should not be less than six months but that may extend to ten years and shall be liable to a fine amount which shall not be less than the amount involved in the fraud, but extends to three times the amount involves in the fraud;

If the fraud in question involves public interest, the term of imprisonment would not be less than three years.

Explanation – For the purposes of this section-

  • Fraud which in relation to any affairs of a company or anybody 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, intent to deceive, to gain undue advantage from, or to injure the interests of, the shareholders or its company or its creditors or any other person , whether or not there is any wrongful gain or wrongful loss;
  • Wrongful gain refers to the gain by unlawful means property to which the person gaining would not be legally entitled;
  • Wrongful loss refers to the loss by unlawful means of property in which the person losing is legally entitled.

Punishment for the false statement:

punishment

Save as otherwise provided in this act, if in any report, return, certificate, prospectus, financial statement or other document required by or for the purposes of any of the provisions of this act or the rules made thereunder, any person makes a statement,

  • Which is false in any material particulars, knowing it to be false, or
  • Which omits any material fact, knowing it to be the material; he shall be liable under section 447.

Punishment for false evidence:

punishment

If any person intentionally provides the false evidence, save as provided in this act,

  • Upon solemn affirmation or any examination on oath, authorized under the act; or
  • In any affidavit, deposition or solemn affirmation in or about the winding up of any company under this act or otherwise about any matter arising under this act,

He would be punishable with imprisonment for a term that should not be less than three years but that may extend to seven years with a fine amount that may extend to ten lakh rupees.

Punishment where no specific penalty or punishment is provided:

 If a company or any other person or officers in a company contravenes any of the provisions of this rules or act made thereunder or any limitation, condition or restriction subject to which any approval, consent, sanction, confirmation, direction, recognition or exemption in relation to any matter has been accorded, given or granted and for which no penalty or punishment is provided elsewhere in this act, the company and every officer of the company who is in default or such other persons would be punishable with a fine amount which may extends up to ten thousand rupees and  where the contravention is a continuing one with a further fine amount that may extend to one thousand rupees for every day after the first during which the contravention continues.

Punishment in case of repeated default:

If a person or an officer in a company commits an offence which is punishable either with a fine amount or with an imprisonment and where the same offence been committed for the second or subsequent occasions with the time duration of three years, then that company and every officer thereof who is in default has to be punishable with twice the amount of fine for such offence in addition to any imprisonment provided for that offence.

Punishment for wrongful withholding of property:

  • If any officer or employee of a company;
    • Wrongfully obtains the possession of any property which includes cash of the company; or
    • Having any such property includes cash in his possession, wrongfully withholds it or knowingly applies it for the purposes other than those expressed or directed in the articles and authorized by this act.

He would, on the complaint of a company or any member or creditor or contributory thereof, be punishable with a fine amount which should not be less than one lakh rupees but may extend up to five lakh rupees.

  • The court trying an offence under sub-section (1) may also order such officer or employee to deliver up or refund, within a time to be fixed by it, any property or cash which is wrongfully misapplied, the benefits which have been derived from such property or cash or in default, to undergo imprisonment for a term that may extend to 2 years.

Punishment for improper use of limited or private limited:

punishment  punishment

If any person or person who do trading or carry on business under any title or name, the word “Limited” or the words “ Private limited” or any limitation or contraction is or are the last word or words that each of the people may duly incorporate with a limited liability or unless duly incorporated as a private company with a limited liability as the case may be, would be punishable with a fine amount that should not be less than 500 rupees but can extends up to 2000 rupees for every days for which that name or tile been used.

Adjudication of penalties:

The central government by an order published in the official Gazette, appoint as many officers of the central government, not below the rank of the registrar, as adjudicating officer for adjudging penalty under the provisions of this act in a manner as may be prescribed.

The central government shall while appointing adjudicating officers, specify their jurisdiction in the order under sub-section (1).

The adjudicating officer before imposing any penalty gives 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 under sub-section (3) may prefer an appeal to the regional director having jurisdiction in the matter.

Under sub-section (5), every appeal shall be filed within sixty days from the date on which the copy of the order made by the adjudicating officer has been received by the aggrieved person and shall be in such form, manner can be accompanied by such fee as may be prescribed.

The regional director, after giving the parties to the appeal an opportunity of being heard, passes such order as he thinks fit, confirming, modifying or setting aside the order appealed against.

If a company doesn’t 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, such officer would be punishable with imprisonment which may extends to six months or with a fine amount which should not be less than 25000 rupees but may extend to one lakh rupees or with both.

Dormant company:

If a company is formed and registered under this act for a future project or to hold an asset or intellectual property and has no significant accounting transaction, such a company or an inactive company may make an application to the registrar in such a manner as may be prescribed for obtaining the status of a dormant company.

Explanation: For the purposes of this section:

An inactive company is a company which has not been carrying on any business or operation or hasn’t made any important accounting transaction during the previous financial years or hasn’t filed any financial statements and annual returns during the last 2 financial years.

Significant accounting transaction means any transaction other than

  • Payment of fees by a company to the registrar;
  • Payments which are made by it in order to fulfill the requirements of this act or any other law;
  • Allotment of shares to fulfill the requirements of this act; and
  • The payment for maintaining its office and records.

On consideration, the registrar of the application would allow the status of a dormant company to the applicant and can issue a certificate in such a form as may be prescribed to that effect.

The registrar would maintain a register of dormant companies in such a form as may be prescribed.

A company which has not filed a financial statement or annual returns for two financial years consecutively, the registrar would issue a notice to that company and enter the name of such company in the register maintained for dormant companies.

A dormant company would have a minimum number of directors, can file such documents and pay such annual fee as may be prescribed to the registrar to retain its dormant status in the register and become an active company on an application which is made in this behalf accompanied by such documents and fee as prescribed.

The registrar would strike off the name of a dormant company from the register of dormant companies which has been failed to comply with the requirements of this section.

Protection of action taken in good faith:

No suit, prosecution or other legal proceeding which lie against the government or any officer of the government or any other person in respect of anything which is in good faith done or intended to be done in pursuance of this act of any rules or orders made thereunder or in respect of the publication by or under the authority of the government or such officer of any report paper or proceedings.

Non-disclosure of information in certain cases:

In spite of anything contained in any other law for the time being in force, the registrar, any officer of the government or any other person should not be compelled to disclose to any court, tribunal or any other authority, the source from where he got any information which

  • Has led the central government to order an investigation under section 210; or
  • Is or has been relevant or material in connection with such investigation.
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