Corporate criminal liability

Corporate Criminal Liability under Companies Act, 2013

Companies Act, 2013 which has replaced the Companies Act, 1956 has increased the corporate liability of the directors. The Act has also increased the monetary penalties and imprisonment. Not only corporate criminal liability under Companies Act, 2013 is recognized but the act also recognizes civil liabilities. The Companies Act, 2013 not only makes the director criminally liable but also include officers in default under the concept of corporate criminal liability in India.

The term Officer in a default is a broad term and can include whole-time director, key managerial personnel and such other directors in the absence of KMP who has been specified by the Board of Directors and every other director who is aware of the default which is being done by virtue of receiving of board proceedings or by participating in same without raising any objection or where non-compliance has taken place with his consent or connivance.

The corporate criminal liability is recognized under the following sections of the Companies Act, 2013 –

  • Section 53 – Prohibition on an issue of shares on discount – The company will be fined for the amount not less than one lakh but which may extend up to five lakhs. Further, the officer in default may be imprisoned for up to six months or fine of minimum one lakh which may extend to five lakhs or both.
  • Section 118(12) – Minutes of proceedings of general meeting, meeting of Board of Directors and other meeting and resolutions passed by postal ballot-  If a person is found tampering with the minutes of meeting then such an officer in default may be imprisoned for the term which may extend to 2 years or with fine of not less than twenty-five thousand but may extend to one lakh.
  • Section 128(6) – Books of account, etc., to be kept by Company-  Officer in default- Maximum imprisonment of 1 year or Fine- Not less than Rs. 50,000 and may extend to Rs. 5 lakhs or with both.
  • Section 129(7) – Financial statement – Officer in default- Maximum imprisonment of 1 year or Fine- Not less than Rs. 50,000 and may extend to Rs. 5 lakhs or with both.
  • Section 134 – Financial statement, Board’s report, etc- Company-Fine- Not less than Rs. 50,000 and may extend to Rs.25 lakhs and Officer in default- Maximum imprisonment of 3 years or Fine- Not less than Rs. 50,000 and may extend to Rs. 5 lakhs or with both.
  • Section 188(5) – Related party transactions- In case of unlisted Company, be punishable with fine which shall not be less than 25,000 rupees but which may extend to 5 lakh rupees.
  • Section 57 – Punishment for personation of shareholder- Such person in default- Minimum 1 year to Maximum 3 years imprisonment or Fine- Not less than Rs. 1 lakh and may extend to Rs. 5 lakhs.
  • Section 58(6) – Refusal of registration and appeal against refusal- Such person in default- Minimum 1 year to Maximum 3 years imprisonment or Fine- Not less than Rs. 1 lakh and may extend to Rs. 5 lakhs.
  • Section 182(4) – Prohibitions and restrictions regarding political contributions.- Company-Fine- 5 times of the amount of contribution in contravention and Officer in default- Maximum imprisonment of 6 months and Fine- 5 times of the amount of contribution in contravention.
  • Section 184(4)- Disclosure of interest by the director – Such person in default- Minimum 1-year imprisonment or Fine- Not less than Rs. 50,000 and may extend to Rs. 1 lakh or both.
  • Section 187(4)- Investments of Company to be held in its own name – Company-Fine- Not less than Rs.25,000 and may extend to Rs.25 lakhs and Officer in default- Maximum imprisonment of 6 months or Fine- Not less than Rs. 25,000  and may extend to Rs. 1 lakh or with both.
  • Section 447- Punishment for fraud – Any person who is found to be guilty of fraud- Maximum imprisonment of 6 months may extend to 10 years. Such person also liable to fine which may extend up to 3 times the amount involved.

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