Punishment for Fraud under Company Law by Snigdha Mohapatra @LexCliq

Section 447 provides a penalty for fraud in relation to the affairs of a company or anybody corporate. Any act, omission, concealment of facts or abuse of position with intent to deceive, to gain undue advantage or to injure the interest of the company or its shareholders or its creditors or any other person will construe within the meaning of this section. A person who connives with another with such intent is also
guilty of fraud. The person guilty of fraud involving an amount of at least ten lakh rupees or one per cent of the turnover of the company, whichever is lower shall be punishable with imprisonment at a minimum of six months but may extend to ten years and fine not less than the amount involved in the fraud but may extend to three times the amount of the fraud. The minimum imprisonment for fraud involving public interest shall be three years. It may be noted that it is not necessary that the alleged act or omission must lead to any wrongful gain or wrongful loss, a mere intent is sufficient. In case of a fraud that involves an amount less than ten lakh rupees or one per cent of the turnover of the company, whichever is lower, and does not involve public interest, the punishment shall be imprisonment for a term which may extend to five years or with fine which may extend to fifty lakh rupees or with both.

  1. Penalties for false statements and evidence- As per section 448 of the Act, if in any return, report, certificate, financial statement, prospectus, statement or other document required by or for the purposes of any of the provisions of the Act, any person makes a statement, (a) which is false in material particular (knowing it to be false) or (b) which omits any material fact (knowing it to be material), he shall be liable under Section 447. Section 449 prescribes punishment for any person that 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 under this Act or otherwise in or about any matter arising under this Act. The person giving the false evidence shall be punishable with imprisonment for a term which shall not be less than three years but which may extend to seven years and with a fine which may extend to rupees ten lakh.
  2. Penalty for wrongful holding of Property- Under section 452 If any officer or employee of a company wrongfully obtains possession of any property (including cash) of the company or having any such property (including cash) in his possession wrongfully withholds it or knowingly applies it to purposes other than those expressed or directed in the Articles and authorised by the Act, he shall, on the complaint of the company or any creditor or contributory thereof, be punishable with fine which shall not be less than rupees one lakh but may extend to rupees five lakh. The Court trying the offence may also order such officer or employee to deliver up or refund, within a given time, the property including cash in question and the benefits derived from such property or cash.
  3. Penalty for improper use of words ‘Limited’ and ‘Private Limited’- Section 453 specifies any improper or unauthorised use of these words at the end of the name of the entity will attract a penalty not less than of rupees five hundred for every day during which the improper or unauthorised use has been made but may extend to rupees two thousand per day of improper use.
  4. In case of repeated default- Section 451 provides a company or an officer of a company who commits an offence punishable either with fine or with imprisonment and where the same offence is committed for the second or subsequent occasions within a period of three years, then, that company and every officer thereof who is in default shall be punishable with twice the amount of fine for such offence in addition to any imprisonment provided for that offence.
  5. Power of Central Government to make rules– Section 469 empowers the Central Government to make rules in respect of matters specified in the Act as also to generally carry on the purposes of the Act. Rules so made may prescribe punishment with fine (only) not exceeding rupees five
    thousand, with a further fine not exceeding rupees five hundred for contravention of the rule and for continuing the same.



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