Protection of public interest and minorities are some of the key factors on
which the Companies Act, 2013 (hereinafter referred to as the “New Act”)
stresses more than anything. Hence, the new Act certifies much stricter and
structured rules for offences and penalties. Many of these offences have been
classified as non-bailable . Hence, it gets very important for the key decision
makers of the
company to exercise caution and accountability. These rules have been brought in the view of introducing a better corporate governance thereby reducing the various scams and frauds in the long term. In this article, we would be listing the various non-bailable and bailable offences as per Companies Act, 2013- ‘Offences under Companies Act, 2013 that you should know ”
This means that a bail for such offences can be granted only:
(i) after the public prosecutor has been given an opportunity to oppose the same; and
(ii) the Court has sufficient reason to believe that the person is not guilty of offence and is not likely to commit any offence when on bail.
However, the following classes of people are exempt from the provisions of this Act:
• A woman
• A person under the age of 16 years
• Sick
• An infirm person, who otherwise may be released on bail subject to discretion of Court.
• Furnishing any false or incorrect information or representation or by suppressing any material fact or information in any of the documents or declaration filed or made during incorporation of company, or by any fraudulent action-promoters, first directors of the company and/or an advocate, a chartered accountant, cost accountant or company secretary in practice, engaged in the formation of the company and a person named in the articles as a director, manager or secretary of the company shall be liable for this offence.
• Untrue or misleading statements stated in prospectus or where any inclusion or omission of any matter is likely to mislead- Every person who authorizes the issue of such prospectus shall be liable.
• Knowingly or recklessly making any statement, promise or forecast which is false, deceptive or misleading, or deliberately conceals any material facts, to induce another person to enter into, or to offer to enter into any agreement: (i) with a view to acquiring, disposing of, subscribing for, or underwriting securities, or (ii) the purpose or the pretended purpose of which is to secure a profit to any of the parties from the yield of securities or by reference to fluctuations in the value of securities, or (iii) with a view to obtain credit facilities from any bank or financial institution. Any person making such promise shall be liable.
• Abetments: (i) of an application in a fictitious name to a company for acquiring, or subscribing for, its securities, or (ii) of multiple applications to a company in different names or in different combinations of his name or surname for acquiring or subscribing for its securities, or (iii) inducing directly or indirectly a company to allot, or register any transfer of securities to him, or to any other person in a fictitious name – Any person making such abetments shall be liable.
• Issue of duplicate share certificates with the intention to defraud company and every defaulting officer of the company shall be liable
• Transfer of shares with an intention to defraud- Depository or depository participant shall be liable.
• Knowingly: (i) conceals the name of any creditor entitled to object to the reduction,(ii) misrepresents the nature or amount of the debt or claim of any creditor,(iii) abets or is privy to any such concealment or misrepresentation – A person who knowingly commits the same shall be liable.
• Auditor against whom order passed by Tribunal confirms acting in a fraudulent manner or abetting or colluding in any fraud by, or in relation to the company—Auditor of the Company shall be liable.
• Business of a company being carried for a fraudulent or unlawful purpose or not in compliance with the provisions of the Act or if the grievances of investors are not being addressed – Every officer of the company in default shall be liable.
• The business of the company is being conducted with an intent to defraud its creditors, members or any other persons or otherwise for a fraudulent or unlawful purpose, or that the company was formed for any fraudulent or unlawful purpose, or (ii) any person concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud – Every officer of the company who is in default and the person or persons concerned in the formation of the company or the management of its affairs shall be held liable for this offence.
• (i) Any destruction, mutilation or falsification, or concealment or tampering or unauthorized removal of documents relating to the property, assets or affairs of the company or the body corporate, (ii) false entry in any document concerning the company or body corporate, or (iii) explanation which is false or which is known to be false; during the course of any inspection, inquiry or investigation – Any person or an officer or other employee of a company or other body corporate required to make statement under investigation shall be liable.
• Application by a company under section 248(2) with an intention of evading the liabilities of the company or with the intention to deceive the creditors or to defraud any other person – Persons in charge of the management of the company shall be held liable for this offence.
• During winding up of a company, it appears that any business of the company has been carried on with an intent to defraud creditors of the company or any other persons or for any fraudulent purpose – Any person, who is or has been a director, manager, or officer of the company or any person who knowingly was party to the carrying on of the business in a fraudulent manner shall be held liable.
• Any return, report, certificate, financial statement, prospectus, statement or other document required by, or for the purposes of any of the provisions of this Act or the rules made thereunder: (i) which is false in any material particulars, knowing it to be false, or (ii) which omits any material fact, knowing it to be material – Any person making/providing such statement shall be liable.
• Right to know the grounds of arrest.
• Right to bail.
• Right to be examined by a doctor.
• Right to be produced before the Magistrate of Court.
• Right to inform a relative or friend.
• Right to consult a lawyer.
• If any person intentionally gives false evidence, he shall be punishable with imprisonment for a term which shall not be of less than three years but it may extend to seven years with fine which may extend to rupees ten lakh.
• In case of contravention of provisions under the New Act or the Rules, for which no penalty or punishment is provided elsewhere, the Company and every officer thereof who is in default or such other person is punishable with a fine extending to rupees ten thousand. Where the contravention is a continuing offence, with a further fine extending to Rs. one thousand for every day during which the contravention continues.
• Punishment for making a false statement is the same as is applicable for a fraud.
• In case of repeated default committed for the second or subsequent occasion within a period of three years, the company and every officer thereof who is in default is punishable with twice the amount of fine for such offence, in addition to any imprisonment for the same.
• If any employee of a company wrongfully obtains possession of any property including cash or having such property wrongfully, withholding it or knowingly applies it for the purpose other than expressed or directed in the Articles of Association and authorised by this New Act, then he shall, on the complaint of the company or any member or creditor or contributory thereof, be punishable with a fine of not less than rupees one lakh but it may extend to rupees five lakh. Further, the Court trying an offence may also order restoration of property and in default thereof, the person is punishable with imprisonment for a period of two years.
To conclude, the new Act has introduced some revolutionary concepts in this field of offences and frauds. This might seem to be on a stricter side but these indeed are a welcome measure. However, the exemptions granted to women and person under 16 years does defeat the purpose to a great extent.
company to exercise caution and accountability. These rules have been brought in the view of introducing a better corporate governance thereby reducing the various scams and frauds in the long term. In this article, we would be listing the various non-bailable and bailable offences as per Companies Act, 2013- ‘Offences under Companies Act, 2013 that you should know ”
What is an “Offence”?
“Offence” is to be interpreted as per the definition in Criminal Procedure Code, which defines offence as “any act or omission made punishable by any law for the time being in force”. Indian Penal Code is also of the same view. Hence, by definition, any wrongful or criminal act can be termed as such only when it has been made punishable by the Act EXPRESSLY.Bailable and Non- Bailable Offense:
Whether a particular offence is bailable or is it non-bailable is not specified in the code. It generally is case specific. Bailable offence means an offence which is shown as bailable in the First Schedule of the said Code or the offence is made bailable by any other law for the time being in force. Usually less serious offences are classified as bailable, although there is no particular definition or specification for the same. First schedule of the codes puts forth that offences that are punishable with imprisonment of less than 3 years are usually considered bailable. On the other hand, all those offences which are not bailable are considered as non-bailable offence.What is “Bail”?
Bail means temporary release from imprisonment on furnishing requisite security/ surety to appear for trial. Bail can be granted only until the accused is found guilty and sentenced. It is basically the right to apply for individual freedom which is the very essence of our Constitution.Can Bail be granted for Non-Bailable Offences?
As discussed earlier, non-bailable offences are mostly serious crimes and frauds and hence the general rules for bail does not apply to these. Grant of bail for such offences is purely at the discretion of the Court. The Court after recording reasons and being satisfied that there are reasonable grounds for believing that the accused is not guilty of such an offence and that he is not likely to commit any offence while on bail, may release an accused on bail. However, persons accused of offences punishable with death, life imprisonment or imprisonment for seven years or more can be released on bail only after giving an opportunity of hearing to the public prosecutor to oppose the application for such release.Non-Bailable offences under Companies Act, 2013:
Notwithstanding anything contained in the Code of Criminal Procedure, 1973, the New Act lists out and recognize offences which are cognizable in nature which attract the punishment for fraud. This means that if there arises any inconsistency between the clause as per this section of the Act (section 212 and 447) and the criminal code, then the provisions of the Act shall prevail. Thus, the limitation aforesaid on grant of bail is in addition to the limitation under the Criminal Procedure Code or under any other law for the time being in force.This means that a bail for such offences can be granted only:
(i) after the public prosecutor has been given an opportunity to oppose the same; and
(ii) the Court has sufficient reason to believe that the person is not guilty of offence and is not likely to commit any offence when on bail.
However, the following classes of people are exempt from the provisions of this Act:
• A woman
• A person under the age of 16 years
• Sick
• An infirm person, who otherwise may be released on bail subject to discretion of Court.
Offences categorized as Non-Bailable:
• Furnishing false or incorrect particulars of any information or suppressing any material information, with the Registrar of Companies in relation to the registration of a company.• Furnishing any false or incorrect information or representation or by suppressing any material fact or information in any of the documents or declaration filed or made during incorporation of company, or by any fraudulent action-promoters, first directors of the company and/or an advocate, a chartered accountant, cost accountant or company secretary in practice, engaged in the formation of the company and a person named in the articles as a director, manager or secretary of the company shall be liable for this offence.
• Untrue or misleading statements stated in prospectus or where any inclusion or omission of any matter is likely to mislead- Every person who authorizes the issue of such prospectus shall be liable.
• Knowingly or recklessly making any statement, promise or forecast which is false, deceptive or misleading, or deliberately conceals any material facts, to induce another person to enter into, or to offer to enter into any agreement: (i) with a view to acquiring, disposing of, subscribing for, or underwriting securities, or (ii) the purpose or the pretended purpose of which is to secure a profit to any of the parties from the yield of securities or by reference to fluctuations in the value of securities, or (iii) with a view to obtain credit facilities from any bank or financial institution. Any person making such promise shall be liable.
• Abetments: (i) of an application in a fictitious name to a company for acquiring, or subscribing for, its securities, or (ii) of multiple applications to a company in different names or in different combinations of his name or surname for acquiring or subscribing for its securities, or (iii) inducing directly or indirectly a company to allot, or register any transfer of securities to him, or to any other person in a fictitious name – Any person making such abetments shall be liable.
• Issue of duplicate share certificates with the intention to defraud company and every defaulting officer of the company shall be liable
• Transfer of shares with an intention to defraud- Depository or depository participant shall be liable.
• Knowingly: (i) conceals the name of any creditor entitled to object to the reduction,(ii) misrepresents the nature or amount of the debt or claim of any creditor,(iii) abets or is privy to any such concealment or misrepresentation – A person who knowingly commits the same shall be liable.
• Auditor against whom order passed by Tribunal confirms acting in a fraudulent manner or abetting or colluding in any fraud by, or in relation to the company—Auditor of the Company shall be liable.
• Business of a company being carried for a fraudulent or unlawful purpose or not in compliance with the provisions of the Act or if the grievances of investors are not being addressed – Every officer of the company in default shall be liable.
• The business of the company is being conducted with an intent to defraud its creditors, members or any other persons or otherwise for a fraudulent or unlawful purpose, or that the company was formed for any fraudulent or unlawful purpose, or (ii) any person concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud – Every officer of the company who is in default and the person or persons concerned in the formation of the company or the management of its affairs shall be held liable for this offence.
• (i) Any destruction, mutilation or falsification, or concealment or tampering or unauthorized removal of documents relating to the property, assets or affairs of the company or the body corporate, (ii) false entry in any document concerning the company or body corporate, or (iii) explanation which is false or which is known to be false; during the course of any inspection, inquiry or investigation – Any person or an officer or other employee of a company or other body corporate required to make statement under investigation shall be liable.
• Application by a company under section 248(2) with an intention of evading the liabilities of the company or with the intention to deceive the creditors or to defraud any other person – Persons in charge of the management of the company shall be held liable for this offence.
• During winding up of a company, it appears that any business of the company has been carried on with an intent to defraud creditors of the company or any other persons or for any fraudulent purpose – Any person, who is or has been a director, manager, or officer of the company or any person who knowingly was party to the carrying on of the business in a fraudulent manner shall be held liable.
• Any return, report, certificate, financial statement, prospectus, statement or other document required by, or for the purposes of any of the provisions of this Act or the rules made thereunder: (i) which is false in any material particulars, knowing it to be false, or (ii) which omits any material fact, knowing it to be material – Any person making/providing such statement shall be liable.
DIRECTOR’S LIABILITY:
A director is liable only in situations where the concerned director was aware of any contravention, i.e. through receipt of Board’s proceedings and did not object to such contravention or in cases where such contravention took place with his consent.SERIOUS FRAUD INVESTIGATION OFFICE:
The new Act has provisioned for setting up of Serious Fraud Investigation Office for investigation in the serious offences by a company on the basis of: (i) a report by the Registrar of Companies or Inspector under section 208, (ii) special resolution passed by a company that its affairs are required to be investigated.(iii) in the public interest. (iv) on request from any Department of the Central Government or a State Government.RIGHTS GIVEN UNDER THE CODE TO AN ARRESTED PERSON:
A person arrested on the above grounds have the following rights conferred to him:• Right to know the grounds of arrest.
• Right to bail.
• Right to be examined by a doctor.
• Right to be produced before the Magistrate of Court.
• Right to inform a relative or friend.
• Right to consult a lawyer.
APPOINTMENT OF COMPANY PROSECUTORS:
Notwithstanding anything contained in the Code of Criminal Procedure, 1973, the Central Government may appoint generally or for any specified class of cases in any local area, one or more persons as company prosecutors for the conduct of prosecution arising out of this Act. Persons so appointed shall have all the powers and privileges conferred by the Code on Public Prosecutors appointed.PUNISHMENTS FOR OFFENCES:
• If any person intentionally gives false evidence, he shall be punishable with imprisonment for a term which shall not be of less than three years but it may extend to seven years with fine which may extend to rupees ten lakh.
• In case of contravention of provisions under the New Act or the Rules, for which no penalty or punishment is provided elsewhere, the Company and every officer thereof who is in default or such other person is punishable with a fine extending to rupees ten thousand. Where the contravention is a continuing offence, with a further fine extending to Rs. one thousand for every day during which the contravention continues.
• Punishment for making a false statement is the same as is applicable for a fraud.
• In case of repeated default committed for the second or subsequent occasion within a period of three years, the company and every officer thereof who is in default is punishable with twice the amount of fine for such offence, in addition to any imprisonment for the same.
• If any employee of a company wrongfully obtains possession of any property including cash or having such property wrongfully, withholding it or knowingly applies it for the purpose other than expressed or directed in the Articles of Association and authorised by this New Act, then he shall, on the complaint of the company or any member or creditor or contributory thereof, be punishable with a fine of not less than rupees one lakh but it may extend to rupees five lakh. Further, the Court trying an offence may also order restoration of property and in default thereof, the person is punishable with imprisonment for a period of two years.
To conclude, the new Act has introduced some revolutionary concepts in this field of offences and frauds. This might seem to be on a stricter side but these indeed are a welcome measure. However, the exemptions granted to women and person under 16 years does defeat the purpose to a great extent.
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