March 1, 2024

Criminal offences and penalties under the Companies Act

This article has been written by Ms. Shubhangi Kusum, a 4th year student of ICFAI University Jharkhand.

Abstract 

There is a need of law for the proper functioning, welfare and to maintain equality amongst the society. For the violation of any law there are various penalties under the penal system and other penal laws which are designed to deter individuals from engaging in unlawful behaviour. They bind the hand of the individuals from commission or omission of the offence at an instance. There are various things which are considered while committing any offences and penalties under the companies. So, for the offences against the criminal nature are also punished under various sections of the Companies Act.  The company’s act is also facilitated with various mechanism with can safeguard the occurrence of any dispute or conflicts within an organization. This article consists of various topics related to the commission of the offence, offences which are considered as criminal in nature, and which have penalties and punishments under the act. There is a need of law to govern the proper functioning of rules and regulations which are required to maintain peace and harmony in between the company. There are laws by which one can understand the things what to do and what not to. It gives a basic idea for the development of things which are illegal and unlawful by which there will be punishment mentioned under various sections under the company act. This article presents an idea to explore the various aspects of companies’ law under various circumstances. The companies act,2013 serves as the foundational regulation governing companies in India. It gives an idea and the mechanism for addressing the non-compliance with its provisions during the business operations. Let’s understand these by this article which presents a vast and unique idea about the regulation and governance of criminal offences and penalties under the Companies Act,2013.

Introduction

The “offences and penalties under company act,2013” consider a comprehensive framework that outlines various legal violations and breach that the companies can commit and the penalties correspondence to it. This is the framework which perfectly aims to ensure various corporate responsibility, accountability and other corporate compliance in the corporate environment.The act specifies offenses, categorizes penalties, and ensures that companies adhere to regulations to maintain transparency and upholds the interest of stakeholders and the public. There is various criterion of legal framework which has its aim to ensure accountability and responsible behaviour within the working environment and to enhance the business culture within the working environment. The Companies Act,2013 in India basically describes offences and penalties for companies. There are various key violations which include filing false information, non-compliance with reporting of financial, corporate governance norms, and related party transaction disclosure. There should be various issue such as failure to hold annual general meets, insider trading as well as not paying the dividends also incur penalties. There are certain rules and decisions which are taken by the board of directors and the upper management level in which, breach of these rules as well as deposit regulations also incur consequences related to penalties. The other important thing is violation of investor protection regulations also leads to certain penalties and imprisonment for many company officials. As a result, these measures aim to ensure the transparency and accountability among the companies, and it also promotes good corporate governance. The officers and the companies must be diligent in adhering to these provisions to avoid legal repercussions. There are various sections in companies act,2013 which are punishable in nature which can be both composite and non-compoundable offences under companies act,2013 are distributed under following orders –  

The Company Act, 2013 in India outlines various offences that companies can commit. These offences and activities cover a wide range of activities, from financial matters to corporate governance. As a separate legal entity, companies have different moral responsibility towards the society with respect to their growth as well as for the development of the society. The responsible behaviour by a company reflects transparency in business by the extent of its disclosures and by adherence to the laws applicable to it. There are various aspects of governance which brings confidence in the minds of the investors as well as in the society at large.  There are various things which can make company’s reputation and establish a company as a good corporate citizen such as proper and timely disclosures, accountability towards society as well as the responsibility.

OFFENCES UNDER COMPANY ACT

The term ‘Offences’ is nowhere defined under the Company Act 2013. However, there are various source by which we can easily understand the concept of the offences and its interpretation. A general interpretation of this term can be derived by analysing the famous “Macmillan” dictionary which defines the term offence as “a crime or illegal activity for which there is a punishment”. It simply means that it is said to an offence where there is the presence of a criminal or illegal acts or set of acts and for which there is punishment defined under the act. Also, if we consider some sections of the CRPC,1973 to make it clearer than it is as defined: – 

  • As per section 2(n) of the Code of Criminal Procedure, 1973 (CrPC), an offence is defined as, “offence means any act or omission made punishable by any law for the time being in force.
  • A proper and plain reading of these definition presents an overview that an offence is commission of an act by not adhering to the provisions of the law under the purview of which the said action was done or was about to be done. Therefore, it can be said that any act done by an official or an officer of a company which does not meet the suitable requirement of the act would constitute an Offence.
  •  In a company, an offence may be done either by the person itself or with involvement of others that is if any officials or officer of the company are already aware of an unlawful act being committed or by inadvertence that is when it was done accidently or unknowingly.

The companies in India are having allowance to entertain various developmental decisions and certain limits to the decisions with respect to laws and rules are there. 

If we consider some of the sections of the Companies Act 2013, there is section 439 which states that all the offences under the act shall be non-cognizable except for the offences mentioned under section 212(6) which basically talks about the involvement in the cases of fraud. By understanding this section, one can conclude that a police officer may arrest a promoter of the company, the director or officer of the company without a warrant under this section. It clarifies that offences covered under section 447 that is punishment for fraud of the Company Act 2013 shall be cognizable.

As per section 2(l) of the CrPC, there is term mentioned that is non-cognizable offence which states that a police officer has no authority to arrest without a warrant. The act also provides that the government in the centre may, if required, establish special courts for the purpose of providing speedy trial of offences under the act. So, it is clear that offences in which the police officer has no authority to arrest are non-cognizable offence and the offences such as fraudulent are the offences in which the police officer can arrest the company or the involved members without a warrant. It can be said that on establishment of the fact that an offence has been committed by the company or its officers, penalty or fine may be imposed on any or both as prescribed under the Act. It can be said that many people use the terms ‘penalty’ or ‘fine’ reciprocally thereby giving such an impression of both having the same meaning. The act has prescribed the use of ‘penalty’ and ‘fine’ for non-compliance which states the uses of phrase ‘penalty’ at some places and the phrase ‘fine’ at some. In the same manner the meaning of both phrases is not same because if they are used in the same perspective then the whole idea of using both would become infructuous. Therefore, it can be said that to understand the intention behind the law and to know the uses of these terminologies, it is first necessary to understand the difference between these two.

  • Difference between ‘Fine’ and ‘Penalties’ are discussed below: –

As per the various legal dictionaries, ‘fine’ means ‘a mentioned amount of money that must be paid as a punishment for breakers of the law where ‘breakers of the law’ means one who not obeys the rule of law. 

If we read various dictionaries, we will come to know that ‘penalty’ means ‘punishment for act done or committed that is against the law’. Although, these both terminologies have almost the same meaning, but there is a slight difference between the two in practical application. 

A fine can be imposed only by a court of law that can be NCLT’s or the High court whereas the penalties can be imposed by adjudication that is an authority like the registrar of the companies and other regional director who can impose a penalty on a non-complaint company or the culprit company.

  • Compounding of an offence

The term ‘compounding’ is not defined under the Company Act but there are several books and dictionaries where the sense of compounding is discussed. If we consider Merriam-Webstar dictionary, it defines the term as “to settle amicably (by good will)” which can be adjust by agreement or to agree for a consideration not to prosecute the offense. In general, it can be said that compounding refers to the process of the settlement of a particular non-compliance under the act by giving the payment of the sum in terms of fine or penalties as prescribed by the concerned authority. In the Companies Act 2013, section 441 of the act deals with compounding of offences. Some offences under this act are considered as compoundable while some are not.

 According to the section 441 of this act, any offence is punishable under the act, whether it is committed by a company or by any of its officials(officers), with fine only, may either before or after institution of any prosecution, can be compounded by the tribunal or where there is maximum amount of fine which may be imposed for such offence does not exceed Five lakhs rupees, by regional director or any officer authorised by the central government on payment of such amount as may be prescribed by that RD’s(Regional director), the tribunal or such offer prescribed by the central government.

And also, if the punishment of any offence is prescribed under this act or that offence is punishable by the act as the punishment may be either imprisonment or fine or both shall be compounded and the permission of the special court, empowers by section 435 of the Company Act 2013.

  • There are some offences which cannot be compounded which are discussed below: –

If there is any offence for which an investigation is already initiated against the company or is pending.

If any offence committed by the either the company or its officers within a period of three years from the compounding of the similar offence.

However, any other subsequent offence committed after the expiry of a period of three years from the date on which the offence was earlier compounded, then in such case it shall deemed to be the first offence. 

These are the various things which given an idea about the various categories of offences and their punishment under the Company Act,2013.

Conclusion

By reading the above-mentioned points about the acts it gives idea about various offences and commission of acts committed under the Companies Act, 2013. Although it is expected that if there is a law prescribed, then the corporate entity shall act as in accordance with due law, also there are still some entities who act contra legem. The term ‘Contra legem’ is a latin phrase meaning ‘contrary to the law’. These are the provisions of the act which are very clear as regards the results and consequences of non-compliance. It is upon the company and its officers, their duty and social responsibility to ensure that it is functioning fairly, transparently and compliant manner. By this we can conclude that the written article gives a compact idea about the penalties and punishments of offences under the Company Act,2013.

Reference

 

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