LESSER PUNISHMENT AND PENALTIES UNDER COMPANIES (AMENDMENT) BILL, 2020 – PART II

[Mr. M. GOVINDARAJAN]

This is in continuation of the Article ‘Lesser Punishment and penalties under Companies (Amendment) Bill, 2020 – Part I.

Contravention of section 137

Section 137 of the Act requires the company to file a copy of the financial statement with the Registrar of Companies.  Section 137 (3) of the Act provides that if a company fails to file the copy of the financial statements before the expiry of the period specified therein, the company shall be liable to a penalty of ₹ 1,000/- for every day during which the failure continues but which shall not be more than ₹ 10,00,000/- and the managing director and the Chief Financial Officer of the company, if any, and, in the absence of the managing director and the Chief Financial Officer, any other director who is charged by the Board with the responsibility of complying with the provisions of this section, and, in the absence of any such director, all the directors of the company,  shall be liable to a penalty of ₹ 1,00,000/- and in case of continuing failure, with a further penalty of ₹ 100/- for each day after the first during which such failure continues, subject to a maximum of ₹ 5,00,000/-.

After amendment the section said will provide that if a company fails to file the copy of the financial statements before the expiry of the period specified therein, the company shall be liable to a penalty of Rs.10,000/- and in case of continuing failure, with a further penalty of Rs.100/- for each day during which such failure continues, subject to a maximum of Rs.2,00,000/- and the managing director and the Chief Financial Officer of the company, if any, and, in the absence of the managing director and the Chief Financial Officer, any other director who is charged by the Board with the responsibility of complying with the provisions of this section, and, in the absence of any such director, all the directors of the company,  shall be liable to a penalty of Rs.10,000/- and in case of continuing failure, with a further penalty of Rs.100/- for each day after the first during which such failure continues, subject to a maximum of Rs.50,000/-.

Contravention of Section 140

Section 140 gives the procedure for removal, resignation of auditor.  Section 140(3) provides that if the auditor does not comply with the provisions of sub-section (2), he or it shall be liable to a penalty of ₹ 50,000/- or an amount equal to the remuneration of the auditor, whichever is less, and in case of continuing failure, with a further penalty of ₹ 500/- for each day after the first during which such failure continues, subject to a maximum of ₹ 5,00,000/-.

• The amendment reduced the maximum amount of further penalty for continuing of failures to ₹ 2,00,000/- from ₹ 5,00,000/-.

Contravention of section 143

Section 143 of the Act gives the powers to the auditors in the course of auditing.  Section 143 (15) provides that if any auditor, cost accountant or company secretary in practice do not comply with the provisions of sub-section (12), he shall be punishable with fine which shall not be less than ₹ 1,00,000/-  but which may extend to₹ 25,00,000/-.

• The amendment proposes to substitute section 143(15) to the new section.  The newly substituted section 143(15) provides that if any auditor, cost accountant, or company secretary in practice does not comply with the provisions of sub-section (12), he shall,-

• in case of a listed company, be liable to a penalty of ₹ 5,00,000;and
• in case of any other company, be liable to a penalty of ₹ 1,00,000/-.

Punishment under section 147

Section 147 provides punishment for contravention of sections 139 to 146.  Section 147 (1) provides that If any of the provisions of sections 139 to 146 (both inclusive) is contravened, the company shall be punishable with fine which shall not be less than₹ 25,000/- but which may extend to ₹ 5,00,000/- and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 1 year or with fine which shall not be less than ₹ 10,000/-but which may extend to ₹ 1,00,000/-, or with both.

• The amendment removes the punishment of imprisonment but retains the penalty amount as it is.

Contravention of section 165

Section 165 of the Act provides as to how many number of the Directors are to be in a Board of a company.  Section 165(6) of the Act provides that if a person accepts an appointment as a director in contravention of sub-section (1), he shall be liable to a penalty of ₹ 5,000/-for each day after the first during which such contravention continues.

• The amendment Bill proposes to substitute a new section for section 165(6).  The newly substituted section 165(6) provides that If a person accepts an appointment as a director in violation of this section, he shall be liable to a penalty of ₹ 2,000/- for each day after the first during which such violation continues, subject to a maximum of ₹ 2,00,000/-.

Contravention of section 167

Section 167 of the Act describes about the vacation of office of Directors.  Section 167 (2) provides that if a person, functions as a director even when he knows that the office of director held by him has become vacant on account of any of the disqualifications specified in sub-section (1), he shall be punishable with imprisonment for a term which may extend to 1 year or with fine which shall not be less than ₹ 1,00,000/- but which may extend to ₹ 5,00,000/-, or with both.

• The amendment removed the punishment of imprisonment but retains the quantum of penalty.

Punishment under section 172

Section 172 of the Act provides that if a company contravenes any of the provisions of this Chapter and for which no specific punishment is provided therein, the company and every officer of the company who is in default shall be punishable with fine which shall not be less than ₹ 50,000/-  but which may extend to ₹ 5,00,000/-.

• The amendment proposes to substitute the section 172 for the new one.  The newly substituted section 172 provides that If a company is in default in complying with any of the provisions of this Chapter and for which no specific penalty or punishment is provided therein, the company and every officer of the company who is in default shall be liable to a penalty of ₹ 50,000/-, and in case of continuing failure, with a further penalty of ₹ 500/- for each day during which such failure continues, subject to a maximum of ₹ 3,00,000/- in case of a company and ₹ 1,00,000/- in case of an officer who is in default.

Contravention of section 178

Section 178 provides for the constitution of nomination and remuneration committee.  Section 178(8) provides that in case of any contravention of the provisions of section 177 and this section, the company shall be punishable with fine which shall not be less than ₹ 1,00,000/- but which may extend to ₹ 5,00,000/- and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 1 year or with fine which shall not be less than ₹ 25,000/- but which may extend to ₹ 1,00,000/-, or with both.

• The amendment proposes to impose a penalty of ₹ 5,00,000/- on  the company and to impose a penalty of ₹ 1,00,000/- on the officer in default.

Contravention of section 184

Section 184 requires a Director to made disclosure in the first Board meeting in every financial year.  Section 184 (4) provides that if  a director of the company contravenes the provisions of sub-section (1) or sub-section (2), such director shall be punishable with imprisonment for a term which may extend to one year or with fine which may extend to one lakh rupees, or with both.

• The amendment takes away the punishment of imprisonment but retains the penalty amount.

Contravention of section 187

Section 187 requires a company that all investments made or held by a company in any property, security or other asset shall be made and held by it in its own name.  Section 187(4) provides that if a company contravenes the provisions of this section, the company shall be punishable with fine which shall not be less than ₹ 25,000/- but which may extend to ₹ 25,00,000/- and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 6 months or with fine which shall not be less than ₹ 25,000/- but which may extend to₹ 1,00,000/-  or with both.

• The amendment proposes to substitute a new section for 187(4).  The newly substituted section 187(4) provides that If a company is in default in complying with the provisions of this section, the company shall be liable to a penalty of ₹ 5,00,000/- and every officer of the company who is in default shall be liable to a penalty of ₹ 50,000/-.

Contravention of section 188

Section 188 of the Act deals with the related party transactions.  Section 188 (5) of the Act provides that any director or any other employee of a company, who had entered into or authorized the contract or arrangement in violation of the provisions of this section shall,-

• in case of listed company, be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than ₹ 25,000/- but which may extend to ₹ 5,00,000/-, or with both; and
• in case of any other company, be punishable with fine which shall not be less than ₹ 25,000/- but which may extend to ₹ 5,00,000/-.

• The amendment  proposes to impose a penalty of ₹ 25,00,000/- on the listed company and in case of non listed company the penalty is ₹ 5,00,000/-
• It seems the penalty is increased 5 times by the amendment to the listed company.

Contravention of section 204

Section 204 of the Act requires the big companies to undergo secretarial audit.  Section 204 (4) provides that if a company or any officer of the company or the company secretary in practice, contravenes the provisions of this section, the company, every officer of the company or the company secretary in practice, who is in default, shall be punishable with fine which shall not be less than ₹ 1,00,000/- but which may extend to ₹ 5,00,000/-

• The amendment proposes to impose a penalty of ₹ 2,00,000/-

Contravention of section 232

Section 232 describes the procedure for mergers and amalgamations.  Section 232(8) of the Act provides that if a transferor company or a transferee company contravenes the provisions of this section, the transferor company or the transferee company, as the case may be, shall be punishable with fine which shall not be less than ₹ 1,00,000/- but which may extend to ₹ 25,00,000/- and every officer of such transferor or transferee company who is in default, shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than ₹ 1,00,000/- but which may extend to ₹ 3,00,000/-, or with both.

• The amendment proposes to substitute a new section for section 232(8).  The newly substituted Section 232(8) provides that If a company fails to comply with sub-section (5), the company and every officer of the company who is in default shall be liable to a penalty of ₹ 25,000/-, and where the failure is a continuing one, with a further penalty of ₹ 1,000/- for each day after the first during which such failure continues, subject to a maximum of ₹ 3,00,000/-.

Punishment under section 242

Section 242 of the Act gives various powers to the National Company Law Tribunal.  Section 242 (8) of the Act provides that if a company contravenes the provisions of sub-section (5) (regarding alteration of memorandum or articles), the company shall be punishable with fine which shall not be less than ₹ 1,00,000/-  but which may extend to ₹ 25,00,000/- and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 6 months or with fine which shall not be less than ₹ 25,000/- rupees but which may extend to ₹ 1,00,000/-, or with both.

• The amendment takes away the punishment of imprisonment but retained the penalty amount.

Punishment under section 243

Section 243 describes the consequences of termination or modification of certain agreements.  Section 243(2) of the Act provides that any person who knowingly acts as a managing director or other director or manager of a company in contravention of clause (b) of sub-section (1) or sub-section (1A), and every other director of the company who is knowingly a party to such contravention, shall be punishable with imprisonment for a term which may extend to 6 months or with fine which may extend to ₹ 5,00,000/-, or with both.

• The amendment takes away the punishment of imprisonment but retained the penalty amount.

Contravention of section 247

Section 247 is dealing with registered valuers.  Section  247(3) provides that if a valuer contravenes the provisions of this section or the rules made there under, the valuer shall be punishable with fine which shall not be less than ₹ 25,000/- but which may extend to ₹ 1,00,000/-.

• The amendment provides for penalty of ₹ 50,000/-.

Contravention of section 248

Section 248 requires the promoters, directors etc., to co-operate with the Company Liquidator.  Section 248(2) provides that where any person, without reasonable cause, fails to discharge his obligations under sub-section (1), he shall be punishable with imprisonment which may extend to 6 months or with fine which may extend to ₹ 50,000/-, or with both.

• The amendment takes away the punishment as well as punishment.  If there is no co-operation from the Directors, promoters etc., the Company Liquidator shall file an application before National Company Law Tribunal which in turn directed them to co-operate with the Company Liquidator in discharging his functions.

Punishment under section 342

Section 342 requires that in case of prosecution, the liquidator is to give all reasonable assistance in prosecution.  Section 342 (6) provides that  if a person fails or neglects to give assistance required by sub-section (5), he shall be liable to pay fine which shall not be less than₹ 25,000/- but which may extend to ₹ 1,00,000/-

• The amendment omits section 342(6).

Punishment under section 347

Section 347 provides the procedure for disposal of books and papers of the company.  Section 347(4) provides that if any person acts in contravention of any rule framed or an order made under sub-section (3), he shall be punishable with imprisonment for a term which may extend to 6 months or with fine which may extend to ₹ 50,000/-, or with both.

• The amendment takes away the punishment of imprisonment but retained the penalty amount.

Contravention of section 348

Section 348 requires the Company Liquidator to furnish information as to pending liquidations to the Tribunal.  Section 348(6) provides that if a Company Liquidator contravenes the provisions of this section, the Company Liquidator shall be punishable with fine which may extend to ₹ 5,000/- for every day during which the failure continues.

• The amendment bill substituted section 348(6) by a new section.  The new substituted section 348(6) provides that Where a Company Liquidator, who is an insolvency professional registered under the Insolvency and Bankruptcy Code, 2016 is in default in complying with the provisions of this section, then such default shall be deemed to be a contravention of the provisions of the said Code, and the rules and regulations made thereunder for the purposes of proceedings under Chapter VI of Part IV of that Code.

Section 348(7) provides that if a Company Liquidator makes willful default in causing the statement referred to in sub-section (1) audited by a person who is not qualified to act as an auditor of the company, the Company Liquidator shall be punishable with imprisonment for a term which may extend to 6 months or with fine which may extend to ₹ 1,00,000/-, or with both.

• The amendment omits this sub section.

Contravention of section 356

Section 356 of the Act gives powers to the National Company Law Tribunal to declare the dissolution of company void.  Section 356(2) provides that it shall be the duty of the Company Liquidator or the person on whose application the order was made, within 30 days after the making of the order or such further time as the Tribunal may allow, to file a certified copy of the order with the Registrar who shall register the same, and if the Company Liquidator or the person fails so to do, the Company Liquidator or the person shall be punishable with fine which may extend to ₹ 10,000/- for every day during which the default continues.

• The amendment substituted section 356(2) for a new one.  The newly substituted section 356(2) provides that the Tribunal shall-

• forward a copy of the order, within thirty days from the date thereof, to the Registrar who shall record the same; and
• direct the Company Liquidator or the person on whose application the order was made, to file a certified copy of the order, within thirty days from the date thereof or such further period as allowed by the Tribunal, with the Registrar who shall record the same.

Punishment under section 392

Section 392 provides that without prejudice to the provisions of section 391, if a foreign company contravenes the provisions of this Chapter, the foreign company shall be punishable with fine which shall not be less than ₹ 1,00,000/- but which may extend to ₹ 3,00,000/- and in the case of a continuing offence, with an additional fine which may extend to ₹ 50,000/- for every day after the first during which the contravention continues and every officer of the foreign company who is in default shall be punishable with imprisonment for a term which may extend to 6 months or with fine which shall not be less than ₹ 25,000/- but which may extend to ₹ 5,00,000/-, or with both.

• The amendment takes away the punishment of imprisonment but retains the penalty amount.

Contravention of section 405

Section 405 gives powers to the Central Government to direct companies to furnish information or statistics.  Section 405 (4) provides that if any company fails to comply with an order made under sub-section (1) or sub-section (3), or knowingly furnishes any information or statistics which is incorrect or incomplete in any material respect, the company shall be punishable with fine which may extend to ₹ 25,000/- and every officer of the company who is in default, shall be punishable with imprisonment for a term which may extend to  6 months or with fine which shall not be less than ₹ 25,000/- but which may extend to ₹ 3,00,000/-, or with both.

• The amendment substituted a new section for 405(4).  The newly substituted section 405(4) provides that If any company fails to comply with an order made under sub-section (1) or sub-section (3), or furnishes any information or statistics which is incorrect or incomplete in any material respect, the company and every officer of the company who is in default shall be liable to a penalty of ₹ 25,000/- and in case of continuing failure, with a further penalty of ₹ 1,000/- for each day after the first during which such failure continues, subject to a maximum of ₹ 3,00,000/-.

Contravention of section 441

Section 441 of the Act provides the procedure for compounding of offences under the Companies Act.  Section 441(5) of the Act provides that any officer or other employee of the company who fails to comply with any order made by the Tribunal or the Regional Director or any officer authorized by the Central Government under sub-section (4) shall be punishable with imprisonment for a term which may extend to 6 months, or with fine not exceeding ₹ 1,00,000/-or with both.    

• The amendment takes away the punishment of imprisonment.  The fine will be twice the amount provided in the corresponding section in which punishment for such offence is provided.

Punishment under section 446B

Section 446B provides lesser punishment for one person companies or small companies.  Section 446B provides that notwithstanding anything contained in this Act, if a One Person Company or a small company fails to comply with the provisions of sub-section (5) of section 92, sub-section (2) of section 117 or sub-section (3) of section 137, such company and officer in default of such company shall be liable to a penalty which shall not be more than one half of the penalty specified in such sections.

• The amendment substituted a new section for section 446B.  The newly substituted section 446 B provides that Notwithstanding anything contained in this Act, if penalty is payable for non-compliance of any of the provisions of this Act by a One Person Company, small company, start-up company or Producer Company, or by any of its officer in default, or any other person in respect of such company, then such company, its officer in default or any other person, as the case may be, shall be liable to a penalty which shall not be more than one-half of the penalty specified in such provisions subject to a maximum of ₹ 2,00,000/- in case of a company and ₹ 1,00,000/- in case of an officer who is in default or any other person, as the case may be.

Punishment under section 450

Section 450 provides that if a company or any officer of a company or any other person contravenes any of the provisions of this Act or the rules made there under, or any condition, limitation or restriction subject to which any approval, sanction, consent, confirmation, recognition, direction 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 person shall be punishable with fine which may extend to ₹ 10,000/-, and where the contravention is continuing one, with a further fine which may extend to ₹ 1,000/- rupees for every day after the first during which the contravention continues.

• The amendment changed the fine structure.  The company and the officer in default are liable for a penalty of ₹ 10,000/-.  For continuing contravention the fine will be ₹ 1,000/- per day subject to a maximum of ₹ 2,00,000/- for the company and ₹ 50,000/- for the officer-in-default.

Conclusion

On seeing the amendments, it can be inferred the Government totally takes away punishment of imprisonment imposable on the officer-in-default and also reduces the penalty amount to considerable extent, even though in some sections the penalty amounts are retained.  However if the Bill is enacted a major relief will be there to the law abiding corporate and law abiding officers working in the corporate.