Criminal Liabilities of Directors under the Companies Act 2013

 

Companies Act 2013 has increased monetary penalties and imprisonment. The civil and criminal liabilities are not just on directors but includes “Officers in Default”.   There is heightened corporate governance requirements even for  startups and unlisted companies,  even though there is no public money invested.

While sections which require monetary penalties can be compounded before the statutory authorities, sections which details imprisonment cannot be compounded. Entrepreneurs should also note that such penalties are not limited by the “limited liability” concept. We urge the entrepreneurs to give importance to corporate governance.

liability

“Officer in default” would broadly cover whole-time directors, Key Managerial Personnel (KMP) and such other directors as specified by the Board in the absence of KMP and every director who is aware of contravention of law by virtue of receipt of board proceedings or participation therein without raising any objection or where non-compliance has taken place with his consent or connivance.

Below table is indicative of some of the sections which deal with imprisonment.

Section Who is liable and the Civil/Criminal liability involved
53- Prohibition on issue of shares at discount
  • Company-Fine- Not less than Rs. 1 lakh and may extend to Rs. 5 lakhs
  • Officer in default- Maximum imprisonment of 6 months or Fine- Not less than Rs. 1 lakh and may extend to Rs. 5 lakhs or with both.
68(11)- Power of Company to purchase its own securities
  • Company-Fine- Not less than Rs. 1 lakh and may extend to Rs. 3 lakhs
  • Officer in default- Maximum imprisonment of 3 years or Fine- Not less than Rs. 1 lakh and may extend to Rs. 3 lakhs or with both.
71(11)- Debentures
  • Officer in default- Maximum imprisonment of 3 years or Fine- Not less than Rs. 2 lakh and may extend to Rs. 5 lakhs or with both.
92(5)- Annual return
  • Company-Fine- Not less than Rs. 50,000 Thousand and may extend to Rs. 5 lakhs
  • Officer in default- Maximum imprisonment of six months or Fine- Not less than Rs. 50,000 Thousand and may extend to Rs. 5 lakhs or with both.
118(12)- Minutes of proceedings of general meeting, meeting of Board of Directors and other meeting and resolutions passed by postal ballot.
  • Any person found guilty of tampering with the minutes- Maximum imprisonment for 2 years and Fine- Not less than Rs. 25,000 but which may extend to Rs. 1 lakh
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.
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.
134- Financial statement, Board’s report, etc
  • Company-Fine- Not less than Rs. 50,000 and may extend to Rs.25 lakhs
  • 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.
167- Vacation of office of director
  • Director – Maximum imprisonment for 1 year or Fine- Not be less than Rs. 1 lakh  and may extend to Rs. 5 lakhs or with both.
185(2)- Loan to directors, etc.
  • Company-Fine- Not less than Rs. 5 lakhs and may extend to Rs.25 lakhs
  • Officer in default- Maximum imprisonment of 6 months or Fine- Not less than Rs. 5 lakhs and may extend to Rs. 25 lakhs or with both.
186(13) Loan and investment by Company
  • Company-Fine- Not less than Rs.25,000 and may extend to Rs. 5 lakhs
  • Officer in default- Maximum imprisonment of 2 years or Fine- Not less than Rs. 25,000  and may extend to Rs. 1 lakh or with both.
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
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.
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.
59(5)- Rectification of register of members
  • Company-Fine- Not less than Rs.1 lakh  and may extend to Rs.5 lakhs
  • Officer in default- Maximum imprisonment of 1 years or Fine- Not less than Rs. 1 lakh  and may extend to Rs. 3 lakhs or with both.
Chapter-IV- Registration of Charges
  • Company-Fine- Not less than Rs.1 lakh  and may extend to Rs.10 lakhs
  • Officer in default- Maximum imprisonment of six months or Fine- Not less than Rs. 25,000  and may extend to Rs. 1 lakh or with both.
137(3)- Copy of financial statement to be filed with Registrar
  • Company-Fine- Not less than Rs.1000 for  every day in default but not more than 10 lakhs
  • Officer in default- Maximum imprisonment of 6 months or Fine- Not less than Rs. 1 lakh  and may extend to Rs. 5 lakhs or with both.
182(4)- Prohibitions and restrictions regarding political contributions.
  • Company-Fine- 5 times of the amount of contribution in contravention
  • Officer in default- Maximum imprisonment of 6 months and Fine- 5 times of the amount of contribution in contravention
184(4)- Disclosure of interest by 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.
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
  • 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
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 extent to 3 times the amount involved.

Disclaimer:  There are many details that the Act prescribes, please speak with your attorney for advice. This is not a legal opinion and should not be construed as one.

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