PENALTIES, FINES, OFFENCE, CONTRAVENTION UNDER COMPANIES ACT 2013

Introduction 

Non Compliance of the provisions of any Act would attract its penal provisions. These penal provisions in the new Act are more stringent. The penal provisions in this Act may be classified into three categories as detailed below: 

• Penal provisions for Companies; 

• Penal provisions for officer who is in default ; 

• Penal provisions for persons other than companies and officer in-default. 

Officer who is in default 

Section 2(60) of the Act defines the term defines the terms ‘officer who is in default any provision in this Act which enacts that an officer of the company who is in default any penalty or punishment by way of imprisonment, fine or otherwise, means any officers of a company, namely – 

• Whole-time director, 

• Key managerial personnel, 

Where there is no key managerial personnel, such director or directors as spec in this behalf and who has or have given his or their consent in writing to the B specification, or all the directors, if no director is so specified, 

Any person who, under the immediate authority of the Board or any Key Managerial Personnel charged with any responsibility including maintenance, filing or distribution of ac records, authorizes, actively participation in, knowingly permits, or knowingly fail steps to prevent, any default, 

Any person in accordance with whose advice, directions or instructions the Board the company is accustomed to act, other than a person who gives advice to the professional capacity. 

Every director, in respect of contravention of any of the provisions of this Act, who such contravention by virtue of the receipt by him of any proceedings of the Board in such proceedings without objecting to the same, or where such contravention ha with his consent or connivance; 

In respect of the issue of Transfer of any shares of a Company, the shares of a company, the Share transfer agents, registrars and merchants bankers to the issue or transfer. 

Chapter II : Incorporation of Company and Matters Incidental thereto 

Section No.	Nature of default	Person responsible	Punishment for Contravention
Section8(11)	Formation of Companies with Charitable Objects –Default in compliance	In Case of Company	Fine:–Minimum –Rs. 10,00,000 Maximum –Rs. 1,00,00,000
		In case of Director and every officer of the company who is in default shall be punishable with	Fine:- Minimum-Rs. 25,000 Maximum –Rs. 25,00,000
Section 12(8)	Registered Office of Company	In Case of the company and every officer who is in default shall be punishable with	Fine: one thousand rupees for every day during which the default continues but not exceeding one lakh rupees.

Chapter III: Part-I Prospectus and Allotment of Securities 

Section No.	Nature of default	Person responsible	Punishment for Contravention
Section 26	M a t t e r s t o b e s t a t e d i n prospectus-Contravention of provisions relating to issue of a prospectus.	In Case of Company	Fine–Minimum –Rs.50,000
		In Case of every person who is knowingly a party to the issue of such prospectus shall be punishable with.	Fine–Minimum –Rs.50,000 Maximum – Rs. 3,00,000

Chapter VII: Management and Administration 

Section No.	Nature of default	Person responsible	Punishment for Contravention
Section 92(1) Annual return	In case a company fails to file its annual return within specified period (i.e. 60 days from AGM).	Company and every officer who is in default shall be punishable with	Fine–Minimum –Rs.10,00,000 Maximum – Rs. 1,00,00,000
Section 92(6) Annual return	If a company secretary in practice certifies the annual return otherwise than in conformity with the requirements of this section or the rules made thereunder.	Such Company Secretary in practice	Liable to Rs.2,00,000

Chapter IX: Account of Companies 

Section No.	Nature of default	Person responsible	Punishment for Contravention
Section128 Books of	If the MD, the WTD in charge of finance, CFO or any other person of accompany charged by the Board with the duty of complying with the p r o v i s i o n s o f t h i s s e c t i o n , contravenes such provisions.	Such MD, WTD in charge of finance, CFO or such other person of the company shall be punishable.	Fine- Minimum–Rs. 50,000
Section134 Financial statement, Board’s	If a company fails to comply with the provisions regarding signing of financial statement and contents & signing of Board’s Report.	In case of Company	Penalty of Rs.3,00,000 and
		Every officer of the company.	Penalty of Rs.50,000.

Section No.	Nature of default	Person responsible	Person responsible  Punishment for Contravention
Section 135	Company is in default in complying with the provisions ofsub-section (5) or sub-section (6),	In case of Company	Penalty of 2 x amount required to be transferred by the company to the  Fund specified in  Schedule VII or the  Unspent CSR Account, as the case may be, or Rs.  100,00,0000,  whichever is less,  and
		Every officer of the  company.	Penalty of 1/10 the  of the amount  required to be transferred by the  company to such  Fund specified in  Schedule VII, or the  Unspent CSR Account, as the case may be, or Rs.  2,00,000, whichever  is less.
Section 137 Copy of financial  statement to be  filed with Registrar.	If a company fails to  to file the copy of the financial  statements with the Registrar with in the time specified there in (i.e. within 30 days from the dae of AGM).	In case of Company	Minimum –10,000  and in case of  continuous default  Rs. 100 for each day  during which the  failure continues  and Maximum  amount of penalty  Rs. 200,000.
		In case of  MD/CFO/directors  who is in default	Minimum –10,000  and in case of  continuous default  Rs. 100 for each day  during which the  failure continues  Maximum amount  of penalty Rs.  50,000.

Chapter X: Audit and Auditors 

Section No.	Nature of default	Person responsible	Punishment for Contravention
Section 140 Removal, Resignation of Auditor and Giving of Special Notice	Auditor fails to file his resignation with the Registrar within the time specified therein (i.e.30days from the date of resignation).	Auditor	Penalty of Rs. 50,000 or an amount equal to the remuneration of the auditor, whichever is less, and in case of continuing failure, with further penalty Rs. 500 for each day after the first during which such failure continues, subject to a maximum of Rs. 200,000.
Section 143 Powers and duties of auditors and auditing standards.	If any auditor, cost accountant or company secretary in practice does not comply with the provisions regarding reporting of fraud.	Such professional shall be liable to a penalty:	In case of a listed company: Rs. 5,00,000; In case of any other company: Rs.1,00,000.

Chapter XII: Meetings of Board and its Powers 

Section No.	Nature of default	Person responsible	Punishment for Contravention
Section184 Disclosure of interest by director.	If a director of the company does not disclose the nature of his interest under this section.	Director of a Company	Rs.1,00,000
Section 187 Investments of company to be held in its own name.	If a company contravenes the provisions of this section.	In case of Company	Rs.5,00,000.
		Every officer of the company.	Rs.50,000.
Section 188 Related Party transactions	Any director or any other employee of a company, who had entered into or authorized the contractor arrangement in violation of the provisions of this section.	Such director or employee	In case of listed company –Rs. In case of company other than listed company -Rs.

Chapter XII: Appointment and Remuneration of Managerial Personnel 

Section No.	Nature of default	Person responsible	Punishment for Contravention
Section 204 Secretarial audit for bigger companies	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.	Such director or employee	In case of listed company –Rs. 25,00,000
			In case of company other than listed company –Rs. 5,00,000

Recent Summary of the Cases on which penalty is levied:- 

1. Penalty levied by the Registrar of Companies, Ahmedabad for not mentioning the DIN of directors in the financial statements. This is a violation of Section 158 of Companies Act, 2013. Total penalty of 

₹6,00,000 on the company and the directors. 

2. Summary of the Order Use of Designation- CEO 

As we all know in Start-Up, Many founders or professional designated as a CEO of a Company (Private Company), As per the Indian Companies Act, 2013 we have to follow the provisions of appointment of a KMP, its applicability, process and penalty. Section 203 of the said Act, which deals with appointment of Key Managerial Persons i.e., CEO, MD, Manager or CFO is not applicable to private limited companies and hence many private limited companies designate their employees as CEO, MD, CFO etc. without passing a Board Resolution or filing Form DIR 12 with ROC for such appointments. 

In one of the recent orders passed by Registrar of Companies, Karnataka, imposed a penalty on Company and its directors, where even though the company was not falling class of companies prescribed under section 203 of the Companies Act, 2013 and it didn’t require to appoint a KMP, it was fined for usage of abbreviation ‘CEO’ as designation by one of the director, without having proper approval of the Board of Directors and filing of form DIR-12 with ROC. This was considered as a violation of the Companies Act, 2013 by the ROC. 

It was observed that a Director cannot sign any official communication of the Company in the capacity the of CEO in such cases. Therefore, all companies including private limited companies are advised to follow the prescribed procedure as laid down under the Companies Act, 2013, before designating their employees or directors as CEO, MD, CFO etc and file Form DIR-12 with the ROC for such appointments. 

3. Violation of provision of Section 161 of the Act. 

ROC, Bangalore imposes penalty of Rs.10 lakh on the company, its Directors, KMPs & Company Secretary for failure to co-opt MD as Additional Director before his appointment as MD, in contravention of Sec. 161 of the Companies Act. 

1. Company appointed as MD and CEO of a company (KMP) for a period of 5 years through Board Resolution. 

2. By inadvertence, Board had omitted to co-opt him as Additional Director before appointing him as MD. 

3. Pursuant to the said omission, the approval for his appointment by the shareholders (regularization) at the first AGM was omitted to be obtained. 

4. Consequently, MD was deemed to have vacated his office w.e.f. the date of the AGM in terms of Sec. 161 of the Companies Act. 

4. Violation of provision of Section 56 of the Act. 

In one of the recent orders by the Registrar of Companies (“ROC”), penalty of total INR. 2,00,000 (Indian Rupees Two Lakhs) were imposed on company and its officer in default, on occasion of non- compliance with respect to delay in issuance of share certificates to the subscribers within period of 2 (two) months from date of incorporation. 

Section 56(4) requires every company to deliver the certificates within a period of two months from the date of incorporation, to the subscribers of the memorandum. However, in this particular instance, the company had issued a share certificate with a delay of 30 (thirty) days. Therefore, penalty was imposed as per Section 56(6) of the Companies Act, i.e. INR. 50,000 (Indian Rupee Fifty Thousand) each on company and every officer in default. 

Conclusion:- The provisions of the Act are clear as regards the consequences of non-compliance. It is on the company and its officers to ensure that it functions in a fair, transparent, and compliant manner. If you think compliance is expensive, try noncompliance! Also it takes less time to do things right than to explain why you did wrong. So looking at above case laws and penalties it become important that along with doing business we do not side line the importance of compliance.