Monday, April 29, 2013

Mandatory imprisonment under Companies Bill 2012

The Companies Bill 2012 has an innocuously titled chapter titled “Miscellaneous” which provides stringent and perhaps unprecedented punishment.

The Chapter provides for imprisonment and fine for several types of situations. A minimum imprisonment (six months/three years) is also provided.

Clause 447, for example, says that any person found guilty of fraud shall be punishable with imprisonment of at least six months but which may extend to 10 years and fine. The fine shall be at least the amount involved but may extend to 3 times such amount. If the fraud involves the public interest, the minimum imprisonment would be 3 years.

The term fraud is widely and inclusively defined. It has to be in relation to a company/body corporate, public or private, listed or unlisted. There should be an intent to deceive, to gain undue advantage from or to injure the interests of specified persons. There are no requirements of minimum amount, materiality, etc. for such act/omission, etc. to be treated as fraud. The affected person may be the Company, the shareholders, the creditors or any other person. The fraud may be committed by any person. The person need not have gained any amount and the affected person need not have lost any amount.

There are other provisions in the Bill that refer to this clause and deem certain actions to be “fraud” punishable under clause 447. For example, furnishing of false information or suppression of material information in documents filed with the Registrar in relation to registration of a Company amounts to fraud and punishable under clause 447. So is the making certain untrue/misleading information in any prospectus.

Clause 448 refers to intentional making of materially false statement or omitting material facts. These may be in documents such as report, certificate, financial statement, prospectus, or other document required by or for the purposes of the Act or rules. These too will be punishable as fraud under Clause 447.

Clause 449 states that intentional giving of false evidence while being examined on oath or in a solemn affirmation attracts minimum imprisonment of 3 years and which may extend to 7 years.

In view of specific provisions in clause 441, the offences listed above are not compoundable.

While frauds, misstatements, etc. have been of serious concern recently, one wonders whether such stringent, minimum and mandatory punishment for such a broad group of cases is justified and whether it has been adequately debated. 


CA Jayant Thakur said...

The following was Prof Bala's comment on this post, inadvertently placed on another post and my reply is given in the next comment.

"Prof Bala said...
Very interesting post. Glad to note the penal provisions in the Bill, as well as their mandatory nature highlighted. The more we get rid of discretionary power in as many walks of life as we can, the better it is for the dispensation of justice at various stages. Puzzled a bit about the concerns expressed on the severity of provisions. Reminds me of the human rights sympathies for the criminal killers for getting the rights of the victims. Just as an example, consider the alleged frauds in the recent Saradha case and similar others; let's spare a thought for the victims who lost their all, and those who killed themselves. If proved, I think even the most severe punishment will be inadequate for the perpetrators. It need not be Hamurabi's eye for an eye but some thing close enough is perhaps required to deter potential fraudsters.
Prof Bala

April 30, 2013 at 7:23 PM"

CA Jayant Thakur said...

Thank you Prof Bala..

A stringent law punishing fraudsters is obviously needed.

The concerns, however, were two fold. There are no gradation to the fairly wide range of "frauds" and other acts that are covered by one single provision. A Rs. 500 padding of a travel voucher by an employee would be punishable with the same minimum imprisonment was a larger fraud. Within the minimum and maximum imprisonment, of course, the Court has discretion.

The other concern is that these provisions, which were absent in preceding versions of the Bills over the years, do not seem to have been debated.