Offences, Prosecution And Penalties Under The Companies Bill 2008

Author:Mr D. K. Prahlada Rao
Profession:FoxMandal Little

1. Introduction:

The Statement of Objects & Reasons appended to the Bill,

inter alia, declares that:

Maximum and minimum quantum of penalties for each offence has

been laid down with a suitable deterrence for repeated


Company is identified as a separate entity for imposition of

penalties apart from the officers in default;

In case of fraudulent activities, provision for recovery and

disgorgement have been provided;

Levy of additional fee in a non-discretionary manner for

procedural non compliance, such as late filing of statutory

documents will be provided through Rules to be prescribed. Defaults

of procedural nature will be penalised by levy of monetary

penalties by the adjudicating officers not below the level of

Registrar. The appeal against the orders of adjudicating officers

will lie with suitably designated authorities;

Special courts will deal with offences under the Bill.

The above declaration sums up the approach of the Central Govt

in dealing with the offences under the Bill and the authorities who

will be handling these offences. This is refreshingly a drastic

departure from the existing practice under the company law. This is

also a recognition of the fact that the existing system is not all

that effective and it needs to be revamped in the context of

changing economic scenario and the business environment in our


2. A few Highlights:

Corporate Offences are broadly classified as civil and criminal

offences. The offences committed by the directors and officers of a

corporate body, which is criminal in nature, also fastens on the

corporate body, being an independent legal entity, in the same

manner and to the same extent as the perpetrators of the offence.

This brings us into sharp focus the fundamental legal relationship

between the corporate body and those making use of corporate name

for doing business. The offences under the Bill are broadly

classified as falling under the following categories:

The concept of "Officer who is in Default" presently

dealt with in Section 5 of the Companies Act, 1956 (the Act) has

been shifted to the definition clause" in the Bill with

enlargement of the scope of application. More of this provision has

been discussed subsequently. A quick reckoning reveals that the

words "Officer who is in Default" appears in about 32

Clauses in the Bill. Some of the provisions which fall under this

category are (i) failure to comply with the direction of the

Central Govt to rectify name of the company (Clause 15), (ii)

allotment of securities by a company (clause 34(6), (iii) listing

of securities, failure thereof (Clause 35) (iv) variation of

shareholder‟s rights (Clause 42)(v) application of

premiums received on issue of shares (Clause 46) (vi) transfer and

transmission of shares (Clause 50), (vii) rectification of register

of members (Clause 53), notice to be given to the Registrar

regarding alteration of capital (Clause 57), (viii) restriction on

purchase of its own shares and giving of loans by it for purchase

of its shares subject to certain exemptions (Clause 60), (ix)

failure to make repayment of deposits(Clause 67). In regard to

these matters the whole time director, other key managerial

personnel which includes the Managing Director, the Chief Executive

Officer or the Manager, the Company Secretary, the Chief Financial

Officer and a few other categories of persons are included. These


To continue reading