DE-CRIMINALISING PENALTIES FOR COMPANY LAW BREACHES

BY SUSHMA GOWDA

INTRODUCTION

Consequences of Breach can include an interim injunction to prevent any further loss or damages due to breach. Damages and Compensation for financial losses incurred from such situation.

Removal of Office if more than Shareholder of the company vote in favour of such defraud person.

Criminal Fines or penalty may be charged against a person if any laws, rules, regulation had been breach by the person or the company.

And even includes many sections Such as Section 4(5)(ii), Section 15(2), Section 16(3), Section 17(2), Section 26(9), Section 36, Section 38, Section 39(5)or Section 40 and many more.

As per Section 40(5) act states that “If a default is made in complying with the provisions of this section, the company shall be punishable with a fine which shall not be less than five lakh rupees but which may extend to fifty lakh rupees and every officer of the 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 fifty thousand rupees but which may extend to three lakh rupees, or with both”

de-criminalising penalties for Company Law breaches

A company Law Committee was Constituted by the Ministry of Corporate Affairs in September, 2019.

A panel, headed by Corporate Affairs Secretary Injeti Srinivas on 18 November stated that penalty for 46 Company Law breaches should be toned town or reduced. It helps in easy to deal with serious offences and fraud committed by the company.

Re-categorising the 23 offences out of 66 remaining Compoundable offences under the companies act 2013.

Omitting, altogether, 7 compoundable offences; limiting punishment for 11 compoundable offences to only fine by removing provision for imprisonment and recommending that 5 offences be dealt under alternative frameworks;

 Reducing the quantum of penalties in respect of 6 provisions, which were shifted to the in-house adjudication framework through the recently passed Companies (Amendment) Act, 2019;

 Retention of status-quo in case of the non-compoundable offences. And also stated that penalty or fines shall be reduced in case of small companies, Small Business, Single Business and procedure Companies.

More Beneficial To The Companies Having Less Transaction And Minimal Default Has Been Committed By The Company Their Penalty Will Roll Back As Per The Amendments Made By The Committee

These are the offences that do not affect Public Interest or any other element of fraud

The proposed amendments of companies act 2013 is the second round of toning down of penalty provision in the law. The government had last year amended the Companies Act to decriminalise 16 procedural offences into civil wrongs that does not warrant a jail term.

Bill has been passed in decriminalise Parliament session over 40 offences which are mainly of civil wrongs not warranting jail terms.

Bill is also determined to reduce jail terms for Violation of Corporate Social Responsibility (CSR) related obligations that was introduced through an amendments last year. Indian Companies spend around 15000 crore a year

This Bill is also working on amend the Competitions Act