CA Kamal Garg
The Companies Act, 2013 has categorized certain offences at par with criminal offences under the Code of Criminal Procedure, 1972 (Cr. PC) thereby has identified the same as cognizable and non-bailable. Thus, it is quintessential for the Promoters, Directors, Manager, Officers and other key managerial personnel to understand various definitions under the Cr PC and its consequences thereunder so that they can exercise greater degree of caution and precaution in compliance with these sections.
1. Offence: Section 2(n) of the Criminal Procedure Code (Code) defines offence as “any act or omission made punishable by any law for the time being in force”. In other words, an offence connotes ‘crime’ or ‘wrongdoing’. Section 40 of the Indian Penal Code (IPC) defines offence as “to denote a thing made punishable under the Code”. In order to constitute an offence, the particular ‘act’ should be specifically made punishable under law. Thus, it can be concluded that an act which has not been made punishable expressly under any law, is not termed as an offence.
2. Bailable and non-bailable offences: The Code does not contain provisions relating to determination of whether a particular offence can be categorized as bailable and non-bailable. But as per Section 2(a) of the Code, a bailable offence means an offence which is shown as bailable in the First Schedule of the said Code or the offence is made bailable by any other law for the time being in force. Bailable offence means a bail can be claimed as a matter of right and constitutes less serious offence. The First Schedule of the Code infers that the offences that are punishable with imprisonment of less than three years are usually considered as bailable. Any other offence, apart from those offences mentioned as bailable, is considered to be non-bailable. In other words, offences punishable with imprisonment for three years or more are usually considered as non-bailable.
3. Bail – meaning thereof and public prosecutor: The term ‘Bail’ has not been defined under the Criminal Procedure Code. However, Section 205 of the Indian Penal Code, 1880 defines ‘bail’ as temporary release from imprisonment on furnishing requisite security/surety to appear for trial. In other words, it is treated as temporary release of an accused or an offender from legal custody upon his giving sufficient security for his appearance later on. It is based on the principle that law recognises that each individual has got freedom, which should be safeguarded and that every person including the accused is entitled to freedom, unless he is found guilty of committing a serious offence. Bail cannot be claimed as a matter of right in case of non-bailable offences. This, however, does not mean that there can be no bail for such offences. Grant of bail for such offences is solely at the discretion of the Court. The Court after recording reasons and being satisfied that there are reasonable grounds for believing that the accused is not guilty of such an offence and that he is not likely to commit any offence while on bail, may release an accused on bail. However, persons accused of offences punishable with death, life imprisonment or imprisonment for seven years or more can be released on bail only after giving an opportunity of hearing to the public prosecutor to oppose the application for such release.
Non-Bailable Offences Under The Companies Act, 2013
Section 212(6) of the Companies Act, 2013 state that notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), offence covered under section 447 of this Act shall be cognizable and no person accused of any offence under those sections shall be released on bail or on his own bond unless—
(i) the Public Prosecutor has been given an opportunity to oppose the application for such release; and
(ii) where the Public Prosecutor opposes the application, the court is satisfied that there are reasonable grounds for believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail:
Provided that a person, who, is under the age of sixteen years or is a woman or is sick or infirm, may be released on bail, if the Special Court so directs:
Provided further that the Special Court shall not take cognizance of any offence referred to in this sub-section except upon a complaint in writing made by—
(i) the Director, Serious Fraud Investigation Office; or
(ii) any officer of the Central Government authorised, by a general or special order in writing in this behalf by that Government.
Thus, a Police Officer may arrest without a warrant in case of non-bailable offences. This proviso also starts with the non obstante clause, i.e., notwithstanding anything contained in the Code of Criminal Procedure, 1973. A non obstante clause is usually used in a provision to indicate that the provision should prevail despite anything to the contrary in the provision mentioned in such non obstante clause. In case there is any inconsistency between the non-obstante clause and another provision, one of the objects of such a clause is to indicate that it is the non obstante clause which would prevail over the other clause. Thus, the limitation aforesaid on grant of bail is in addition to the limitation under the Criminal Procedure Code or under any other law for the time being in force. This means that a bail for such offences can be granted only:
(i) after the public prosecutor has been given an opportunity to oppose the same; and
(ii) the Court has sufficient reason to believe that the person is not guilty of offence and is not likely to commit any offence when on bail.
This section, however, is not applicable to the following:
(i) a person under the age of 16 years ; or
(ii) a woman; or
(iii) the sick; or
(iv) an infirm person, who otherwise may be released on bail subject to discretion of the Court.
The words “offence covered under section 447” were substituted for “the offences covered under sub-sections (5) and (6) of section 7, section 34, section 36, sub-section (1) of section 38, sub-section (5) of section 46, sub-section (7) of section 56, sub-section (10) of section 66, sub-section (5) of section 140, sub-section (4) of section 206, section 213, section 229, sub-section (1) of section 251, sub-section (3) of section 339 and section 448 which attract the punishment for fraud provided in section 447” by the Companies (Amendment) Act, 2015, w.e.f. 29-5-2015. A look through at these sections can be made as follows:
Punishment for fraud
Section 447 of the Companies Act, 2013 provides that without prejudice to any liability including repayment of any debt under this Act or any other law for the time being in force, any person who is found to be guilty of fraud, shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to ten years and shall also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to three times the amount involved in the fraud:
Provided that where the fraud in question involves public interest, the term of imprisonment shall not be less than three years.
Explanation.—For the purposes of this section—
(i) “fraud” in relation to affairs of a company or any body corporate, includes any act, omission, concealment of any fact or abuse of position committed by any person or any other person with the connivance in any manner, with intent to deceive, to gain undue advantage from, or to injure the interests of, the company or its shareholders or its creditors or any other person, whether or not there is any wrongful gain or wrongful loss;
(ii) “wrongful gain” means the gain by unlawful means of property to which the person gaining is not legally entitled;(iii) “wrongful loss” means the loss by unlawful means of property to which the person losing is legally entitled.
Offences by the Officers and Officers Who Are In Default
Section 2(59) of the Companies Act, 2013 defines “officer” to include any director, manager or key managerial personnel or any person in accordance with whose directions or instructions the Board of Directors or any one or more of the directors is or are accustomed to act.
Section 2(60) of the Companies Act, 2013 defines “officer who is in default”, for the purpose of any provision in this Act which enacts that an officer of the company who is in default shall be liable to any penalty or punishment by way of imprisonment, fine or otherwise, to mean any of the following officers of a company, namely:—
(i) whole-time director;
(ii) key managerial personnel;
(iii) where there is no key managerial personnel, such director or directors as specified by the Board in this behalf and who has or have given his or their consent in writing to the Board to such specification, or all the directors, if no director is so specified;
(iv) any person who, under the immediate authority of the Board or any key managerial personnel, is charged with any responsibility including maintenance, filing or distribution of accounts or records, authorises, actively participates in, knowingly permits, or knowingly fails to take active steps to prevent, any default;
(v) any person in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act, other than a person who gives advice to the Board in a professional capacity;
(vi) every director, in respect of a contravention of any of the provisions of this Act, who is aware of such contravention by virtue of the receipt by him of any proceedings of the Board or participation in such proceedings without objecting to the same, or where such contravention had taken place with his consent or connivance;
(vii) in respect of the issue or transfer of any shares of a company, the share transfer agents, registrars and merchant bankers to the issue or transfer
If we analyse section 2(60)(vi) then one can conclude that the above provisions merely do not make a director an ‘officer-in-default’ on receipt of proceedings of the Board meeting. These would apply when the concerned director was aware of any contravention, i.e., through receipt of board’s proceedings and did not object to the same or if a contravention had taken place with his consent or connivance. Thus, a director would be exonerated from the liability if he did not consent to or connived for any such contravention [Om Parkash Khaitan v. Shree Keshariya Investment Ltd.  48 Comp. Cas. 85]
Rights given under the Cr. Pc to an arrested person
In the event of arrest the persons who are arrested have the following specific rights conferred by the Code:-
(a) Right to know the grounds of arrest, i.e., reason as guaranteed by Article 22 of the Constitution of India
(b) Right to bail
(c) Right to be produced before the Magistrate of Court
(d) Right to inform a relative or friend.
(e) Right to consult a lawyer.
(f) Right to be examined by a Doctor.
Establishment of Special Court
(The above article is contributed by CA Kamal Garg having professional and academic interests in IFRS, Accounts, Auditing and Corporate Laws arenas. He can be approached at email@example.com)