SHORT SUMMARY:

In this Flash editorial, the author begins by referring the Impact of Companies Amendment Act, 2017 on Penalties/ files under CA- 2013.

The Bill to amend Companies Act, 2013 was passed in Rajya Sabha on 19th December, 2017. This is second Amendment Bill passed by the Parliament after notification of the Companies Act, 2013 i.e. within a span of 40 months. The Companies (Amendment) Bill, 2017 suggests 93 amendments to the Companies Act, 2013. The Bill got the assent of president on 3rd January, 2018 and become Companies Amendment Act, 2017.

Background:

The major amendments in the Amendment Act, 2017 include clarity on definitions for identifying Associate Companies, Holding & Subsidiary Companies, Related Parties etc;, simplification of the private placement procedure, removal of requirement for annual ratification of auditor, rationalization of provisions related to loan to directors, and doing away with the requirement of approval of the Central Government for managerial remuneration above prescribed Limits.

However, along with the above mentioned amendment there are amendments in respect to penalty/ fees for default in many sections. At some point penalties has been increased or somewhere has been relaxed.

Penalty / Punishment

A. Major Impact– Factor for Determining Level of Punishment:

Under Companies Act, 2013 or under any previous Company Act there was no provision in respect of determining the punishment on the basis of factors. Under Amendment Act, 2017 a new section to be added in the Act i.e. “Section 446A – Factor for determining level of punishment”

According the this Section the Court or Special Court while deciding the amount of fine or imprisonment under this Act, shall have due regard to the following factors, namely

(a) Size of the company;

(b) Nature of business carried on by the company;

(c) Injury to public interest;

(d) Nature of the default; and

(e) Repetition of the default

Note: After the amendments court shall consider the factors for penalize the Company. It is a good move to consider the different-2 factors for penalty in case of non –compliance.

B. Lesser Penalties for One Person Company or Small Companies:

Under Companies Act, 2013 there are no provision in respect of lesser penalty on any kind of Company. Penalties are same on all type of Companies irrespective of their Capital, turnover etc.  Under Amendment Act, 2017 a new section to be added in the Act i.e. “Section 446B – Lesser penalties for One Person Companies or Small Companies”

In this section relief to OPC and Small Companies i.e. in case of failure to comply with provisions of

  • Section 117(2)(c)– Resolution and Agreement to be filed
  • Section 137(3)– Copy of Financial statement to be filed
  • Section 92(5)– Annual Return

In case of default, such company and officer in default of such company shall be punishable with fine or imprisonment or fine and imprisonment, as the case may be, which shall not be more than one-half of the fine or imprisonment or fine and imprisonment, as the case may be, of the minimum or maximum fine or imprisonment or fine and imprisonment, as the case may be, specified in such sections.

C. Punishment for Fraud (Section 447):

As per Amendment Act, 2017 Punishment of Frauds has been divided into 2 Categories i.e.

I. Person guilty of fraud involving an amount of at least ten lakh rupees or one percent. of the turnover of the company, whichever is lower shall be punishable with imprisonment for a term which shall not be less than 6 months but which may extend to ten years and shall also be liable to a fine which shall not less than the amount involved in the fraud but which may extend to three times the amount involved in the fraud.

II. where the fraud involves an amount of less than ten lakh rupees or one per cent. of the turnover of the company, whichever is lower and does not involve public interest, any person guilty of such fraud shall be punishable with imprisonment for a term which may extend to five years or with fine which may extend to twenty lakh rupees or with both

D. Additional Late Filing Fees: in sub-section (1), for the first and second provisos, the following provisos shall be substituted:

Effect of new proviso:

  • If Company fails to file Annual Return u/s 92 and Financial statement u/s 137 within time prescribed under their specific sections “without prejudice to any other legal action or liability under this act,” it may be submitted by payment of additional fees which shall not be less than INR 100/- (Rupees Hundred) per day” and different amount may be prescribed for different classes of Companies.
  • If company fails to file any other documents, facts, information etc other than section 92 and 137 “without prejudice to any other legal action or liability under this act,” it may be submitted by payment of additional fees as may be prescribed.

HIGHER ADDITIONAL FEES: New concept of higher additional fees has been introduced. As per this proviso

– Where there is default on Two or More occasions in submitting, filling, registering, recorded of documents,

– without prejudice to any other legal action or liability under this act,

– may be file with “Higher Addition Fees”

– as may be prescribed and

– which shall not be lesser than twice the additional fee provided under first and second proviso”

Due to above mention proviso if company fails to file any form with in time prescribed under its specific section and company made the default TWO or “MORE OCCASION” then additional fees for filing of from shall be “TWICE of ADDITIONAL FEES

E. Punishment for Contravention (Section 147): in

If an auditor of a company contravenes any of the provisions of sections 139, section 143, section 144 or section 145, the auditor shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees or four times the remuneration of the auditor, whichever is less.

Provided that if an auditor has contravened such provisions knowingly or willfully with the intention to deceive the company or its shareholders or creditors or tax authorities, he shall be punishable with imprisonment for a term which may extend to one year and with fine which shall not be less than fifty thousand rupees but which may extend to twenty-five lakh rupees or eight times the remuneration of the auditor, whichever is less.

F. Punishment for Contravention of (Section 73 or Section 76): The penalty has been changed from fine not less than 1 Crore Rupees to 1 crore rupees of Twice the amount of deposits accepted by the Company, whichever is lower.

The officer of the company who is in default shall be punishable with imprisonment and fine. Hence, the offence shall be non-compoundable.

G. Other Amendment:

* Section 184:

 Minimum Penalty with respect to failure by directors to disclose interest has been omitted.

* Section 117:

The minimum fine for non-filing under this section for company and officer in default is proposed to be reduced from rupees five lakh to one lakh rupees and from rupees one lakh to rupees fifty thousand

* Section 140:Removal of Resignation of Auditor

Fine in case of failure to file resignation by auditor in Form ADT-3 to fifty thousand rupees or the remuneration of auditor whichever is less.

(Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com). Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION WITH THE USE OF THE INFORMATION

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