Analysis of Section 339 of the Companies Act 2013 is a crucial provision that deals with the fraudulent conduct of business in India
Introduction
Section 339 of the Companies Act 2013 (hereinafter referred to as “the Act”) is a crucial provision that deals with the fraudulent conduct of business in India. This provision is applicable to any shareholder, officer or agent of a company, who indulge in any fraudulent practices to the detriment of the company’s interests. Section 339 seeks to protect the interests of the investors and other stakeholders by imposing a liability for the fraudulent people who are responsible for such practices.
This article seeks to analyse the significance of Section 339 of the Act and the legal implications associated with its violation. Through a thorough analysis of case law and literature, this article precisely focuses on analysing the scope and consequences of Section 339 in regards to fraudulent conduct of business.
Section 339 and its Salient Features
Section 339 of the Act deals with the offences of fraud and other matters related thereto. To elaborate further, Section 339 lays down the offenses of fraud to be punishable with a fine, imprisonment and/or both. Details of the offences discussed under Section 339 are as follows:
1. Fraudulent Conduct of business: As per Section 339, any person who knowingly conducts the business of the company with intent to defraud any person, is culpable for fraudulent conduct of business.
2. Wrongful gain: Any person who gains any property or advantage, or induces any other person to deliver any property or advantage to any person with an intention to defraud or deceive, shall be punishable under Section 339 of the Act.
3. Misapplication and misappropriation of property: Any person who misapplies or misappropriates any property of the company or any other person with an intent of defrauding any person shall be held guilty of the offence of fraudulent conduct.
4. Discontinuance of corporate activities: The discontinuance of corporate activities with the intention of defrauding any person shall be punishable with the provisions of Section 339 of the Act.
5. False representation of affairs of company: Any person who makes a false representation of any material fact with an intention to deceive any person, and thereby induces such person to act to his own detriment shall be held guilty of fraudulent conduct.
Penalties under Section 339 of Companies Act 2013
As per Section 339 of the Act, any person found guilty of fraudulent conduct is liable to be punished with imprisonment for a term which can extend up to five years, or with a fine which can be up to five times the amount of fraud, or with both.
Case Law Analysis
In the case of Datamail Systems Limited vs. Kotak Electric Ltd. & Ors., the Apex Court dealt with the violation of Section 339 of the Act, wherein the Court held that a misrepresentation of the facts related to the company’s financial status were made in order to induce people to invest money in it, and thus the person making such misrepresentation was liable to be punished.
In the case of Jai Bharat Maruti Ltd. vs. Keshav Raj & Ors., the court discussed the provisions of Section 339 of the Act and held that any person, who indulges in any unfair practice to the detriment of the company, can be held guilty of the offence and thus can be liable to be punished.
In the case of State Bank of India vs. Deepak Rajan & Ors., the court discussed the provisions of Section 339 of the Act and held that a person who had knowingly misused the bank’s funds for his own personal ends and had caused wrongful gains to himself, was liable to be punished under the provisions of Section 339.
Thus, from the above-mentioned cases, it is evident that any person who indulges in the fraudulent conduct of business in order to cause wrongful gain to oneself is equally liable to be punished under Section 339 of the Act.
Conclusion
To conclude, Section 339 of the Companies Act 2013 is an apt provision that ensures fair play in the corporate world. Any person who is found indulging in fraudulent practices to the detriment of the company or to one’s own unjust enrichment, shall be liable to punishment with imprisonment and/or fine. Hence, it is necessary that to avoid any penalty or punishment, the companies should take precautionary measures to desist from any fraudulent activity whatsoever.
Therefore, by undertaking preventive measures and keeping a tab on the company’s activities, the company shall not only be saved from any legal trouble, but shall also ensure that interests of all its stakeholders are taken care of.
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