Stiff Penalties For Erring Companies
The draft Companies Bill, 1997, has recommended stringent punishments including steep increases in fines and prison terms for violating various provisions of the Companies Act.
The new measures are expected to act as a strong deterrent to companies which have been violating the Companies Act with impunity because of the prevailing weak penalties and their weaker implementation.
Some experts said the penalties now under consideration are still inadequate when viewed from a companys point of view. However, they conceded that a 10-fold increase in penalties is a good beginning since the expert group constituted to recast the Companies Act was working on a low base.
One of the steepest punishments under consideration relates to falsification of books by any official of a company which is being wound up. Offenders will now face a prison term of three to seven years and a monetary fine.
Delay in payment of dividends beyond 30 days, against 42 days earlier, will lead to a maximum fine of Rs 50,000 and a maximum prison term of two years.
Monetary penalty for mis-statement of facts in the prospectus and fraudulently inducing persons to invest money have been increased to Rs 50,000 in the new bill.
The maximum term of imprisonment for mis-statement has been retained at two years.
However, a prison term between 6 months and 5 years has been prescribed for fraudulent inducement to invest, compared with an unspecified prison term in the existing Act.
In case a company fails to pay the charges or fees payable to the registrar for registration under provisions relating to registration of charge (Part IV of Draft Companies Bill, 1997), it will have to pay a penalty of Rs 5,000 per day of default against the existing Rs 500 per day. However, in case of default in payment of other fees to the registrar under provisions contained in any other section, the maximum penalty has been raised from Rs 1,000 to Rs 10,000.
Violations relating to buy-back will incur a maximum penalty of Rs 10,000, along with a maximum prison term of 2 years.
Penalties have been retained at existing levels only for violations relating to dating of prospectus and the details therein, provisions for consent from experts and allotment, registration of prospectus, and the penalties for impersonation of a shareholder.
The penalty for impersonation has been retained at a maximum prison term of three years with a fine or both, while the existing penalty of a six-month imprisonment and fine have been retained for the other violations.
Since the new bill permits the issue of Indian Global Depositories, violations relating to issue, dating and registration of IDR prospectuses will attract the same penalties as similar violations by domestic issuers.