Unravelling Section 450 of the Companies Act 2013 By Mehul Solanki, Devyani Bhati and Saurabh Vaze



Introduction:

Drafting and making a particular legislation has a different scope and its enforcement has all together a different scope. The effectiveness of a legislation is determined by combining both the above factors. A legislation that doesn’t prescribe any regulatory action or any penal provisions for that matter is considered to be a toothless tiger and would hardly achieve its end goal.

Bearing the same in mind the Companies Act 2013, has at every instance that requires regulatory aspect has included penal or like provisions to ensure absolute compliance by the corporates and their liaisons.

However, there are instances where no specific penalty has been quoted and the loophole thus arises as to what are the consequences upon non-compliance of that particular instances. Thus, to cover such instances Section 450 comes into play.   

Exploring Section 450 of the Companies Act, 2013:

                      

Whom is it applicable to:

This Section brings under its purview any Company, Officer in default or any other person who has contravened and provisions of the Act or rules made there under. It is a residuary penal section that the Court can rely upon in case of non-mention of any regulatory action.

Trigger point:

Whenever defaulter contravenes any of the provisions of this Act or the rules made thereunder, or any condition, limitation or restriction subject to which any approval, sanction, consent, confirmation, recognition, direction or exemption in relation to any matter has been accorded, given or granted.

The beauty of the Section lies in the word “any contraventions” used by the draftsmen. The draftsmen have bestowed upon the enforcement authority with ample power as to determine the quantum of the penalty for any person contravening any provisions of the Act.

It is pertinent to note that the ambit of the Section is quite wide to include not only the Corporate bodies but also officers associated with the Company and also any other person who has contravened any of the provisions.

Quantum of penalty:

General Punishment:

The defaulter shall be “liable to a penalty” of:

  1. 10,000, and

  2. 1,000 for each day after the first during which the contravention continues, in case of continuing contravention,

(subject to a maximum of Rs. 2,00,000 in case of a company and Rs. 50,000 in case of an officer who is in default or any other person)

The nature of the default is again civil in nature and thus ultimately can be adjudicated by the Registrar of Companies. Also, determining whether such a contravention is compoundable or not the answer is affirmative and thus is compoundable.

Repeating Punishment:

Furthermore, when such an instance is repeated by the offender the requisite authority shall take recourse of Section 451 and the default shall be punishable with twice to amount of fine by the company, officer in default, any person as the case maybe.

Guiding Factors:

The guiding factors under the Companies Act, 2013 have been enumerated under Section 464A. The guiding factors include the following:

  1. Size of the Company

  2. Nature of the Business

  3. Injury to public interest

  4. Nature of the default

  5. Repetition of the default

The guiding factors were reiterated by the National Company Law Tribunal decision in the matter of Viavi Solutions India Private Limited v/s Registrar of Companies, Delhi and Haryana.   

When it is applicable:

The section comes into play where no regulatory action has been mentioned. However, the Courts have to utilize the same rationally.

List of Sections compoundable under Section 450 of the Companies Act 2013.

Section

Nature of Offence

14(2)

Non-filing with Registrar the altered copy of Articles of Association which has the effect of converting public company into private company with the approval of Central Government

45

Issuance of Shares without distinctive numbers in case of a company having share capital

49

Calls on shares of same class not made on uniform basis

52(1) and 52(2)

Failure to comply with application of securities premium account or utilization of Securities premium account for the purpose other than those specified in 52(2)

55

Non-compliance with the provisions in pursuance to issue of Redeemable preference shares

62

Issuance of shares in violation to provisions of Section 62(1)

70

Noncompliance with the provisions of Buyback of specified securities

71

Noncompliance in pursuance to issue of debentures

101

Noncompliance in pursuance to issuance of Notice of a General Meeting

105

Provisions relating to proxy

106

Restricting a member from exercising voting Rights on any ground except for the ground set under Section 106(1)

109

Contravention relating to poll

115

Failure to give notice of an intention to move a resolution requiring a special notice to the members of the company

123

Payment or declaration of dividend otherwise than out of the profits of the company

179

Exercise of certain power by the Board of Directors, otherwise at a board meeting

196

Appointment of Managerial Person in contravention of the provisions of this section

224

Failure to provide assistance to central government in connection with the prosecution launched against a person on the basis of inspector’s Report.

Conclusion:

The law as humans is not perfect. No matter how cautious the draftsmen may not be perfect in drafting a particular legislation. However, the Section 450 then comes into play and bestows ample power upon the Court to decide the quantum of penalty wherever the Act has skipped mentioning the same. While taking rescue of this particular Section the Court has to apply rational judicial thinking an cannot at the same time depart from the principle of natural justice.

There is often a misconception that at every instance of contravention is undertaken by the Company or the Officer in default or people associated with the Company. This misconception has been cleared by the Section to the extent that “any person” is covered in the scope of the same.

Disclaimer:

The entire contents of this article 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, we assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. We assume no responsibility for the consequences of use of such information. In no event shall we 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. This is only a knowledge sharing initiative and author does not intend to solicit any business or profession. 

Bibliography:

http://corporatelawreporter.com/companies_act/section-450-of-companies-act-2013-punishment-where-no-specific-penalty-or-punishment-is-provided/

https://taxguru.in/company-law/compounding-of-offences-when-no-specific-penalty-prescribed-under-companies-act-2013.html

https://blog.ipleaders.in/punishments-under-the-companies-act/

About the firm:

Jaya Sharma and Associates is a firm of Practicing Company Secretaries located in Mumbai, Maharashtra, India that specializes in solving the complexities of corporate laws and company secretarial practice promptly and correctly with an attention to detail and personal services catering to pan-India and foreign clients. The peer reviewed firm specializes and adheres to the parameters of quality control systems and guidelines as prescribed by the regulatory body.

FCS Jaya Sharma-Singhania, Founder & Mentor has been listed as one of the Top Best Ten Women Legal Consultants in India 2021 by Women Entrepreneur Magazine.


Mehul Solanki
is a commerce and law graduate having more than four years of working experience in company law compliances, setting-up companies, compliances of listed companies and not-for-profit companies. He is currently Research Associate & Start-up Consultant at Jaya Sharma & Associates and has authored various articles on corporate and securities law related topics which have been published on various websites, blogs and professional magazines including Compliance Calendar, Taxguru, Legal Service India and journal of ICSI etc. 

https://www.linkedin.com/in/mh9/


Devyani Bhati is an aspiring Company Secretary and law student associated with Jaya Sharma and Associates in the capacity of Junior Associate and has shown interest in the field of law right from an early age. Strongly, believing in the phrase “rather than being master of one, be a jack of all”, she has recently ventured into the field of research, article writing, blog writing, reading. The same belief has given her an edge over others. Her articles have been published on various platforms namely: Compliance Calendar, Taxguru etc.  

https://www.linkedin.com/in/dnb5/
   

                 

Saurabh Vaze is a commerce graduate and an aspiring Company Secretary currently undergoing his Long-term training at Jaya Sharma and Associates, takes interest in understanding and interpreting complexities of the prevailing corporate and Securities Law. He also has commenced his journey in writing blogs and articles on recent amendments in the prevailing Law. His articles have been published on various platforms namely: Compliance Calendar, Taxguru.  

https://www.linkedin.com/in/saurabh-vaze/

Creating Visionary Leaders Beyond Compliance   

www.jsa-cs.com

Lex comply

Click here to read the disclaimer


Write a Comment