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.
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:
The defaulter shall be “liable to a penalty” of:
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.
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.
The guiding factors under the Companies Act, 2013 have been enumerated under Section 464A. The guiding factors include the following:
Size of the Company
Nature of the Business
Injury to public interest
Nature of the default
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.
Nature of Offence
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
Issuance of Shares without distinctive numbers in case of a company having share capital
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)
Non-compliance with the provisions in pursuance to issue of Redeemable preference shares
Issuance of shares in violation to provisions of Section 62(1)
Noncompliance with the provisions of Buyback of specified securities
Noncompliance in pursuance to issue of debentures
Noncompliance in pursuance to issuance of Notice of a General Meeting
Provisions relating to proxy
Restricting a member from exercising voting Rights on any ground except for the ground set under Section 106(1)
Contravention relating to poll
Failure to give notice of an intention to move a resolution requiring a special notice to the members of the company
Payment or declaration of dividend otherwise than out of the profits of the company
Exercise of certain power by the Board of Directors, otherwise at a board meeting
Appointment of Managerial Person in contravention of the provisions of this section
Failure to provide assistance to central government in connection with the prosecution launched against a person on the basis of inspector’s Report.
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.
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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.
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.
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