The Hindu Business Line : Panel told to fine-tune proposal to grade Companies Act violations

THE Department of Company Affairs (DCA) has asked the committee examining existing penalty and compounding provisions under the Companies Act to fine-tune its proposal to grade violations under the Act. The Department, according to informed sources, has sought certain changes in the limit prescribed for penalties and reclassification of some offences.

The committee, chaired by Mr Shardul S. Shroff, is understood to have categorised the offences into four - minor I, minor II, major I, and major II, that would help speedy determination of penalties that each offence would attract.

DCA has time and again made a case for strengthening the existing penalty and compounding provisions under the Companies Act to curb the widespread violations of the various provisions of the Act.

According to sources, the Department is likely to hold a brainstorming session with the members of the committee sometime this week. ``We have identified a few areas in classifications of offences, which we want the committee to consider,'' official sources said.

There has been thinking in the Government that the existing penalties were very low and did not act as a deterrent for the erring companies. To examine the same the Department had set a committee. Sources told Business Line that the committee had categorised offences such as non-filing with the registrar the altered copy of articles of association as minor offence. Major offences include those minor offences that have been made with the intention to defraud, and finally major II offences — the offences that are non-compoundable.

For imposing a fine, it is necessary to have as much regard to the pecuniary circumstances of the accused persons as to the character and magnitude of the offences. The committee, according to sources felt that in cases of monetary penalties, `fine', should include any pecuniary penalty or forfeiture or compensation, payable under the conviction.

``The system to determine the capacity of a company to pay should be based on the concept of `effective' capital. This system should be made equally applicable to all the companies irrespective of its kind,'' sources said.

All categories of offences would attract a penalty based on .01 per cent of the gross annual receipts of the company, as per the committee proposal. The offences falling under the minor I classification would attract a penalty based on .01 per cent of the gross annual receipts of the company subject to a minimum of Rs 1,000 and maximum of Rs 25,000. While those offences falling under minor II would attract a minimum fine of Rs 5,000 and maximum of 1.25 lakh. Offences under major I category would have a minimum fine of Rs 20 lakh and maximum of Rs 5 crore. Finally, major II would attract a minimum fine of Rs 1 crore and maximum of Rs 25 crore.

More Stories on : Regulatory Bodies & Rulings | Economic Offences

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page