Corporate Fraud

With effect from 12 September, 2013 MCA implemented 98 sections of the Companies Act, 2013. Out of those sections, Section 447 is important among. This is a newly introduced section. That is, such a section was not in the Companies Act, 1956. This section is included in the miscellaneous provisions in Chapter XXIX of the Act. This is a specific provision to curb all frauds related to Companies.

According to this Section, any person who is found to be guilty of fraud shall be punishable with imprisonment. Term of punishment specified is between six months and ten years in accordance with the grievance of the fraud. The same act of fraud shall also liable to fine. The lower and upper limit of such fine is determined as equal amount involved and three times the amount involved.

The Section clearly states that, if the fraud in question involves public interest, the imprisonment shall not be less than three years. Here the lower limit of six month is replaced on public interest.

Explanation to this Section defines the term “fraud” in relation to the affairs of the Company or body corporate. Omission, concealment of fact, abuse of position deceive, gain undue advantage, injure the interests of the Company, members, creditors etc are now come under the definition of fraud.