Consequences of Providing False Information During Company Registration

While incorporating a company, it is important to provide certain information and documents to the Registrar of Companies. It is necessary to ensure that the information and documents provided for the company-to-be-registered are accurate and original. If any false information or fake documents are provided with the intent to conduct fraud, then those involved in such a fraudulent activity will be liable for punishment under section 447 of the Companies Act 2013. 

Let’s find out the consequences of providing false information during company registration in this interesting blog post by Registrationkraft!

About Section 447 of the Companies Act 2013

Section 447 of the Companies Act 2013 explains what is considered a fraud and also states the punishment for the same. According to the Act, fraud has been described as “ any act, omission, concealment of any fact or abuse of position committed by any person or any other person with the connivance in any manner, with intent to deceive, to gain undue advantage from, or to injure the interests of, the company or its shareholders or its creditors or any other person, whether or not there is any wrongful gain or wrongful loss.” 

Providing false or misleading information at the time of company registration is considered a fraud. Hence, in this case, individuals involved in the act will be punished in accordance with s. 447 of Companies Act 2013.

All “Companies” as defined by the Companies Act of 2013 such as public and private companies, and associations of persons, are covered under Section 447. It covers any act or omission including fraud by any director or other person which is related to the promotion, creation, management or winding up of a company.

Penalty and Punishment under Section 447

Section 447 of the Act states the following penalty and punishment for those found to be guilty of conducting fraud:

• If the fraud is large-scale fraud which involves a minimum of Rs. 10 lakhs or 1% of business turnover, then the fraudster can be punished anywhere from 6 months to 10 years in jail, and also will be liable to pay a fine which is equal to the amount involved in fraud and upto 3 x times that amount. The minimum imprisonment is 3 years if the fraud affects the public.
• If the fraud is a smaller-scale fraud which involves less than Rs. 10 lakhs or 1% of business turnover, and the public isn’t affected by it, then the punishment is up to 5 years in jail or a fine of up to Rs. 50 lakhs, or both in certain cases.

Case Studies involving S. 447

Some case studies related to Section 447 of the Companies Act 2013 are mentioned below:

Case Study 1: Union of India vs. Deloitte Haskins and Sells LLP

In this case, the Serious Fraud Investigation Office (SFIO) found that Deloitte Haskins and Sells LLP auditor falsified accounts. As a result, the court found the auditor eligible for serving in that capacity for five years.

Case Study 2: Sunil N. Godhwani v. State

In this case, N. Godhwani, the petitioner, was accused of siphoning Rs. 2000 crores in investor funds. In his capacity as the company’s chairman and managing director (CMD), he authorized loans to shell corporations even though he was aware of their poor credit standing. 

Conclusion

Section 447 of the Companies Act provides for punishment and penalty for those involved in fraud. According to the 2013 Act, fraud has been defined as any act, omission, concealment, or abuse of position with the intention of deceiving, gaining an unfair advantage, or causing harm. The 447 section was created to recognize and counter the potential harm that corporate fraud can cause to companies and the public in India.