Tougher laws for firms luring investors wrongly

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New Delhi, Nov 14 : Companies mis-stating facts or fraudulently inducing the public to invest will be in serious trouble as soon as the Company’s Bill, 2008 becomes an Act.

The Bill lays down stringent legal penalties for serious offences, which were initially compoundable but will now be made non-compoundable.

One such serious offence is a mis-statement given by the company regarding its financial position at the time of issuing shares and debentures.

As per the existing Company’s Act–1956, the penalty for giving wrong facts at the time of issuing shares and debentures is Rs 50,000 or 2 years of imprisonment or both.

Even though the nature of offence is big, the punishment is compoundable. But as per the proposed Bill, the punishment has been made non-compoundable and the penalty amount has been increased to Rs 25 lakh along with three years of imprisonment, which means that the defaulter has no escape route but to face punishment.

Another serious offence is fraudulently inducing someone to invest in a company.

Initially, the penalty for this offence was Rs 1 lakh but as per the Bill, the penalty has been raised to Rs 50 lakh with three years of imprisonment. This is also non-compoundable.

According to ministry of corporate affairs (MCA) sources, in case the offence committed by the company is technical in nature and there is no element of fraud and cheating involved, then the penalty would be levied by the Registrar of Companies (ROC).

Such non-serious offences can be delay in filing of the documents, not putting up the company’s board outside the office.

The ministry of corporate affairs had constituted a committee in order to review the whole scheme and systems of prosecution.

The committee after examining all the aspects of the prosecution mechanism under the Companies Act submitted its final report in October, 2005.

The expert committee on company law had recommended creation of an in-house structure for dealing with cases of technical defaults involving imposition of monetary penalties.

According to the Companies Bill—2008, special cells would be set up for speeding up the prosecution process.

At present, there are no designated courts for dealing with complaints filed under the Act. The trial courts are already over burdened with all kinds of complaints wherein the time gap between the two hearings is usually 3-4 months.