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The Tax Publishers Fraud and Invocation of Section 447 under Different Provisions of the Companies Act, 2013 Pragya Lalwani This Article discusses about fraud and applicability of section 447 imposing punishment for the same under several provisions of the Companies Act, 2013. 1. Introduction Meaning of the term 'fraud' changes depending on the legal definition under different laws. Section 17 of the Indian Contracts Act, 1872 defines the term fraud to mean an act committed by a party to a contract with an intention to deceive another. It has also been defined under Regulation 2(c) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003. Further, the Companies Act, 2013, for the first time defines the term 'fraud' by way of an Explanation. Section 447 embraces the definition of fraud and punishment for such fraud. Though the Companies Act, 2013 has stipulated stricter provisions for management of business and punishment or penalties for fraud or offences of serious nature, due to various representations received from various stakeholders by Government, the Companies (Amendment) Act, 2017 amended section 447 to make it a little lenient. Also, the Companies Act, 2013, at different places, has invoked the provisions of section 447. It is pertinent to note that Companies Act, 2013 provides for all the missing provisions under that of the Companies Act, 1956 and to deter non-compliances made by companies and its directors for good corporate governance and depicting true and fair picture of the affairs of any company, provision of fraud was introduced. In certain other provisions of the Companies Act, 2013, penalties have been hauled up invoking provisions of section 447 for indulging in fraudulent practices. Some of these are highlighted in this Article. 2. Meaning of fraud under Companies Act, 2013 Clause (i) of Explanation to section 447 of the Companies Act, 2013 provides for the inclusive definition of the term 'Fraud'. Accordingly, 'fraud' in relation to affairs of a company or any body corporate includes any act, omission, concealment of any fact or abuse of position committed by any personor 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. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

Fraud and Invocation of Section 447 under Different Provisions of the Companies Act, 2013

Pragya Lalwani

This Article discusses about fraud and applicability of section 447 imposing punishment for the same under several provisions of the Companies Act, 2013.

1. Introduction

Meaning of the term 'fraud' changes depending on the legal definition under different laws. Section 17 of the Indian Contracts Act, 1872 defines the term fraud to mean an act committed by a party to a contract with an intention to deceive another. It has also been defined under Regulation 2(c) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003. Further, the Companies Act, 2013, for the first time defines the term 'fraud' by way of an Explanation. Section 447 embraces the definition of fraud and punishment for such fraud. Though the Companies Act, 2013 has stipulated stricter provisions for management of business and punishment or penalties for fraud or offences of serious nature, due to various representations received from various stakeholders by Government, the Companies (Amendment) Act, 2017 amended section 447 to make it a little lenient. Also, the Companies Act, 2013, at different places, has invoked the provisions of section 447. It is pertinent to note that Companies Act, 2013 provides for all the missing provisions under that of the Companies Act, 1956 and to deter non-compliances made by companies and its directors for good corporate governance and depicting true and fair picture of the affairs of any company, provision of fraud was introduced. In certain other provisions of the Companies Act, 2013, penalties have been hauled up invoking provisions of section 447 for indulging in fraudulent practices. Some of these are highlighted in this Article.

2. Meaning of fraud under Companies Act, 2013

Clause (i) of Explanation to section 447 of the Companies Act, 2013 provides for the inclusive definition of the term 'Fraud'. Accordingly, 'fraud' in relation to affairs of a company or any body corporate includes any act, omission, concealment of any fact or abuse of position committed by any personor 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.