• MERWIN RICHARD

Penalty for frauds by officers

Updated: Oct 3

#companiesact2013, #penalty, #fraud, #law, #rules, #sections, #officers, #punishments



About

This article talks about the punishment for the frauds which are committed by the officers during the business year and what is considered a fraud and the punishment involved accordingly which are laid down under Section 337 of the Companies Act 2013.


Section in Brief

Section 337 of the Companies Act says that, if any individual, being at the hour of the commission of the supposed offense an official of an organization which is thusly requested to be ended or wounded up by the Tribunal or which in this manner passes a goal for voluntary winding up, — (a) has, by misleading notions or through some other misrepresentation, prompted any individual to give credit to the organization; (b) with a purpose to defraud creditors of the organization or some other individual, has made or caused to be made any gift or move off, or charge on, or has caused or schemed at the imposing of any execution against, the property of the organization; or (c) with a plan to swindle leasers of the organization, has hidden or taken out any piece of the property of the organization since the date of any unsatisfied judgment or request for an installment of cash got against the organization or in two months before that date,


The officers who are found guilty of such fraud will be culpable with detainment for a term which will not be short of one year however which might stretch out to three years and with a fine which will not be short of what one lakh rupees yet which might reach out to three lakh rupees."


Amendments

Substituted by Insolvency and Bankruptcy Code, 2016 Dated 15th November 2016,

In section 337, for the words “or which subsequently passes a resolution for voluntary winding up,”, the words “under this Act”, shall be substituted.


Case Laws

In the case of K.V. BRAHMAJI RAO V.UNION OF INDIA (NCLAT), the case involved a huge financial scam in PNB, Union of India has initiated an investigation against 107 companies and 7 LLPs of Nirav Modi Group and Gitanjali Group of Companies. At the relevant time, the Appellant was Executive Director, PNB, Head Office, New Delhi. NCLT, Mumbai bench, passed the order for freezing Assets of the Appellant and prohibited him from disposing of movable and immovable Properties/Assets. The Appellant submits that the order has been passed in violation of the Principle of Natural Justice since the Appellant was not served with an advance copy of the said Application and without giving an opportunity for the hearing order has been passed. The Important legal issue, in this case, was whether any person's assets (who is head of some other organizations) be attached in exercising the powers under Sections 337 & 339 of the Companies Act, 2013?


The court laid down that Any person's assets (who is head of some other organizations) cannot be attached to exercising the powers under Sections 337 & 339 of the companies Act, 2013. The NCLAT observed that the person who may be the head of some other organizations cannot be roped and his or her Assets cannot be attached to exercising the powers under Sections 337 & 339 of the Companies Act, 2013. Admittedly, the Appellant was the Executive Director of PNB, Head Office, New Delhi i.e. employee of another organization. Therefore, he cannot be impleaded as the Respondent in the case against the Nirav Modi Group and Gitanjali Group of Companies. Thus, the order of NCLT, Mumbai bench is set aside, and the Appeal is allowed.

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