Penal Provisions for financial fraud under the Companies Bill 2012
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Punishment for fraudulently inducing persons to invest money
The Companies Bill, 2012 seeks to ensure better corporate governance
. Private placement has been defined to mean “any offer of securities or invitation to subscribe securities to a select group of person by a company (other than by way of public offer) through issue of a private placement offer letter and which satisfies the conditions specified in this section.”
and reduction of corporate delinquency which has led to the introduction of Clause 36(c). This Clause envisages punishment for fraud for ‘any person’ who either recklessly or knowingly makes any statement, promise or forecast which is false, deceptive or misleading, or deliberately conceals any material facts, to induce another person to enter into, or to offer to enter into any agreement for, or with a view to, obtaining credit facilities from any bank or financial institution. The purview of this Clause is expansive as it has been drafted to bring within its scope not only those parties related to the company but, also include, any person not having any co-relation to the company. The liability of the person hereunder is extremely strict as any statement made under any circumstances, any projections or forecasts for the company that result in the entering into an agreement by a bank or financial institution may result in punishment which may extend upto ten years of imprisonment and fine upto a maximum of three times the amount of the fraud.
Clause 447 of the Companies bill 2012 deals with the penal provisions for committing any kind of fraud and the term Fraud has been clearly elaborated under the said section, as per the provision of the said clause Without prejudice to any liability including repayment of any debt under this Act or any other law for the time being in force, any person who is found to be guilty of fraud, shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to ten years and shall also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to three times the amount involved in the fraud:
Further the said clause stated that if the fraud in question involves public interest, the term of imprisonment shall not be less than three years.
The term fraud has been defined as under:
“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 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
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