Companies Act Section 147 — Punishment for contravention
CHAPTER X AUDIT AND AUDITORS
Commercial / Corporate
Summary
Sub-section (1) covers what happens when a company breaks any of the rules in sections 139 to 146 of the Act. The company itself can be fined an amount that is at least twenty-five thousand rupees and can go up to five lakh rupees. Additionally, every officer of the company who is responsible for the default can be fined an amount that is at least ten thousand rupees and can go up to one lakh rupees.
Sub-section (2) deals with penalties for an auditor who breaks any of the rules in sections 139, 143, 144, or 145. The auditor can be fined an amount that is at least twenty-five thousand rupees and can go up to five lakh rupees, or four times the auditor's remuneration, whichever is less. However, if the auditor broke these rules knowingly or willfully with the intention to deceive the company, its shareholders, creditors, or tax authorities, the punishment is different. In that case, the auditor can be imprisoned for a term of up to one year and also fined an amount that is at least fifty thousand rupees and can go up to twenty-five lakh rupees, or eight times the auditor's remuneration, whichever is less.
Sub-section (3) states what happens to an auditor who has been convicted under sub-section (2). The auditor must refund any remuneration received from the company. The auditor must also pay damages to the company, statutory bodies, authorities, or to the members or creditors of the company, for any loss that arises from incorrect or misleading statements made in the audit report.
Sub-section (4) says that the Central Government will, through a notification, name a statutory body, authority, or officer to make sure that damages are paid promptly to the company or the persons mentioned in clause (ii) of sub-section (3). After paying the damages, this body, authority, or officer must file a report with the Central Government about how the damages were paid, in the manner specified in that notification.
Sub-section (5) addresses situations where a company's audit is done by an audit firm. If it is proved that a partner or partners of the firm acted fraudulently, or abetted or colluded in any fraud by the company, its directors, or its officers, then the liability for that act, whether civil or criminal under this Act or any other law, falls on the concerned partner or partners and the firm jointly and severally. However, in the case of criminal liability of the audit firm, for anything other than a fine, only the concerned partner or partners who acted fraudulently, abetted, or colluded in the fraud are liable.
Official Text
(1) If any of the provisions of sections 139 to 146 (both inclusive) is contravened, the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable 1*** with fine which shall not be less than ten thousand rupees but which may extend to 2[one lakh rupees].
(2) If an auditor of a company contravenes any of the provisions of section 139, section 143, section 144 or section 145, the auditor shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees 3[or four times the remuneration of the auditor, whichever is less]:
Provided that if an auditor has contravened such provisions knowingly or willfully with the intention to deceive the company or its shareholders or creditors or tax authorities, he shall be punishable with imprisonment for a term which may extend to one year 4[and with fine which shall not be less than fifty thousand rupees but which may extend to twenty-five lakh rupees or eight times the remuneration of the auditor, whichever is less].
(3) Where an auditor has been convicted under sub-section (2), he shall be liable to—
(i) refund the remuneration received by him to the company; and
(ii) pay for damages to the company, statutory bodies or authorities 1[or to members or creditors of the company] for loss arising out of incorrect or misleading statements of particulars made in his audit report.
(4) The Central Government shall, by notification, specify any statutory body or authority or an officer for ensuring prompt payment of damages to the company or the persons under clause (ii) of sub-section (3) and such body, authority or officer shall after payment of damages to such company or persons file a report with the Central Government in respect of making such damages in such manner as may be specified in the said notification.
(5) Where, in case of audit of a company being conducted by an audit firm, it is proved that the partner or partners of the audit firm has or have acted in a fraudulent manner or a betted or colluded in any fraud by, or in relation to or by, the company or its directors or officers, the liability, whether civil or criminal as provided in this Act or in any other law for the time being in force, for such act shall be of the partner or partners concerned of the audit firm and of the firm jointly and severally. 2[Provided that in case of criminal liability of an audit firm, in respect of liability other than fine, the concerned partner or partners, who acted in a fraudulent manner or abetted or, as the case may be, colluded in any fraud shall only be liable.]