Companies Act Section 447 — Punishment for fraud
CHAPTER XXIX MISCELLANEOUS
Commercial / Corporate
Summary
This section sets out the punishment for fraud related to a company. It applies in addition to any other liability a person may have, including having to repay any debt under this Act or any other law. If a person is found guilty of fraud involving an amount of at least ten lakh rupees, or one per cent of the company's turnover, whichever is lower, the punishment is imprisonment for a term of not less than six months, extendable up to ten years. The person is also liable to a fine that is not less than the amount involved in the fraud, but which may go up to three times that amount.
The first proviso states that if the fraud involves public interest, the minimum term of imprisonment is raised to three years.
The second proviso covers cases where the fraud involves an amount less than ten lakh rupees or one per cent of the company's turnover, whichever is lower, and does not involve public interest. In such cases, the punishment is imprisonment for a term that may extend to five years, or a fine that may extend to fifty lakh rupees, or both.
The explanation defines key terms for this section. Under clause (i), fraud, in relation to the 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 by any other person with the connivance of the first person, with the intent to deceive, to gain undue advantage from, or to injure the interests of, the company, its shareholders, its creditors, or any other person. This applies whether or not there is any wrongful gain or wrongful loss.
Under clause (ii), wrongful gain means a gain, by unlawful means, of property to which the person gaining it is not legally entitled.
Under clause (iii), wrongful loss means a loss, by unlawful means, of property to which the person losing it is legally entitled.
Official Text
Without prejudice to any liability including repayment of any debt under this Actor any other law for the time being in force, any person who is found to be guilty of fraud, 1[involving an amount of at least ten lakh rupees or one per cent. of the turnover of the company, whichever is lower] 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:
Provided that where the fraud in question involves public interest, the term of imprisonment shall not be less than three years. 2[Provided further that where the fraud involves an amount less than ten lakh rupees or one per cent. of the turnover of the company, whichever is lower, and does not involve public interest, any person guilty of such fraud shall be punishable with imprisonment for a term which may extend to five years or with fine which may extend to 3[fifty lakh rupees] or with both.] Explanation.—For the purposes of this section—
(i) “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;
(ii) “wrongful gain” means the gain by unlawful means of property to which the person gaining is not legally entitled;
(iii) “wrongful loss” means the loss by unlawful means of property to which the person losing is legally entitled.