Sections 446B, 447, 454 and 454A of Companies Act: 2019 Amendments and Current Position
The Companies (Amendment) Act, 2019 amended important provisions of the Companies Act, 2013 dealing with lesser penalties, punishment for fraud, adjudication of penalties and repeated defaults. Sections 40 to 43 of the 2019 Amendment Act dealt respectively with Sections 446B, 447, 454 and the insertion of Section 454A.
Section 446B - Lesser Penalties for Certain Companies
What Section 446B does: Section 446B provides a reduced-penalty framework for specified classes of companies and persons connected with them. It operates as a special provision notwithstanding other provisions of the Companies Act.
Change made by the Companies (Amendment) Act, 2019
Section 40 of the Companies (Amendment) Act, 2019 amended Section 446B so that the covered default attracted a penalty not exceeding one-half of the penalty specified in the relevant provisions, replacing the earlier language referring to fine or imprisonment.
Present legal position
Section 446B was later substituted by the Companies (Amendment) Act, 2020. The provision now extends the lesser-penalty benefit, subject to its statutory conditions, to a One Person Company, small company, start-up company and Producer Company, as well as the officer in default or other person in respect of such company.
The statutory ceiling is one-half of the penalty specified for the relevant non-compliance, subject to a maximum of Rs. 2 lakh in the case of a company and Rs. 1 lakh in the case of an officer in default or any other person. The section also contains explanations concerning a Producer Company and a start-up company.
Section 447 - Punishment for Fraud
Meaning and scope: Section 447 is the principal penal provision in the Companies Act, 2013 for fraud where the statutory requirements of the section are satisfied. The provision prescribes punishment according to the nature and amount of the fraud and contains special treatment where public interest is involved.
Change made in 2019
Section 41 of the Companies (Amendment) Act, 2019 amended the second proviso to Section 447 by substituting the amount of Rs. 50 lakh for the earlier amount of Rs. 20 lakh.
The second proviso addresses fraud below the threshold stated in the main part of Section 447 where the fraud does not involve public interest. The exact application of Section 447 depends on the facts, the amount involved, the turnover threshold, public-interest considerations and the other requirements contained in the section.
Section 454 - Adjudication of Penalties
Purpose of Section 454: Section 454 establishes the statutory mechanism for adjudication of penalties under the Companies Act, 2013. The Central Government may appoint adjudicating officers, not below the rank prescribed by the Act, and specify their jurisdiction.
Changes made by the Companies (Amendment) Act, 2019
Section 42 of the 2019 Amendment Act substituted Section 454(3). The adjudicating officer was empowered to impose a penalty on the company, the officer in default or any other person, as applicable, and to state the relevant non-compliance or default. The adjudicating officer may also direct rectification of the default wherever considered appropriate.
The 2019 amendment also expanded references in Section 454 to include any other person where applicable and changed the consequences under sub-section (8) so that they apply to failure to comply with an order made under sub-section (3) or sub-section (7), as the case may be.
Opportunity of hearing and appeal
Before imposing a penalty, the adjudicating officer must give a reasonable opportunity of being heard to the company, officer in default or other person concerned. An aggrieved person may appeal to the Regional Director having jurisdiction within the statutory period and in the prescribed manner.
Later amendment relevant to current law
The Companies (Amendment) Act, 2020 inserted a proviso in Section 454(3). For specified defaults relating to Section 92(4) or Section 137(1) or 137(2), where the default is rectified before or within thirty days of the issue of notice by the adjudicating officer, the statute provides that no penalty shall be imposed and the proceedings in respect of that default are deemed concluded.
Section 454A - Penalty for Repeated Default
Definition and effect: Section 454A deals with repetition of a default after a penalty has already been imposed for that default. It was inserted by Section 43 of the Companies (Amendment) Act, 2019.
Where a company, an officer of a company or any other person has already been subjected to a penalty for a default under the Companies Act and again commits the same default within three years from the date of the order imposing the earlier penalty, the second or subsequent default attracts an amount equal to twice the penalty provided for that default under the relevant provision.
The three-year period runs from the date of the order imposing the earlier penalty passed by the adjudicating officer or the Regional Director, as applicable.
Repeal and Savings under the Companies (Amendment) Act, 2019
Section 44 of the Companies (Amendment) Act, 2019 repealed the Companies (Amendment) Second Ordinance, 2019. It also preserved actions already taken under that Ordinance by deeming them to have been done or taken under the 2019 Amendment Act.
Official Legal Resources
For authoritative statutory text and subsequent amendments, refer to the official sources below. The consolidated Companies Act should be checked together with applicable amendment Acts, commencement notifications, rules and MCA notifications.
Ministry of Corporate Affairs - Companies (Amendment) Act, 2019
India Code - Central Acts and updated statutory material
Ministry of Corporate Affairs - official portal
This page is intended as a legal information guide. For a filing, adjudication, prosecution or compliance decision, verify the current statutory text, applicable rules, notifications and facts of the particular case.