Section 447 of Companies Act 2013: Punishment for fraud

One of the most frequently quoted sections in the 2013 Act is the Section 447 dealing with “Punishment for fraud”. The term fraud is a commonly used one, but the new law for company has a clear explanation for the term “fraud”, which is explained below:

“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.”

Interestingly the law also explains the terms “any wrongful gain or wrongful loss”, which runs as under:

“wrongful gain” means the gain by unlawful means of property to which the person gaining is not legally entitled;

“wrongful loss” means the loss by unlawful means of property to which the person losing is legally entitled.

Thus, as per Section 447, 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 year sand 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. Where the fraud in question involves public interest, the term of imprisonment shall not be less than three years.