Penalties after incorporation of the company - Part 2

Neethi V. Kannanth | Last updated: 22 September 2022

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This article, the second part of a series, details penalties for various company defaults after incorporation. It outlines specific sections of the law, the defaulting parties, and the corresponding civil liabilities, including fines, and in some cases, criminal liability with potential imprisonment. The information covers a range of contraventions, from auditor reporting failures to directorship limits and political contributions.

In continuation to the previous part of the article- Penalties After Incorporation of the Company - Part 1, let us discuss the further-

Company Penalties After Incorporation: Part 2

Nature of Default	Defaulting party	Civil Liability	Criminal Liability (Imprisonment)
Sec 143 - Failure of the auditor to report fraud by employees against the company	Auditor, Cost Accountant or Company Secretary	In case of a listed company, INR 5 lakh and in case of any other company, INR 1 lakh
Sec 147 - Contravention of Sec 139 to 146 (aspects related to audit and auditors)	Company and Every officer in default Auditor Auditor	Min: INR 25 thousand and Max: INR 5 Lakhs for a company
	Company and Every officer in default Auditor Auditor	Min: INR 10 thousand and Max: INR 1 Lakh for every officer in default
Sec 148 - Default in complying with the orders of the Central Government pertaining to cost audit	Company and Every officer in default and Cost Auditor	Min: INR 25 thousand and Max: INR 5 Lakhs for a company
		Min: INR 10 thousand and Max: INR 1 Lakh for every officer in default
		Min: INR 25 thousand and Max: INR 5 Lakhs for cost auditor
Sec 157 - Failure by the company to inform DIN to Registrar.	Company and Every officer in default	Min: INR 25 thousand Max: INR 1 Lakh for company and Min: INR 25 thousand Max: INR 1 Lakh for every officer in default
Sec 159 - Contravention of: Sec 152- appointment of directors, Sec 155-Prohibition to obtain more than one DIN and Sec 156-Director to intimate DIN	Individual/Director	INR 50 thousand or Further, a fine of INR 500 for every day of default
Sec 165 - Contravention of maximum no. of directorships	The person accepting appointment as director	INR 2 thousand for every day during which the contravention continues Max: INR 2 lakh
Sec 166 - Contravention of duties of directors.	Director	Min: INR 1 Lakh Max: INR 5 Lakhs
Sec 167 - Functioning as director after attaining disqualification.	Director	Min: INR 1 Lakh Max: INR 5 Lakhs
Sec 172 - No specific punishment under chapter XI	Company & every officer in default	Min: INR 50 thousand Max: INR 5 Lakhs
Sec 178 - Contravention of provisions of Sec 177 related to Audit committee and nomination and remuneration committee and stakeholders relationship committee	Company and Every officer in default	Min: INR 50 thousand and Max: INR 3 Lakhs for company and Max: INR 1 Lakhs for every officer in default
Sec 182- Political contribution made in excess of the limits	Company and Every officer in default	5 times the amount contributed	Max: 6 months
Sec 184 - Failure to disclose interest held by directors in any company/contract/arrangement	Director	INR 1 Lakh OR
Sec 185 - Loan to directors/any other person in whom the director is interested/give a guarantee in connection with the loan taken by the director or such other person in contravention of the provisions of this section	Company Director/any other person to whom any loan is advanced or guarantee or security is given	Min: INR 5 Lakh Max: INR 25 Lakh	Max: 6 months
Sec 186-Contravention of provisions pertaining to loan and investment by the company.	Company and Every officer in default	Min: INR 25 thousand and Max: INR 5 Lakhs for a company and Max: INR 1 Lakh for every officer in default	Max: 2 years
Sec 187- Contravention by the company regarding investments of the company to be held in its own name.	Company and Every officer in default	INR 5 lakhs for a company and INR50 thousand for every officer in default
Sec 188 Contract entered into/ authorised in contravention with the provisions outlined under the section-Related party transactions.	Director/any other employee who had entered into or authorized the contract or arrangement in violation of this section	In case of a listed company, INR 25 Lakhs and in case of any other company INR 5 Lakhs
Sec 189 - Failure to disclose the interest of the director in any contract/arrangement in Register	Director	INR 25 thousand
Sec 190 - Failure to maintain a copy of the contract of employment with managing director or whole-time director/written memorandum in absence of a written contract & also failure to keep it open for inspection without fee	Company and Every officer in default	INR 25 thousand for the company and INR 5 thousand for each officer in default
Sec 197 - Breach of the limit of the overall maximum managerial remuneration and managerial remuneration in case of absence or inadequacy of profits.	Any person	Min: INR 1 Lakh Max: INR 5 Lakhs
Sec 203 - Default in complying with provisions relating to appointment of KMP	Company Every director & KMP	Min: INR 1 Lakh Max: INR 5 Lakhs INR 50 thousand In the case of Continuing one INR 1 thousand per day
Sec 204 - Failure to comply with provisions related to secretarial audit, annexing of secretarial audit report and failure by the Board to provide an explanation to the qualifications stated.	Company/ every officer/company secretary in default	Min: INR 1 Lakh Max: INR 5 Lakhs

FAQ :

Failure of an auditor, cost accountant, or company secretary to report fraud by employees can result in a civil liability fine of INR 5 lakh for listed companies and INR 1 lakh for other companies.

Contravention of Sections 139 to 146 can lead to a fine for the company ranging from a minimum of INR 25,000 to a maximum of INR 5 Lakhs, and for every officer in default, a fine from a minimum of INR 10,000 to a maximum of INR 1 Lakh.

Failure by a company to inform the Registrar about DIN can result in a fine between INR 25,000 and INR 1 Lakh for the company, and similarly between INR 25,000 and INR 1 Lakh for every officer in default.

A person accepting an appointment as a director beyond the permissible limit faces a fine of INR 2,000 for each day the contravention continues, with a maximum penalty of INR 2 lakh.

For political contributions made in excess of the limits, the company and every officer in default can face a penalty of up to 5 times the amount contributed, and a potential imprisonment of up to 6 months.

Contravention of provisions pertaining to loans and investments by the company can result in a fine for the company between INR 25,000 and INR 5 Lakhs, and for every officer in default, a fine up to INR 1 Lakh. Imprisonment can extend up to 2 years.