Companies act 2013

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

05 August 2014 Hello Everyone,

A person is a director in two companies. In a company he is preparing fake bills of other company and withdrawing the amount from the other company. What are the consequences in this situation? What is the relevant sections of the Companies Act, 2013 which is to be referred for ans of this querry.

Please reply urgently.

CS Mitesh Mehta

CS Mitesh Mehta (Expert)
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05 August 2014 Read Section 166 of the Companies Act, 2013 relating to Duties of Directors

Directors are liable as officers in default under all sections where specific penalty is provided for each officer in default.
◦Where no specific penalty is provided under the Act, they are liable under Section 450.

Querist : Anonymous

Querist : Anonymous (Querist)

09 August 2014 Thanks but my querry has not been answered even after reading the above mentioned Sections. Can you provide some other inputs?

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Asha Kanta Sharma online

Asha Kanta Sharma

(Expert)
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19 July 2024 In the scenario you described, where a director is involved in preparing fake bills between two companies and withdrawing money, several provisions of the Companies Act, 2013 could be applicable, along with potential criminal implications under the Indian Penal Code (IPC). Here’s an outline of the relevant provisions and consequences:

### Companies Act, 2013 Provisions:

1. **Duty of Directors (Section 166)**:
- Directors are obligated to act in good faith and in the best interests of the company. By preparing fake bills and misappropriating funds, the director is breaching this duty.

2. **Fraudulent Activities (Section 447)**:
- Section 447 deals with punishment for fraud, including any act or omission involving deceitful practices or making false statements with an intent to deceive, either directly or indirectly. The punishment includes imprisonment ranging from 6 months to 10 years, and fines which shall not be less than the amount involved in the fraud.

3. **Misuse of Company Property (Section 166)**:
- If the director is misusing the funds or assets of one company for the benefit of another through fraudulent means, it can also be considered a violation of their duty to the company.

4. **Related Party Transactions (Section 188)**:
- If the fake bills are being prepared to facilitate related party transactions that are not disclosed properly, Section 188 dealing with related party transactions and their approval requirements could be invoked.

5. **Penalties and Punishments**:
- The penalties under these sections could include fines, imprisonment, or both, depending on the severity and impact of the fraudulent activities.

### Indian Penal Code (IPC) Implications:

1. **Criminal Breach of Trust (Section 405 IPC)**:
- This section deals with criminal breach of trust by a person who is entrusted with property or its dominion in his capacity. If the director misappropriates funds or property of one company through fake bills, it can constitute criminal breach of trust.

2. **Cheating (Section 420 IPC)**:
- If the director dishonestly induces the other company to deliver property or money based on the fake bills, it can amount to the offense of cheating under Section 420 of the IPC.

### Consequences:

- **Legal Actions**: The affected company can initiate legal proceedings against the director for recovery of funds, damages, and possible removal from office.

- **Criminal Charges**: Depending on the severity and extent of the fraud, criminal charges can be filed by the affected company or even by regulatory authorities like the Serious Fraud Investigation Office (SFIO).

- **Disqualification**: The director could face disqualification from being a director in any company in the future if found guilty of fraud or breach of trust.

### Conclusion:

The situation described involves serious breaches of corporate governance and legal obligations. It is crucial for the affected company to seek legal advice promptly to initiate necessary actions under both the Companies Act, 2013 and relevant provisions of the Indian Penal Code. Directors have fiduciary duties and responsibilities towards the companies they serve, and any misuse of position or misappropriation of company funds can have significant legal and financial consequences.