Companies Bill 2008

Misstating facts in the initial public offer (IPO) document and fraudulently
inducing people to invest, including by way of using celebrities, are set to
become non-compoundable offences (where prison-term cannot be converted to
financial penalties), after amendments proposed in The Companies Bill, 2008 are
passed by Parliament.

The Bill has proposed to bring in stringent norms at a time when more and more
companies are preferring to tap the public for raising funds, but care little
about investors' safety. The Companies Bill 2008, that would replace the
existing archaic Companies Act of 1956, has proposed stricter penalties on
defaulters and makes many offences non-compoundable, in order to deter companies
from engaging in fraudulent activities.

Sources told TOI that government found the existing provisions inadequate and
has proposed stricter punishment, including heavier monetary penalty, for major
defaulters and repeat offenders. "For example, a misstatement while issuing
shares and debentures will attract criminal liability. While the existing law
prescribes a paltry fine of Rs 50,000 or two-year imprisonment or both, it is
compoundable. The new law proposes a maximum penalty of Rs 25 lakh and a
three-year imprisonment. Importantly, the offence is non-compoundable, meaning
defaulters have no option but to face punishment," the sources said.

Also, many-a-times it has been noticed that companies use big celebrities while
raising money, to influence people by using a popular face and help get in more
funds, the sources said. "Now the government proposes to be strict on this too
and against the existing maximum penalty of a paltry Rs 1 lakh, it is now
proposed to increase the maximum penalty to Rs 50 lakh and add a three-year
imprisonment as well. Again this will be non-compoundable," the sources said.

The Bill aims to put in place a more effective regime for inspections and
investigations of companies while laying down the maximum as well as minimum
quantum of penalty for each offence with suitable deterrence for repeat
offences. The company is identified as a separate entity for imposition of
monetary penalties from the officers in default. In case of fraudulent
activities/actions, provisions for recovery and disgorgement have been included.

"The Bill proposes strict action against erring companies and regular
defaulters. Around a dozen serious offences are proposed to be made
non-compoundable, which will certainly act as a deterrent against fraud and
cheating," the sources said. Corporate affairs minister Prem Chand Gupta, while
refusing to speak about specific provisions, said the government wants strict
action against defaulting companies, even though the Bill promises to liberalize
the regulatory set-up for corporates.

"The focus of the new law is responsible self-regulation wherein the companies
are free to take decisions without government control while protecting the
shareholders, investors and other stakeholders interest in a more effective
manner. Issues relating to fraud and cheating will attract severe penalties with
even minimum penalties prescribed in law," Gupta told TOI.