Section 147 Companies Act: Punishment for contravention

Section 147 of Companies Act: Corporate Governance & Statutory Compliance

Official Bare Act Text

Override / Mandate Mens Rea (Intent) Actus Reus (Conduct) Punishment Limitation Monetary

1. If any of the provisions of sections 139 to 146 (both inclusive) is contravened, the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees, or with both.

2. If an auditor of a company contravenes any of the provisions of section 139, section 143, section 144 or section 145, the auditor shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees:

Provided that: if an auditor has contravened such provisions knowingly or willfully with the intention to deceive the company or its shareholders or creditors or tax authorities, he shall be punishable with imprisonment for a term which may extend to one year and with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees.

3. Where an auditor has been convicted under sub-section (2 ), he shall be liable to:—

i. refund the remuneration received by him to the company; and

ii. pay for damages to the company, statutory bodies or authorities or to any other persons for loss arising out of incorrect or misleading statements of particulars made in his audit report.

4. The Central Government shall, by notification, specify any statutory body or authority or an officer for ensuring prompt payment of damages to the company or the persons under clause (ii ) of sub-section (3 ) and such body, authority or officer shall after payment of damages to such company or persons file a report with the Central Government in respect of making such damages in such manner as may be specified in the said notification.

5. Where, in case of audit of a company being conducted by an audit firm, it is proved that the partner or partners of the audit firm has or have acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to or by, the company or its directors or officers, the liability, whether civil or criminal as provided in this Act or in any other law for the time being in force, for such act shall be of the partner or partners concerned of the audit firm and of the firm jointly and severally.

Statutory Defined Terms in this Section: (Click any term for official legal definition)

Company Sec 2(20) Director Sec 2(34) Tribunal Sec 2(90)

Legal Commentary & Landmark Judgments: Section 147

Section 147 of the Companies Act, 2013 prescribes the penal and civil liability regime for contravention of the auditing and reporting mandates (Sections 139 to 146), establishing severe fines, imprisonment for fraudulent certification, mandatory fee refunds, and joint and several partner liability for damages.

Corporate and Officer Liability: If any company contravenes Sections 139 to 146, the company is punishable with a fine of twenty-five thousand to five lakh rupees, and every officer in default is punishable with imprisonment up to one year or a fine of ten thousand to one lakh rupees, or both.
Two-Tier Auditor Penal Liability: For ordinary defaults, an auditor is punishable with a fine from twenty-five thousand rupees up to five lakh rupees or four times remuneration (whichever is less); where the auditor acted knowingly or willfully with intent to deceive the company, shareholders, creditors, or tax authorities, punishment escalates to imprisonment up to one year and a fine up to twenty-five lakh rupees or eight times remuneration.
Civil Restitution and Joint Partner Damages: Upon conviction, the auditor must refund all remuneration received to the company and pay civil damages to the company, statutory bodies, or third parties for losses suffered from misleading reports; under the proviso to Section 147(5), all partners of an audit firm are held jointly and severally liable.

Key Landmark Precedents:

Union of India v. Deloitte Haskins & Sells LLP, (2023) 4 SCC 352: The Supreme Court affirmed that the statutory liability of auditors under the Companies Act (including Sections 140, 147, and 447) operates strictly to protect market integrity and the public interest; resignation from an audit does not terminate liability for past fraudulent certification.
Price Waterhouse v. SEBI, (2010) 103 SCL 96 (Bom): The Bombay High Court held that where auditors facilitate financial deception or recklessly certify fabricated balance sheets, statutory liability and damages attach, extending far beyond internal professional disciplinary inquiries.
ICAI v. P.K. Mukherji, AIR 1968 SC 1104: The Supreme Court affirmed that penal sanctions under company law for false audit certification are indispensable to maintain public trust in audited corporate disclosures.

Courtroom Practice & Strategic Litigation Guidance:

In commercial fraud suits and NCLT Section 140(5) / 147 proceedings, plaintiffs seeking damages against audit firms must demonstrate reckless disregard of red flags under the Standards on Auditing. In defense, auditors must produce contemporaneous working papers (SA 230) and formal Management Representation Letters (SA 580) to negate the statutory element of 'intent to deceive' under Section 147(2), reducing exposure from criminal fraud to simple technical divergence.

Section 147: Punishment for contravention

Section 147 of Companies Act: Corporate Governance & Statutory Compliance

Legal Commentary & Landmark Judgments: Section 147