The Shradul Shroff Committee, constituted by the department of company affairs to suggest measures against erring corporates, is set to recommend that the fine for irregularities should be equal to the magnitude of the frauds.
As of now, for listed companies, a breach of clause 49 of the listing agreement of the Securities and Exchange Board of India, which specifies corporate governance norms, attracts a small fine of Rs 1,000 under the Securities Contract Regulation Act.
The penalty would be ad-valorem, with the extent of punishment being linked to the size of the offence, committee sources told Business Standard. The five member committee would submit its final report to the DCA by this month-end.
The report is likely to recommend more teeth for the National Company Law Tribunal by vesting it with criminal jurisdiction. This would mean speedy justice as there would be no need to refer the cases to district courts.
The committee is also of opinion that a company should not be held responsible for its employees' irregularities.
The report classifies corporate irregularities such as accounting frauds and siphoning off of funds as major offences. Procedural violations such as failing to file annual returns are minor offences.
According to committee sources, if a major offence is grave and affected a large number of people, the guilty will face a five-year imprisonment, in addition to the fine. The emphasis, however, would be on fines than prison terms, the sources added.
The sources said a penalty in the range of Rs 5000-6000 would be fixed for a minor offence and a repeat of would result in it being declared a major offence.
The report also recommended that if a company was very small and the offence did not involve large amount of public money, it could be exempted from some of the minor offences.
Offences such as non-filing of returns in a small private company could be detrimental to the interests of the company itself and slapping a further fine would make no sense, the sources said.
The companies, which would enjoy such exemptions, have already been defined in the Naresh Chandra Committee report on regulation of private companies and partnerships.
That report identified small private companies as those with an equity less than Rs 50 lakh (Rs 5 million) and receipts below Rs 5 crore (Rs 50 million).
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