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CMA Final · Corporate and Economic Laws · Corporate Governance and Social Responsibility and Sustainability

A company defaults under Section 135(5) by failing to transfer Rs 3 crore to a Schedule VII Fund. Applying Section 135(7), what is the maximum penalty on the company and on each officer in default respectively?

The company is liable to Rs 1 crore, being the lesser of twice Rs 3 crore (Rs 6 crore) and Rs 1 crore. Each officer in default is liable to Rs 2 lakh, being the lesser of one-tenth (Rs 30 lakh) and Rs 2 lakh.

  1. ARs 1 crore on the company; Rs 30 lakh on each officer in default
  2. BRs 1 crore on the company; Rs 2 lakh on each officer in defaultCorrect
  3. CRs 6 crore on the company; Rs 2 lakh on each officer in default
  4. DRs 1 crore on the company; Rs 30 lakh on each officer, capped at Rs 2 crore

Explanation

The company's penalty is twice the amount (Rs 6 crore) or Rs 1 crore, whichever is less, so Rs 1 crore. For each officer, one-tenth of the amount is Rs 30 lakh, or Rs 2 lakh, whichever is less, so Rs 2 lakh. Applying only the one-tenth figure ignores the Rs 2 lakh ceiling.

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