CS Professional · Compliance Management, Audit and Due Diligence · Due Diligence
Director Mr. Sethi of Orion Infra Ltd arranges for the company to award a contract to a firm owned by his brother-in-law, and the firm pays Mr. Sethi's relative a commission of Rs 4,00,000 beyond the normal rate. The director is found guilty of achieving undue gain for his relative. Which consequence is stated in section 166 of the Companies Act, 2013?
He must pay the company an amount equal to the undue gain, here Rs 4,00,000, and is also punishable with the fine in section 166(7), which ranges from one lakh to five lakh rupees. Section 166(5) provides the repayment to the company, not a double payment to the Government or a bar on re-appointment.
- AHe is liable to pay to the company an amount equal to the gain, in addition to the section 166(7) fineCorrect
- BHe is removed as director and barred from re-appointment for five years
- CHe is liable only to a fine of not less than one lakh rupees, with no repayment
- DHe must pay double the gain to the Central Government
Explanation
Section 166(5) bars undue gain to the director or his relatives, partners or associates, and a director found guilty must pay the company an amount equal to that gain, here Rs 4,00,000. Section 166(7) separately provides a fine of Rs 1 lakh to Rs 5 lakh for contravention. The fine-only option ignores the repayment, and the double payment to the Government is not in the section.
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