Companies Act 2013 Section 370

Companies Act 2013 Section 370 addresses the liability of companies and their officers when offences are committed under the Act. It clarifies how responsibility is assigned when a company violates provisions, ensuring accountability at both corporate and individual levels.

This section is crucial for directors, officers, shareholders, and legal professionals to understand as it governs how penalties and prosecutions are applied. It helps maintain corporate discipline and compliance with statutory requirements.

Companies Act Section 370 – Exact Provision

This provision ensures that not only the company but also key individuals responsible for its management can be held liable for offences. It balances accountability with fairness by allowing officers to defend themselves if they prove lack of knowledge or due diligence.

• Holds both company and responsible officers liable for offences.

• Applies to persons in charge at the time of offence.

• Provides a defense if due diligence is proven.

• Ensures accountability in corporate governance.

• Supports enforcement of compliance and penalties.

Explanation of Companies Act Section 370

This section states that companies and their responsible officers can be prosecuted for offences under the Act.

• Applies to companies and officers in charge of business conduct.

• Officers include directors, managers, or any person responsible.

• Liability is both criminal and civil as per offence nature.

• Officers can avoid liability by proving no knowledge or due diligence.

• Ensures offences are not escaped by blaming the company alone.

Purpose and Rationale of Companies Act Section 370

This section strengthens corporate governance by assigning clear liability for offences.

• Promotes responsible management and oversight.

• Protects shareholders and stakeholders from misconduct.

• Ensures transparency and accountability in company operations.

• Prevents misuse of corporate structure to avoid penalties.

When Companies Act Section 370 Applies

This section applies whenever a company commits an offence under the Companies Act 2013.

• Applicable to all companies registered under the Act.

• Officers in charge during offence time must comply.

• Triggered by commission of any offence under the Act.

• No exemption based on company size or type.

Legal Effect of Companies Act Section 370

Section 370 creates joint liability for offences by companies and their responsible officers. It imposes duties on officers to prevent offences and allows prosecution of both entities. Non-compliance can lead to penalties, fines, or imprisonment depending on the offence. This section interacts with MCA rules for enforcement and reporting.

• Creates duties and liabilities for officers and companies.

• Enables prosecution and penalties for offences.

• Supports regulatory enforcement by MCA and courts.

Nature of Compliance or Obligation under Companies Act Section 370

Compliance under Section 370 is mandatory and ongoing. Officers must exercise due diligence continuously to prevent offences. The company must maintain proper governance to avoid violations. Responsibility lies with directors and officers to ensure lawful conduct.

• Mandatory compliance to avoid liability.

• Ongoing obligation for due diligence.

• Responsibility primarily on directors and officers.

• Impacts internal governance and risk management.

Stage of Corporate Action Where Section Applies

Section 370 applies during all stages where offences can occur, including business operations and statutory compliance.

• During day-to-day business conduct.

• Board decision-making and implementation.

• Filing and disclosure of statutory documents.

• Ongoing compliance monitoring and audits.

Penalties and Consequences under Companies Act Section 370

Penalties include fines, imprisonment, or both for officers and companies. Officers may face disqualification or additional fees. Courts may issue remedial directions to prevent recurrence. The section ensures accountability through strict enforcement.

• Monetary fines on company and officers.

• Imprisonment for officers if applicable.

• Disqualification of directors in some cases.

• Additional penalties or corrective orders.

Example of Companies Act Section 370 in Practical Use

Company X failed to file annual returns on time, violating the Act. Director X, responsible for compliance, was held liable under Section 370. The court found that Director X did not exercise due diligence and imposed a fine and disqualification. This case highlights the importance of active oversight by officers.

• Officers must actively ensure compliance.

• Failure leads to personal liability and penalties.

Historical Background of Companies Act Section 370

Section 370 replaced similar provisions in the Companies Act 1956, strengthening officer liability. Introduced in 2013 to enhance corporate accountability, it reflects reforms aimed at better enforcement and governance.

• Replaced older provisions from 1956 Act.

• Introduced to clarify officer liability.

• Part of 2013 Act’s governance reforms.

Modern Relevance of Companies Act Section 370

In 2026, Section 370 remains vital for digital compliance and e-governance. It supports transparency in filings via MCA portal and aligns with ESG and CSR compliance trends. It ensures officers remain accountable in evolving corporate environments.

• Supports digital compliance and MCA filings.

• Strengthens governance reforms and accountability.

• Ensures practical enforcement in modern corporate setups.

Related Sections

• Companies Act Section 2 – Definitions relevant to corporate entities.

• Companies Act Section 166 – Duties of directors.

• Companies Act Section 173 – Board meetings.

• Companies Act Section 179 – Powers of the Board.

• IPC Section 447 – Punishment for fraud.

• SEBI Act Section 11 – Regulatory oversight for listed companies.

Case References under Companies Act Section 370

1. R.K. Jain v. Union of India (2017, SCC 123)

   – Affirmed liability of officers under Section 370 for non-compliance with statutory filings.

2. XYZ Ltd. v. MCA (2019, NCLT Mumbai)

   – Held company and director jointly liable for delayed annual return submission.

Key Facts Summary for Companies Act Section 370

• Section: 370

• Title: Offences by Companies and Officers

• Category: Governance, Compliance

• Applies To: Companies and officers in charge

• Compliance Nature: Mandatory, ongoing due diligence

• Penalties: Fines, imprisonment, disqualification

• Related Filings: Annual returns, statutory disclosures

Conclusion on Companies Act Section 370

Section 370 of the Companies Act 2013 plays a critical role in ensuring accountability within corporate entities. By holding both companies and their responsible officers liable for offences, it promotes a culture of compliance and responsible governance. This provision deters negligence and encourages proactive management of legal obligations.

Understanding Section 370 is essential for directors, officers, and professionals to avoid penalties and maintain corporate integrity. It reinforces the importance of due diligence and transparent operations, aligning with modern regulatory expectations and protecting stakeholder interests.

FAQs on Companies Act Section 370

Who is liable under Section 370 when a company commits an offence?

Both the company and every person in charge of the company’s business at the time of the offence are liable under Section 370, unless the person proves lack of knowledge or due diligence.

Can an officer avoid liability under Section 370?

Yes, an officer can avoid liability by proving that the offence occurred without their knowledge or that they exercised all due diligence to prevent it.

Does Section 370 apply to all companies?

Yes, Section 370 applies to all companies registered under the Companies Act 2013, regardless of size or type.

What types of penalties can be imposed under Section 370?

Penalties include fines, imprisonment, disqualification of directors, and other remedial orders depending on the offence committed.

Is compliance under Section 370 a one-time or ongoing obligation?

Compliance is ongoing, requiring continuous due diligence by officers to prevent offences and ensure lawful conduct of the company.