Consequences of False Information at Incorporation [Sec. 7(5), 7(6), 7(7)]
# Consequences of False Information / Suppression at Incorporation
The Act treats incorporation by fraud or misrepresentation very seriously, with both individual penal liability and drastic corporate consequences.
## 1. False Information AT the Time of Incorporation [Sec. 7(5)]
If any person:
Furnishes false or incorrect information or
Suppresses material facts knowingly
in any document filed with the ROC during incorporation, that person shall be liable for FRAUD under Sec. 447.
## 2. False Information Detected POST-Incorporation [Sec. 7(6)]
If after incorporation it is proved the company was incorporated by:
Furnishing false / incorrect information / representation, or
Suppressing material facts / information,
…then the following are liable for fraud under Sec. 447:
Promoters,
First Directors, and
Persons making declarations under Sec. 7(1)(b).
## 3. Tribunal Powers [Sec. 7(7)]
Where a company has been incorporated by fraud, on application made to it, the Tribunal (NCLT) may, after giving a reasonable opportunity of being heard:
Order Type
Effect
Modify MOA/AOA
In public interest or interest of company
Declare members' liability unlimited
Members lose limited liability protection
Remove name from Register
Strike-off the company
Order winding up
Compulsory winding up
Any other order
As the Tribunal considers fit
### Safeguards before passing such orders:
1. The company must be given a reasonable opportunity to be heard;
2. The Tribunal shall take into consideration the company's transactions, obligations and liabilities before passing any order.
## Quick Summary
Stage
Section
Who Liable
Liability Type
At incorporation
7(5)
Any person furnishing false info
Sec. 447 fraud
Post-incorporation (proof of fraud)
7(6)
Promoters, First Directors, Declarants
Sec. 447 fraud
Corporate consequences
7(7)
Company itself
Tribunal orders (modify/wind up/strike-off etc.)
Worked example
### Example 1
Example 1 — Sec. 7(5): A subscriber knowingly submits a forged PAN card during SPICe+ filing. → Personally liable for fraud under Sec. 447 even before incorporation.
### Example 2
Example 2 — Sec. 7(6): Two years post-incorporation, it is discovered the promoters submitted fictitious registered office documents. → Promoters, first directors and the CA who made the declaration are all liable under Sec. 447.
### Example 3
Example 3 — Sec. 7(7) Tribunal order: A company is found to have been incorporated to defraud investors. NCLT, after hearing the company, can order winding up or direct that members' liability be unlimited, also taking into account creditors' positions before passing such drastic orders.
### Example 4
Example 4 — Safeguard: Before NCLT orders striking off, it must give the company a reasonable opportunity to be heard and must consider existing creditors and liabilities.
⚠️ Common exam mistakes
Confusing Sec. 7(5) with Sec. 7(6) — (5) applies to any person at the time of filing; (6) targets promoters, first directors and declarants when fraud is detected later.
Forgetting Sec. 7(6) operates without prejudice to Sec. 7(5) — both can apply.
Believing the Tribunal can wind up the company without hearing it — opportunity of being heard is mandatory.
Overlooking the requirement to consider obligations and liabilities of the company before passing Tribunal orders.
Bare-Act text Sec. 7(5), 7(6), 7(7) · Companies Act, 2013 · click to expand
Sec. 7(5) — If any person furnishes any false or incorrect particulars of any information or suppresses any material information, of which he is aware in any of the documents filed with the Registrar in relation to the registration of a company, he shall be liable for action under section 447.
Sec. 7(6) — Without prejudice to the provisions of sub-section (5) where, at any time after the incorporation of a company, it is proved that the company has been got incorporated by furnishing any false or incorrect information or representation or by suppressing any material fact or information in any of the documents or declaration filed or made for incorporating such company, or by any fraudulent action, the promoters, the persons named as the first directors of the company and the persons making declaration under clause (b) of sub-section (1) shall each be liable for action under section 447.
Sec. 7(7) — Without prejudice to the provisions of sub-section (6), where a company has been got incorporated by furnishing any false or incorrect information or representation or by suppressing any material fact or information in any of the documents or declaration filed or made for incorporating such company or by any fraudulent action, the Tribunal may, on an application made to it, on being satisfied that the situation so warrants, — (a) pass such orders, as it may think fit, for regulation of the management of the company including changes, if any, in its memorandum and articles, in public interest or in the interest of the company and its members and creditors; or (b) direct that liability of the members shall be unlimited; or (c) direct removal of the name of the company from the register of companies; or (d) pass an order for the winding up of the company; or (e) pass such other orders as it may deem fit.