# Punishment for Contravention [Section 86]

## General Default Penalty

If a company defaults in complying with any provision of the chapter on registration of charges:

Party	Penalty
Company	Penalty of ₹ 5,00,000
Officer in default	Penalty of ₹ 50,000

## Fraud or Wilful Misrepresentation

If any person wilfully furnishes false or incorrect information or knowingly suppresses material information which is required to be registered under Section 77, he shall be liable under Section 447 (punishment for fraud) — which prescribes imprisonment and substantial fines.

## Why This Distinction Matters

Negligence/default → Civil penalty under Section 86.
Wilful falsehood/suppression → Criminal liability under Section 447 (fraud).

This dual structure ensures that genuine errors are penalised mildly, but deliberate fraud invites the full force of the Act.

Worked example

### Example 1

Example — Default Penalty

M Ltd. fails to register a charge created on 1st January 2026 even after the maximum permissible extension period under Section 77 expires.

M Ltd.: Penalty of ₹5,00,000.
Officer in default (e.g., CS): Penalty of ₹50,000.
The charge remains void against the liquidator and creditors.
The debt itself is still enforceable.

### Example 2

Example — Fraudulent Filing

In filing Form CHG-1, the director of N Ltd. wilfully states that the charge value is ₹1 crore when in fact ₹10 crore has been borrowed, in order to mislead other creditors.

This is wilful furnishing of false information.
The director is liable under Section 447 — punishment for fraud, including imprisonment and substantial fines, in addition to the civil penalty under Section 86.

⚠️ Common exam mistakes

Confusing penalty with prosecution — Section 86's main consequence is monetary penalty, while Section 447 can mean imprisonment.
Believing only the company is liable — every officer in default is also separately liable.
Treating non-registration as a mere technicality — it both invalidates the security (Section 77(3)) and attracts penalty under Section 86.
Overlooking that knowing suppression (silence on a material fact) is equally fraudulent as making a false statement.

Bare-Act text Section 86 · Companies Act, 2013 · click to expand

Section 86 — If any company is in default in complying with any of the provisions of this Chapter, the company shall be liable to a penalty of five lakh rupees and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees. If any person wilfully furnishes any false or incorrect information or knowingly suppresses any material information, required to be registered in accordance with the provisions of section 77, he shall be liable for action under section 447.

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