Effect of Furnishing False Information — Section 7(5) and 7(6)
# Effect of Furnishing False or Incorrect Information / Suppression of Material Fact
The Act treats falsehood at the time of incorporation and falsehood post-incorporation as two distinct fact-patterns with overlapping but different consequences. Both are linked to Section 447 (punishment for fraud) — but the post-incorporation case also opens up an entire menu of corrective orders by the Tribunal.
## Comparative Table
Aspect
Section 7(5) — During Incorporation
Section 7(6) — Post Incorporation
When the falsehood occurs
While filing documents for registration
After the company has been incorporated
Who is liable
The person who furnishes false particulars/suppresses material info, of which he is aware
(a) Promoters, (b) Persons named as first directors, (c) Persons making the Section 7 declaration
Action triggered
Action for fraud under Section 447
Action for fraud under Section 447+ orders by Tribunal
Tribunal powers
None specific under 7(5)
Wide powers (see below)
## Tribunal's Powers under Section 7(7) — Post Incorporation Cases
On an application, if the Tribunal is satisfied that the situation so warrants, it may:
1. Regulate the management of the company, including changes (if any) in its memorandum and articles, in the public interest or in the interest of the company and its members and creditors;
2. Direct that the liability of members shall be unlimited;
3. Direct removal of the name of the company from the register;
4. Pass an order of winding up of the company;
5. Pass such other orders as it may deem fit.
## Safeguards Before the Tribunal Orders
Before making any such order:
1. The company shall be given a reasonable opportunity of being heard; and
2. The Tribunal shall take into consideration the transactions entered into by the company, including the obligations contracted or payment of any liability.
This ensures that innocent third parties who have transacted with the company are not unfairly prejudiced.
## Section 447 in a nutshell
Fraud under Section 447 attracts imprisonment of 6 months to 10 years and fine equal to amount involved, extendable up to 3 times — and where the fraud involves public interest, the minimum imprisonment is 3 years.
Worked example
### Example 1
Example — Section 7(5): A promoter, while filing the SPICe+ form, knowingly submits a forged identity proof of a subscriber. The company gets incorporated. Later, the truth comes out. Only that person (the one who knowingly furnished the false particulars) is liable under Section 447. The company itself is not (yet) facing winding-up because the fraud was caught at the incorporation stage.
### Example 2
Example — Section 7(6): A company files an annual return concealing that two of its directors are disqualified. This is post-incorporation suppression. The promoters, first directors and the declarant are each liable under Section 447. In addition, an application to NCLT may result in (i) winding up, (ii) unlimited liability of members, or (iii) striking off — depending on facts. Before passing any order, NCLT must hear the company and consider its existing contracts (e.g., obligations to bona fide creditors).
⚠️ Common exam mistakes
Treating Section 7(5) and 7(6) as the same. The trigger event (incorporation vs post-incorporation) and the persons in the dock are different.
Forgetting that under 7(6), the Tribunal can make members' liability unlimited — a powerful and unusual remedy.
Believing the Tribunal can simply wind up the company without hearing it. Reasonable opportunity of being heard is mandatory.
Confusing 'fraud under Section 447' with civil penalty — Section 447 is a criminal offence with imprisonment.
Assuming the Tribunal must protect creditors automatically. It is statutorily required to consider transactions and obligations before ordering — but creditors should still appear and place their interests before NCLT.
Bare-Act text Section 7(5), 7(6) and 7(7) · Companies Act, 2013 · click to expand
(5) Without prejudice to the provisions of sub-section (6) 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. (7) Without prejudice to the provisions of sub-section (6), where a company has been got incorporated by furnishing any false or incorrect information... 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: Provided that before making any order,— (i) the company shall be given a reasonable opportunity of being heard in the matter; and (ii) the Tribunal shall take into consideration the transactions entered into by the company, including the obligations, if any, contracted or payment of any liability.