Think of Section 147 as the penalty schedule pinned at the back of the audit chapter — it tells you exactly how much it costs when someone breaks the rules laid down in Sections 139 to 146. Examiners love this section for short-answer questions; know the numbers cold.
There are three layers of punishment. First, the company itself: if any provision of Sections 139–146 is violated, the company pays a fine ranging from ₹25,000 to ₹5,00,000, and every officer in default pays ₹10,000 to ₹1,00,000. Second, the auditor: if the auditor personally violates Section 139, 143, 144, or 145, the fine is ₹25,000 to ₹5,00,000 or four times the auditor's remuneration, whichever is less. Notice the cap — a highly-paid auditor doesn't get a free pass just because the upper limit sounds high; the "whichever is less" clause bites. Third — and this is exam gold — if the auditor acts knowingly or wilfully to deceive the company, shareholders, creditors, or tax authorities, the punishment escalates sharply: imprisonment up to 1 year plus a fine of ₹50,000 to ₹25,00,000 or eight times the remuneration, whichever is less.
Once convicted under sub-section (2), the auditor must do two things: (i) refund the remuneration received from the company and (ii) pay damages to the company, statutory bodies, members, or creditors for losses caused by incorrect or misleading audit report statements. For audit firms, if a partner acted fraudulently or colluded in fraud, both the concerned partner and the firm are jointly and severally liable — but for criminal punishment other than fines, only the guilty partner(s) bear responsibility, not the entire firm. This distinction between civil and criminal liability for firms is a favourite MCQ trap.
📊 Worked example
Example 1 — Auditor's fine (ordinary contravention)
Mr. Mehta, a CA, is the statutory auditor of Sunrise Textiles Ltd. His annual audit remuneration is ₹80,000. He fails to comply with Section 143 (duties of auditor) without any fraudulent intent.
Step 1 — Identify the applicable sub-section: Ordinary contravention of Section 143 → sub-section (2) applies.
Step 2 — Calculate the cap:
- Statutory upper limit = ₹5,00,000
- Four times remuneration = 4 × ₹80,000 = ₹3,20,000
- Whichever is less = ₹3,20,000
Step 3 — Range of fine: ₹25,000 (minimum) to ₹3,20,000 (maximum)
Final Answer: Mr. Mehta's fine will be between ₹25,000 and ₹3,20,000.
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Example 2 — Willful deception (aggravated penalty)
Ms. Iyer is the auditor of Regal Infrastructure Pvt. Ltd. earning a remuneration of ₹2,00,000. She knowingly issues a misleading audit report to help the company obtain a bank loan fraudulently.
Step 1 — Identify sub-section: Wilful deception → proviso to sub-section (2) applies.
Step 2 — Imprisonment: Up to 1 year (at court's discretion).
Step 3 — Fine range:
- Statutory upper limit = ₹25,00,000
- Eight times remuneration = 8 × ₹2,00,000 = ₹16,00,000
- Whichever is less = ₹16,00,000
Step 4 — Minimum fine: ₹50,000
Step 5 — Additional consequences on conviction: Ms. Iyer must refund ₹2,00,000 (full remuneration) to the company and pay damages to the bank/creditors for any loss from the misleading report.
Final Answer: Fine range ₹50,000–₹16,00,000 + imprisonment up to 1 year + refund ₹2,00,000 + damages.
⚠️ Common exam mistakes
- Students mix up the fine ranges for the company vs. the auditor. The company's range (₹25,000–₹5,00,000) looks the same as the auditor's ordinary fine, but the auditor's fine also has the "4× remuneration, whichever is less" cap — remember to apply that cap whenever auditor remuneration is given in the question.
- Forgetting the 'whichever is less' direction. Many students write "whichever is higher" — it is always whichever is less (both in ordinary and wilful cases). The law limits, not amplifies, the penalty by remuneration.
- Confusing ordinary contravention with wilful deception. Ordinary breach → no imprisonment, maximum 4× remuneration cap. Wilful deception → imprisonment up to 1 year, minimum ₹50,000, maximum 8× remuneration cap. If the question says "knowingly" or "to deceive," jump straight to the proviso.
- Ignoring the refund + damages consequence on conviction. Students answer the imprisonment/fine part and stop. Sub-section (3) adds two more consequences — refund of remuneration and payment of damages. Always mention both in a theory question.
- Getting the audit firm liability rule wrong. Students say the whole firm is criminally liable. Correct rule: for civil liability, firm + concerned partner(s) are jointly and severally liable; for criminal liability other than fine, only the guilty partner(s) are liable — not every partner in the firm.
📖 Bare Act text — Section 147, Companies Act 2013
(click to expand)
(1) If any of the provisions of sections 139 to 146 (both inclusive) is contravened, the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees. (2) If an auditor of a company contravenes any of the provisions of section 139, section 143, section 144 or section 145, the auditor shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees or four times the remuneration of the auditor, whichever is less: Provided that if an auditor has contravened such provisions knowingly or willfully with the intention to deceive the company or its shareholders or creditors or tax authorities, he shall be punishable with imprisonment for a term which may extend to one year and with fine which shall not be less than fifty thousand rupees but which may extend to twenty-five lakh rupees or eight times the remuneration of the auditor, whichever is less. (3) Where an auditor has been convicted under sub-section (2), he shall be liable to—(i) refund the remuneration received by him to the company; and (ii) pay for damages to the company, statutory bodies or authorities or to members or creditors of the company for loss arising out of incorrect or misleading statements of particulars made in his audit report. (4) The Central Government shall, by notification, specify any statutory body or authority or an officer for ensuring prompt payment of damages to the company or the persons under clause (ii) of sub-section (3) and such body, authority or officer shall after payment of damages to such company or persons file a report with the Central Government in respect of making such damages in such manner as may be specified in the said notification. (5) Where, in case of audit of a company being conducted by an audit firm, it is proved that the partner or partners of the audit firm has or have acted in a fraudulent manner or a betted or colluded in any fraud by, or in relation to or by, the company or its directors or officers, the liability, whether civil or criminal as provided in this Act or in any other law for the time being in force, for such act shall be of the partner or partners concerned of the audit firm and of the firm jointly and severally: Provided that in case of criminal liability of an audit firm, in respect of liability other than fine, the concerned partner or partners, who acted in a fraudulent manner or abetted or, as the case may be, colluded in any fraud shall only be liable.
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