Adjudication Order: Consequences of Not Filling AOC-4 & MGT-7

Adjudication Order: Consequences of Not Filling AOC-4 & MGT-7. In this article, we will take you through the mandatory annual filing requirements under Section 92 and Section 137 of the Companies Act, 2013, focusing on the implications of non-compliance and the penalties involved. Section 92(5) mandates that every company, including its directors, must file an annual return, while Section 137(3) requires the filing of the financial statement with the Registrar of Companies (ROC) within a specified time. Failure to comply with these provisions can result in penalties being levied against both the company and its directors, as demonstrated in the case of Menezes Pharmaceuticals Limited. The company’s failure to timely file its financial statements and annual return led to the imposition of penalties by the ROC.
However, in the appeal process, the Regional Director (RD) considered the company’s mitigating circumstances and reduced the penalties, highlighting the importance of understanding the consequences of non-compliance and the opportunities for relief when justified reasons are presented.
Applicable Provisions
The case involves an appeal under Section 454(5) of the Companies Act, 2013, concerning the adjudication of penalties for defaulting in filling of its annual return and financial statement for the Financial Year 2017-18. The matter was brought before the Regional Director (WR), Mumbai, for consideration.
Facts of the Case with ROC and RD
Menezes Pharmaceuticals Limited, a company registered under the Companies Act, 1956, with its registered office in Goa, was found to be in default of Section 92(5) and section 137 (3) of the Companies Act 2013. The ROC issued a show cause notice dated 29.01.2019 to the company and its directors, calling them to show cause for non-filling of such documents.
The Registrar of Companies (ROC) imposed penalties for non-compliance, leading the company to file an appeal before the Regional Director (RD). The hearing was attended by the company's representative, and contended that the:

The Appellant Company has not filed its annual returns and financial statements for the financial year 2017-18 till the order passed by the ROC, Goa i.e. 09.05.2019. However, the same were filed on 23.07.2019 as stated in the ROC, report dated 20.09.2019.

This delay was also due to ongoing family disputes.

Further, company was using SAP software for maintain accounting records, however the employee who were trained to use this software left at the time of closure of plant and when a replacement accountant was put on job to finalize the accounts, he realized that some date had been entered wrongly in SAP system by the previous employee. Due to this the accounts took even longer to get finalized.

The impugned order was passed without giving opportunity of being heard to the company as required under Rule 3(3) of the Rules.

Imposed Penalty
The ROC after considering the fact and circumstances of the case levied penalties. The penalty amount was determined based on the company's failure to comply with the relevant legal requirements. The details of the penalty, are as follows:
For Financial Statements as under section 137(1) of the companies Act 2013

On Company: Rs, 1,89,000

Director 1: Rs 1,18,900

Director 2: Rs 1,18,900

Director 3: Rs 1,18,900

For Annual Return as per section 92 (4) of the companies Act 2013

On Company: Rs, 66,000

Director 1: Rs 66,000

Director 2: Rs 66,000

Set Aside of Order:
Upon hearing the appeal, the RD reviewed the circumstances and stated that impugned order is liable to be set aside being defective on many counts and without conducting any inquiry and without imparting an opportunity of being heard to the appellants.
The order is accordingly set aside with direction to the ROC to conduct the proceeding from the beginning and pass order in accordance and after due compliance with the provision of section 454 with rules thereunder.
Any Benefit of Section 446B of Companies Act
Section 446B of the Companies Act, 2013, provides for lesser penalties in cases involving small companies and startups. However, in this case, Concerned RD directed to start the proceeding from the beginning with considering section 454 of the companies Act.
Conclusion
The case of Menezes Pharmaceuticals Limited highlights the critical importance of adhering to annual filing requirements under the Companies Act, 2013. While non-compliance can lead to significant penalties for both the company and its directors, the appeal process offers an opportunity for relief when justifiable reasons are presented. The decision of the Regional Director to set aside the impugned order due to procedural lapses highlights the necessity of following due process in adjudicating penalties. Additionally, while Section 446B provides for reduced penalties in certain cases, companies must proactively ensure compliance to avoid legal and financial repercussions. This case serves as a reminder that timely filings and proper procedural adherence are crucial for corporate governance and regulatory compliance.
Download MCA Adjudication Order

In this article, we will take you through the mandatory annual filing requirements under Section 92 and Section 137 of the Companies Act, 2013, focusing on the implications of non-compliance and the penalties involved. Section 92(5) mandates that every company, including its directors, must file an annual return, while Section 137(3) requires the filing of the financial statement with the Registrar of Companies (ROC) within a specified time. Failure to comply with these provisions can result in penalties being levied against both the company and its directors, as demonstrated in the case of Menezes Pharmaceuticals Limited. The company’s failure to timely file its financial statements and annual return led to the imposition of penalties by the ROC.

However, in the appeal process, the Regional Director (RD) considered the company’s mitigating circumstances and reduced the penalties, highlighting the importance of understanding the consequences of non-compliance and the opportunities for relief when justified reasons are presented.

Applicable Provisions

The case involves an appeal under Section 454(5) of the Companies Act, 2013, concerning the adjudication of penalties for defaulting in filling of its annual return and financial statement for the Financial Year 2017-18. The matter was brought before the Regional Director (WR), Mumbai, for consideration.

Facts of the Case with ROC and RD

Menezes Pharmaceuticals Limited, a company registered under the Companies Act, 1956, with its registered office in Goa, was found to be in default of Section 92(5) and section 137 (3) of the Companies Act 2013. The ROC issued a show cause notice dated 29.01.2019 to the company and its directors, calling them to show cause for non-filling of such documents.

The Registrar of Companies (ROC) imposed penalties for non-compliance, leading the company to file an appeal before the Regional Director (RD). The hearing was attended by the company's representative, and contended that the:

The Appellant Company has not filed its annual returns and financial statements for the financial year 2017-18 till the order passed by the ROC, Goa i.e. 09.05.2019. However, the same were filed on 23.07.2019 as stated in the ROC, report dated 20.09.2019.
This delay was also due to ongoing family disputes.
Further, company was using SAP software for maintain accounting records, however the employee who were trained to use this software left at the time of closure of plant and when a replacement accountant was put on job to finalize the accounts, he realized that some date had been entered wrongly in SAP system by the previous employee. Due to this the accounts took even longer to get finalized.
The impugned order was passed without giving opportunity of being heard to the company as required under Rule 3(3) of the Rules.

Imposed Penalty

The ROC after considering the fact and circumstances of the case levied penalties. The penalty amount was determined based on the company's failure to comply with the relevant legal requirements. The details of the penalty, are as follows:

For Financial Statements as under section 137(1) of the companies Act 2013

On Company: Rs, 1,89,000
Director 1: Rs 1,18,900
Director 2: Rs 1,18,900
Director 3: Rs 1,18,900

For Annual Return as per section 92 (4) of the companies Act 2013

On Company: Rs, 66,000
Director 1: Rs 66,000
Director 2: Rs 66,000

Set Aside of Order:

Upon hearing the appeal, the RD reviewed the circumstances and stated that impugned order is liable to be set aside being defective on many counts and without conducting any inquiry and without imparting an opportunity of being heard to the appellants.

The order is accordingly set aside with direction to the ROC to conduct the proceeding from the beginning and pass order in accordance and after due compliance with the provision of section 454 with rules thereunder.

Any Benefit of Section 446B of Companies Act

Section 446B of the Companies Act, 2013, provides for lesser penalties in cases involving small companies and startups. However, in this case, Concerned RD directed to start the proceeding from the beginning with considering section 454 of the companies Act.

Conclusion

The case of Menezes Pharmaceuticals Limited highlights the critical importance of adhering to annual filing requirements under the Companies Act, 2013. While non-compliance can lead to significant penalties for both the company and its directors, the appeal process offers an opportunity for relief when justifiable reasons are presented. The decision of the Regional Director to set aside the impugned order due to procedural lapses highlights the necessity of following due process in adjudicating penalties. Additionally, while Section 446B provides for reduced penalties in certain cases, companies must proactively ensure compliance to avoid legal and financial repercussions. This case serves as a reminder that timely filings and proper procedural adherence are crucial for corporate governance and regulatory compliance.