Adjudication Order on Compliance with Section 203 of the Companies Act, 2013

Adjudication Order on Compliance with Section 203 of the Companies Act, 2013. In this article, we will take you through the provisions of Section 203 of the Companies Act, 2013, which deals with the appointment of key managerial personnel, including the requirement for companies to appoint a whole-time Company Secretary, Managing Director, or Chief Executive Officer. The section aims to ensure proper corporate governance and compliance with regulatory standards by mandating the presence of qualified professionals in key roles.
Applicable Provisions
The case involves an appeal under Section 454(5) of the Companies Act, 2013, concerning the adjudication of penalties. The relevant rules include the Companies (Adjudication of Penalties) Rules, 2014. The matter was brought before the Regional Director (WR), Mumbai, for consideration.
Facts of the Case with ROC and RD
Tokyo Finance Limited, a company registered under the Companies Act, 1956, with its registered office in Daman, was found to be in default of Section 203 of the Companies Act 2013. The ROC issued a show cause notice dated 17.01.2019 to the company and its directors, calling them to explain the violation of Section 203 of the Companies Act, 2013. In response, the company submitted its reply on 04.02.2019, explaining the circumstances for the non-appointment of a Company Secretary. However, the ROC found the reply unsatisfactory and subsequently issued a Notice of Inquiry on 08.02.2019 to the company and its officers/directors.
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, a Practicing Company Secretary, through video conference and contended that the: and contended that the:
The financial position of the company was not sound

The appellant company has appointed CS, and she left as on 11.08.2017 due to non-payment of high salary and

Company has made efforts to appoint new CS but company’s registered office is situated at Daman and no outsiders intend to join and stay at Daman so that is also a big issue for a company.

Though company has made the default good and appointed Ms. Borana as CS with effect from 27.02.2019 and this is unintentional, first-time default.

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

On Company: Rs, 5,00,000

Officer in default: Rs 1,67,000

Reduction in Penalty
Upon hearing the appeal, the RD reviewed the circumstances surrounding the non-compliance. The company’s arguments, including mitigating factors and potential rectifications, were considered. Consequently, the RD exercised its discretion to reduce the penalty amount, providing partial relief to the appellant as fllows:

On Company: Rs 1,25,000

Officer in default: Rs 11,750

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, Tokyo Finance Limited, being a listed entity or a company falling outside the defined categories, may not have qualified for the benefits of this section. The applicability of Section 446B would depend on the company’s classification and whether it met the prescribed criteria.
Conclusion
The case of Tokyo Finance Limited highlights the procedural aspects of penalty adjudication under the Companies Act, 2013. While the ROC initially imposed penalties for non-compliance, the RD provided a reconsideration platform, leading to a reduction in the penalty. This highlights the importance of timely appeals and the discretion available under the law to mitigate financial liabilities in justified cases. Companies must ensure adherence to statutory requirements to avoid penalties while also leveraging available legal remedies for relief when necessary.
Download MCA Adjudication Order

In this article, we will take you through the provisions of Section 203 of the Companies Act, 2013, which deals with the appointment of key managerial personnel, including the requirement for companies to appoint a whole-time Company Secretary, Managing Director, or Chief Executive Officer. The section aims to ensure proper corporate governance and compliance with regulatory standards by mandating the presence of qualified professionals in key roles.

Applicable Provisions

The case involves an appeal under Section 454(5) of the Companies Act, 2013, concerning the adjudication of penalties. The relevant rules include the Companies (Adjudication of Penalties) Rules, 2014. The matter was brought before the Regional Director (WR), Mumbai, for consideration.

Facts of the Case with ROC and RD

Tokyo Finance Limited, a company registered under the Companies Act, 1956, with its registered office in Daman, was found to be in default of Section 203 of the Companies Act 2013. The ROC issued a show cause notice dated 17.01.2019 to the company and its directors, calling them to explain the violation of Section 203 of the Companies Act, 2013. In response, the company submitted its reply on 04.02.2019, explaining the circumstances for the non-appointment of a Company Secretary. However, the ROC found the reply unsatisfactory and subsequently issued a Notice of Inquiry on 08.02.2019 to the company and its officers/directors.

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, a Practicing Company Secretary, through video conference and contended that the: and contended that the:

The financial position of the company was not sound

The appellant company has appointed CS, and she left as on 11.08.2017 due to non-payment of high salary and
Company has made efforts to appoint new CS but company’s registered office is situated at Daman and no outsiders intend to join and stay at Daman so that is also a big issue for a company.
Though company has made the default good and appointed Ms. Borana as CS with effect from 27.02.2019 and this is unintentional, first-time default.

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

On Company: Rs, 5,00,000
Officer in default: Rs 1,67,000

Reduction in Penalty

Upon hearing the appeal, the RD reviewed the circumstances surrounding the non-compliance. The company’s arguments, including mitigating factors and potential rectifications, were considered. Consequently, the RD exercised its discretion to reduce the penalty amount, providing partial relief to the appellant as fllows:

On Company: Rs 1,25,000
Officer in default: Rs 11,750

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, Tokyo Finance Limited, being a listed entity or a company falling outside the defined categories, may not have qualified for the benefits of this section. The applicability of Section 446B would depend on the company’s classification and whether it met the prescribed criteria.

Conclusion

The case of Tokyo Finance Limited highlights the procedural aspects of penalty adjudication under the Companies Act, 2013. While the ROC initially imposed penalties for non-compliance, the RD provided a reconsideration platform, leading to a reduction in the penalty. This highlights the importance of timely appeals and the discretion available under the law to mitigate financial liabilities in justified cases. Companies must ensure adherence to statutory requirements to avoid penalties while also leveraging available legal remedies for relief when necessary.