As we can see in this MCA adjudication order company along with its other directors get penalised for hefty amount as they had had violated in the appointment of Key Managerial Personnel (KMP).
As per section 203 of the companies Act the appointment of KMP must be made by a resolution of the Board of Directors, and any vacancy in these positions must be filled within six months from the date of such vacancy to maintain smooth corporate functioning. Additionally, the section restricts a whole-time KMP from holding a similar position in more than one company, except in its subsidiary company, ensuring that key managerial personnel dedicate their efforts effectively to their respective organizations.
Applicable Provisions
The MCA adjudication order 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 (ER), Kolkata, for consideration.
Facts of the Case with ROC and RD
In Delta International Ltd, concerned ROC had issued adjudication notice for violation of section 203 (1) of the companies Act dated 25.07.2022 to the company and its officers. In this regard, no adequate reply to the notice has been received from the company and its officers in default as to why penalty shall not be imposed.
Considering the fact and circumstances of the case, Registrar of Companies (ROC) imposed penalties for non-compliance, leading the company to file an appeal before the Regional Director (RD) and an opportunity of being heard was given by the RD to appellants on 02/07/2024. The authorised representative submitted:
-
Appellant 3 & Appellant 5 are and were the independent director of the company and are not liable for the violation of the Act.
-
Based on the above submission made by the authorised representative during the hearing, it is found that there is merit in the submission and as per DIR-12/Form 32 and also from the AOC-4 for FY 2020-21 from MCA portal, it was found that above mentioned appellants are acting as an independent and non- executive director of the company. Thus, these two directors are not liable for the offences
As authorised representative had no valid submissions in this regard requiring interference with the order of ROC. Hence the order of ROC is confirmed as no cogent ground was made out by the appellant.
Imposed Penalty
Considering all the facts, circumstances and all the submission made by the company, the adjudicating authority had imposed penalty on companies and officers in default as follows:
|
Violation of Section |
Period of default |
To whom penalty imposed |
Maximum Penalty |
|
Section 203(4) r/w 203 (5) of the companies Act 2013 |
1427 |
On Company |
5,00,000 |
|
1427 |
On 1st Director |
5,00,000 |
|
|
1427 |
On 2nd Director |
5,00,000 |
|
|
1427 |
On 3rd Director |
5,00,000 |
|
|
1427 |
On 4th Director |
5,00,000 |
Confirming ROC Order
The appeal was heard on 02/07/2024 Authorised Representative was asked to make submissions regarding any infirmity in order of ROC. The Authorised Representative stated that Appellant 3 & Appellant 5 are and were the independent director of the company and are not liable for the violation of the Act.
|
Violation of Section |
Period of default |
To whom penalty imposed |
Maximum Penalty |
|
Section 203(4) r/w 203 (5) of the companies Act 2013 |
1427 |
On Company |
5,00,000 |
|
1427 |
On 1st Director |
5,00,000 |
|
|
1427 |
On 2nd Director |
5,00,000 |
Further RD directed that the amount shall be paid within a period of 90 days from the date pf receipt of the copy of the order. In the company and its directors fail to deposit the penalty amount within the prescribed time limit action under section 454 (8)(i) and (ii) of the companies Act 2013 shall be initiated against the company and its directors.
Any Benefit of Section 446B of Companies Act
Section 446B of the Companies Act, 2013 provides a significant relief mechanism for small companies and start-ups by reducing the penalty burden for certain non-compliances. Under this provision, if a small company or a start-up commits a default for which a penalty is prescribed under the Act, the penalty imposed shall not be more than half of the specified penalty, subject to a maximum limit. In adjudication matter of Delta International Ltd being a public company does not fall under the criteria of section 446B of the companies Act 2013.
Findings:
The findings of the adjudication proceedings against Delta International Ltd highlight a clear violation of Section 203 of the Companies Act, 2013, due to the company's failure to appoint Key Managerial Personnel (KMP) within the prescribed time. Despite receiving an adjudication notice from the ROC, the company and its officers failed to provide an adequate response, leading to the imposition of penalties. During the appeal before the Regional Director (RD), it was established that two independent directors were not liable for the violation, and they were accordingly excluded from the penalty. However, as no valid justification was provided by the remaining directors or the company, the penalties on the company and other directors were confirmed. The case underscores the importance of compliance with KMP appointment requirements and the financial consequences of non-compliance, especially for public companies that do not qualify for penalty reductions under Section 446B of the Act.
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