Avoid Penalties: File Annual Returns with ROC on time

Avoid Penalties: File Annual Returns with ROC on time. 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 Karnawat Metal Industries 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 ended on 31.03.2018. The matter was brought before the Regional Director (WR), Mumbai, for consideration.
Facts of the Case with ROC and RD
Karnawat Metal Industries 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 26.10.2016 to the company and its directors, calling them to show cause for non-filling of such documents for the year ended on 31.03.2015.
However, the Annual Return and Financial Statement for year 2014-15 were filled on 12/01/2018 with additional fee to regularize the default.
ROC fixed personal hearing on 24.09.2019 to adjudicate the default under section1 37 (3) of the companies Act 2013, however none from company or its authorised representative was present for the scheduled hearing.  
The Registrar of Companies (ROC) considering the facts and circumstances-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 had filed a compounding application with office of RD, WR, Mumbai u/s 441 of the companies Act 2013. The non filling of the FY ended on 31.03.2015 was unintentional and without any malice.

The appellant company has suffered the financial losses over a period of past few years and does not bear the financial ability to pay the mammoth amount of fine imposed by the ROC Goa.

The appellant company stated that all the directors and shareholders intend to strike off the company as company is unable to bear the continuous loss over the last several years.

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, 8,03,000

Director 1: Rs 1,80,300

Director 2: Rs 1,80,300

Director 3: Rs 1,80,300

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

On Company: Rs 1,27,200

Director 1: Rs 1,27,200

Director 2: Rs 1,27,200

Director 3: Rs 1,,27,200

Reduction in penalties
Considering the request made by the appellant company for reduction or waive off the penalty in appeal is hereby allowed by the RD. Accordingly, the appeal is allowed and it was directed to the representative of the appellant company to pay the revised penalty.
For Financial Statements as under section 137(1) of the companies Act 2013

On Company: Rs, 5,000

Director 1: Rs 4,200

Director 2: Rs 4,200

Director 3: Rs 4,200

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

On Company: Rs 5,000

Director 1: Rs 2,500

Director 2: Rs 2,500

Director 3: Rs 2,500

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 had after considering the fact and circumstances of the appeal of appellant company reduce the quantum of penalty up to substantial amount.
Conclusion
The case of Karnawat Metal Industries Limited highlights the serious implications of non-compliance with the annual filing requirements under Sections 92 and 137 of the Companies Act, 2013. The imposition of substantial penalties by the ROC underscores the importance of timely filing of financial statements and annual returns. However, the appeal process before the Regional Director (RD) demonstrated that genuine mitigating factors, such as financial distress and the absence of malafide intent, can lead to a significant reduction in penalties.
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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 Karnawat Metal Industries 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 ended on 31.03.2018. The matter was brought before the Regional Director (WR), Mumbai, for consideration.

Facts of the Case with ROC and RD

Karnawat Metal Industries 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 26.10.2016 to the company and its directors, calling them to show cause for non-filling of such documents for the year ended on 31.03.2015.

However, the Annual Return and Financial Statement for year 2014-15 were filled on 12/01/2018 with additional fee to regularize the default.

ROC fixed personal hearing on 24.09.2019 to adjudicate the default under section1 37 (3) of the companies Act 2013, however none from company or its authorised representative was present for the scheduled hearing.

The Registrar of Companies (ROC) considering the facts and circumstances-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 had filed a compounding application with office of RD, WR, Mumbai u/s 441 of the companies Act 2013. The non filling of the FY ended on 31.03.2015 was unintentional and without any malice.
The appellant company has suffered the financial losses over a period of past few years and does not bear the financial ability to pay the mammoth amount of fine imposed by the ROC Goa.
The appellant company stated that all the directors and shareholders intend to strike off the company as company is unable to bear the continuous loss over the last several years.

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, 8,03,000
Director 1: Rs 1,80,300
Director 2: Rs 1,80,300
Director 3: Rs 1,80,300

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

On Company: Rs 1,27,200
Director 1: Rs 1,27,200
Director 2: Rs 1,27,200
Director 3: Rs 1,,27,200

Reduction in penalties

Considering the request made by the appellant company for reduction or waive off the penalty in appeal is hereby allowed by the RD. Accordingly, the appeal is allowed and it was directed to the representative of the appellant company to pay the revised penalty.

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

On Company: Rs, 5,000
Director 1: Rs 4,200
Director 2: Rs 4,200
Director 3: Rs 4,200

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

On Company: Rs 5,000
Director 1: Rs 2,500
Director 2: Rs 2,500
Director 3: Rs 2,500

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 had after considering the fact and circumstances of the appeal of appellant company reduce the quantum of penalty up to substantial amount.

Conclusion

The case of Karnawat Metal Industries Limited highlights the serious implications of non-compliance with the annual filing requirements under Sections 92 and 137 of the Companies Act, 2013. The imposition of substantial penalties by the ROC underscores the importance of timely filing of financial statements and annual returns. However, the appeal process before the Regional Director (RD) demonstrated that genuine mitigating factors, such as financial distress and the absence of malafide intent, can lead to a significant reduction in penalties.