Violating Section 203 of the Companies Act 2013 means a company has failed to comply with the regulations regarding the appointment and qualifications of "Key Managerial Personnel" (KMP), particularly the Chief Financial Officer (CFO), which includes not appointing a suitable candidate within the required time frame.
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 Apex Traders and Exporters Ltd, concerned ROC had issued adjudication notice for violation of section 203 (1) of the companies Act dated 26.10.2022 to the company and its officers. In this regard, a reply dated 15/07/2022 was received by the concerned ROC from the company and its officers for aforesaid adjudication notice which was not found satisfactory by the Adjudicating Authority.
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 21/12/2023
The authorised representative was asked to make submissions regarding any infirmity in the order of ROC in ascertaining the offence under section 203 of the companies Act 2013. The authorised representative had no submission in this regard; Hence the order of ROC is confirmed as no cogent ground was made out by the authorised representative.
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 |
First Default |
Continuing Default |
Maximum Penalty |
Section 203(4) r/w 203 (5) of the companies Act 2013 |
136 |
On Company |
5,00,000 |
|
5,00,000 |
136 |
On 1st Director |
50,000 |
136*1000 |
5,00,000 |
|
136 |
On 2nd Director |
50,000 |
136*1000 |
5,00,000 |
|
788 |
On 3rd Director |
50,000 |
136*1000 |
5,00,000 |
Confirming ROC Order
The appeal was heard on 21/12/2023 Authorised Representative was asked to make submissions regarding any infirmity in order of ROC. After considering all the facts, circumstances and submissions made by the appellant company, concerned RD did not confirm the order of ROC.
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 Apex Traders and Exporters 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 Apex Traders and Exporters Ltd highlight a clear violation of Section 203 of the Companies Act, 2013, due to the company's failure to appoint Company Secretary 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), authorised representatives did not able to make any cogent ground thus RD confirm the order of ROC.