Compounding of offence for Non Appointment of Company Secretary

Compounding of offence for Non Appointment of Company Secretary . 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), Hyderabad, for consideration.
Facts of the Case with ROC and RD
Gokak Textiles Limited, a company, was found to be in default of Section 203 of the Companies Act 2013. The appellants have filed the appeal under section 454 (4) of the Companies Act, 2013 against the MCA adjudication order dated 24.05.2024 passes by the ROC for violation of section 203 of the companies Act 2013 as the company had filled a Suo moto application on 29.01.2024 regarding non appointment of whole-time company secretary. 
ROC observed that the company has not appointed the whole-Time company secretary since the date of 12.12.2019. There was no company secretary in the company till the appointment of other CS on 01.07.2021. Thus company fail to appoint Whole time company secretary for a period from 12.06.2020 to 30.06.2021. 
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 and contended that the:
• Violation in question is not deliberate, unintentional and not wilful and that the violation was due to outbreak of COVID -19 global pandemic and the sudden announcement of Nationwide lockdown.
• However, company has made the default good by appointment of Ms. Nirali Dhiren Mehta as a company Secretary of the company with effect from 01.07.2021 and that the company to prove its bona fide had filled Suo moto application for adjudication before the ROC.
• Imposing such heavy penalty would put the company under the financial stress. 
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 non-appointment of Company Secretary:
• On Company:  Rs, 5,00,000
• On 2 Director: Rs 4,33,000 each
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 as follows:
For non-appointment of Company Secretary:
• On Company:  Rs, 1,00,000
• On 2 Directors: Rs. 50,000 each
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 Gokak Textiles Limited, being a public company, this is not falling under the criteria to claim the benefit of Section 446B of the companies Act.
Our observations:
The case of Gokak Textiles 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), Hyderabad, for consideration.

Facts of the Case with ROC and RD

Gokak Textiles Limited, a company, was found to be in default of Section 203 of the Companies Act 2013. The appellants have filed the appeal under section 454 (4) of the Companies Act, 2013 against the MCA adjudication order dated 24.05.2024 passes by the ROC for violation of section 203 of the companies Act 2013 as the company had filled a Suo moto application on 29.01.2024 regarding non appointment of whole-time company secretary.

ROC observed that the company has not appointed the whole-Time company secretary since the date of 12.12.2019. There was no company secretary in the company till the appointment of other CS on 01.07.2021. Thus company fail to appoint Whole time company secretary for a period from 12.06.2020 to 30.06.2021.

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 and contended that the:

• Violation in question is not deliberate, unintentional and not wilful and that the violation was due to outbreak of COVID -19 global pandemic and the sudden announcement of Nationwide lockdown.

• However, company has made the default good by appointment of Ms. Nirali Dhiren Mehta as a company Secretary of the company with effect from 01.07.2021 and that the company to prove its bona fide had filled Suo moto application for adjudication before the ROC.

• Imposing such heavy penalty would put the company under the financial stress.

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 non-appointment of Company Secretary:

• On Company: Rs, 5,00,000

• On 2 Director: Rs 4,33,000 each

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 as follows:

For non-appointment of Company Secretary:

• On Company: Rs, 1,00,000

• On 2 Directors: Rs. 50,000 each

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 Gokak Textiles Limited, being a public company, this is not falling under the criteria to claim the benefit of Section 446B of the companies Act.

Our observations:

The case of Gokak Textiles 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.