MCA Impose hefty penalty for violation in the appointment of KMP

MCA Impose hefty penalty for violation in the appointment of KMP. 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 (WR), Mumbai, for consideration.
Facts of the Case with ROC and RD
In Khed Developers Limited & ORS, concerned ROC vide adjudication order dated 19/12/2023 held the company, its Directors and Key Managerial Personnel who have defaulted, liable for penalty under section 203(5) of the Act from 03/02/2020 to 16/08/2020 for non-appointment of whole-Time Key Managerial Personnel.
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 05/06/2024. The authorised representative has admitted the contravention of Section 203 of the companies Act 2013 also did not find any defect in ROC Adjudication order dated 19/12/2023. The authorised representative also submitted the following in their application:

COVID Pandemic leads to further delay.

900 farmers are involved, and company is not having any revenue

The default is not continuing as on the date of this appeal and the appellants have adhered to the provision of section 203 of the Act

Some of the directors and KMP are senior citizens having no financial resources to meet any kind of penalty.

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

195

On Company

5,00,000

195

On 1st director

50,000

1000*95 =1,95,000

2,45,000

195

On 2nd director

50,000

1000*95 =1,95,000

2,45,000

195

On 3rd director

50,000

1000*95 =1,95,000

2,45,000

195

On 4th director

50,000

1000*95 =1,95,000

2,45,000

195

On 5th director

50,000

1000*95 =1,95,000

2,45,000

Confirming ROC Order
Taking into consideration the adjudication order of the ROC submission made by the appellants in their application and oral submission of the authorised representative and ROC during the hearing, it is observed that:

There is no inherent defect in the adjudication order dated 19/12/2023

ROC, Pune has imposed penalty as per section 203(5) of the companies Act 2013.

In view of the above, ROC’s adjudication order dated 19/12/2023 is confirmed with directions to the appellants to pay the penalty imposed by the ROC within 90 days, failing which ROC, Pune is directed to file prosecution under section 454(8) of the company and every KMP in default.
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 Khed Developers Limited & ORS being a public company does not fall under the criteria of lesser punishment and penalties under section 446B of the companies Act 2013.
Findings:
The findings of the adjudication proceedings against Khed Developers Limited & ORS 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.
Download MCA Adjudication Order

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 (WR), Mumbai, for consideration.

Facts of the Case with ROC and RD

In Khed Developers Limited & ORS, concerned ROC vide adjudication order dated 19/12/2023 held the company, its Directors and Key Managerial Personnel who have defaulted, liable for penalty under section 203(5) of the Act from 03/02/2020 to 16/08/2020 for non-appointment of whole-Time Key Managerial Personnel.

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 05/06/2024. The authorised representative has admitted the contravention of Section 203 of the companies Act 2013 also did not find any defect in ROC Adjudication order dated 19/12/2023. The authorised representative also submitted the following in their application:

COVID Pandemic leads to further delay.
900 farmers are involved, and company is not having any revenue
The default is not continuing as on the date of this appeal and the appellants have adhered to the provision of section 203 of the Act
Some of the directors and KMP are senior citizens having no financial resources to meet any kind of penalty.

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	195	On Company	5,00,000	5,00,000	5,00,000
	195	On 1^st director	50,000	1000*95 =1,95,000	2,45,000
	195	On 2^nd director	50,000	1000*95 =1,95,000	2,45,000
	195	On 3^rd director	50,000	1000*95 =1,95,000	2,45,000
	195	On 4^th director	50,000	1000*95 =1,95,000	2,45,000
	195	On 5^th director	50,000	1000*95 =1,95,000	2,45,000

Confirming ROC Order

Taking into consideration the adjudication order of the ROC submission made by the appellants in their application and oral submission of the authorised representative and ROC during the hearing, it is observed that:

There is no inherent defect in the adjudication order dated 19/12/2023
ROC, Pune has imposed penalty as per section 203(5) of the companies Act 2013.

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 Khed Developers Limited & ORS being a public company does not fall under the criteria of lesser punishment and penalties under section 446B of the companies Act 2013.

Findings:

The findings of the adjudication proceedings against Khed Developers Limited & ORS 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.