MCA Impose Hefty Penalty on Listed Company For Non- Appointment Of Company Secretary

MCA Impose Hefty Penalty on Listed Company For Non- Appointment Of Company Secretary. A listed company failing to appoint a Company Secretary is considered a serious violation under the Companies Act, 2013, leading to penalties for the company and its directors, as the Company Secretary is classified as a Key Managerial Personnel (KMP) and their appointment is mandatory for listed companies, non-compliance can result in fines ranging from one lakh to five lakh rupees for the company.
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 case involves an appeal under Section 454(5) of the Companies Act, 2013, concerning the MCA 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 Merit Investment Ltd, concerned ROC had issued adjudication notice for violation of section 203 (1) of the companies Act dated 27/07/2022 to the company and its officers. In this regard, a reply dated 10/08/2022 was received by the concerned ROC from the company and its officers for adjudication notice.

As the trading operation of Calcutta Stock Exchange (CSE) is cancelled by SEBI with derecognizing of the CSE hence no longer qualifies as a listed company.

Moreover, the paid-up share capital of the company has never attained 5 crore nor attained Rs. 10 Crore.

The company has appointed a CS with effect from 01.11.2022. DIR-12 has been duly filed dated 26.11.2022.

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 21/11/2023. The authorised representative stated that: -

Company is in the process of the voluntary delisting from the CSE as the company being a small company and company has already appointed Merchant Banker and have already paid pending fee payable to the CSE as required for compliance of the said process.

Authorised Representative was asked to make submissions regarding any infirmity in the order of ROC in ascertaining the offence under section 203 of the Act and deciding the adjudication thereafter. The 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

744

On Company

5,00,000

744

On 1st Director

5,00,000

744

On 2nd Director

5,00,000

744

On 3rd Director

5,00,000

Confirming ROC Order
The appeal was heard on 21/11/2023 Authorised Representative was asked to make submissions regarding any infirmity in order of ROC. The Authorised Representative had no valid submissions in this regard. Hence the order of ROC is confirmed as no cogent ground was made out by the authorised representative.
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 Merit Investment Ltd being a public company does not fall under the criteria of section 446B of the companies Act 2013.
Findings:
In conclusion, the appeal under Section 454(5) of the Companies Act, 2013, was carefully examined by the Regional Director and considering all the fact and circumstances RD confirm the order of ROC as RD did not get any cogent ground. 
This demonstrates that company initially should be complaint in each and every term and in case of appeal to the RD it became very significant to make valid points to mitigate the penalty.
Download MCA Adjudication Order

A listed company failing to appoint a Company Secretary is considered a serious violation under the Companies Act, 2013, leading to penalties for the company and its directors, as the Company Secretary is classified as a Key Managerial Personnel (KMP) and their appointment is mandatory for listed companies, non-compliance can result in fines ranging from one lakh to five lakh rupees for the company.

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 case involves an appeal under Section 454(5) of the Companies Act, 2013, concerning the MCA 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 Merit Investment Ltd, concerned ROC had issued adjudication notice for violation of section 203 (1) of the companies Act dated 27/07/2022 to the company and its officers. In this regard, a reply dated 10/08/2022 was received by the concerned ROC from the company and its officers for adjudication notice.

As the trading operation of Calcutta Stock Exchange (CSE) is cancelled by SEBI with derecognizing of the CSE hence no longer qualifies as a listed company.
Moreover, the paid-up share capital of the company has never attained 5 crore nor attained Rs. 10 Crore.
The company has appointed a CS with effect from 01.11.2022. DIR-12 has been duly filed dated 26.11.2022.

Company is in the process of the voluntary delisting from the CSE as the company being a small company and company has already appointed Merchant Banker and have already paid pending fee payable to the CSE as required for compliance of the said process.

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	744	On Company	5,00,000
	744	On 1st Director	5,00,000
	744	On 2nd Director	5,00,000
	744	On 3rd Director	5,00,000

Confirming ROC Order

The appeal was heard on 21/11/2023 Authorised Representative was asked to make submissions regarding any infirmity in order of ROC. The Authorised Representative had no valid submissions in this regard. Hence the order of ROC is confirmed as no cogent ground was made out by the authorised representative.

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 Merit Investment Ltd being a public company does not fall under the criteria of section 446B of the companies Act 2013.

Findings:

In conclusion, the appeal under Section 454(5) of the Companies Act, 2013, was carefully examined by the Regional Director and considering all the fact and circumstances RD confirm the order of ROC as RD did not get any cogent ground.

This demonstrates that company initially should be complaint in each and every term and in case of appeal to the RD it became very significant to make valid points to mitigate the penalty.