Non appointment of Company Secretary leads to Heavy Penalty

Non appointment of Company Secretary leads to Heavy Penalty. In this article, we will take you through an MCA adjudication order of One steeland Alloys Private Limited. Company has not appointed a whole-time company secretary for a specific period of time. This leads to a show cause notice from the concerned ROC.  
This company has violated 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
A-One steeland Alloys Private 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 adjudication order dated 24.05.2024 passes by the ROC for violation of section 203 of the companies Act 2013.
ROC in his order of adjudication stated that the company has filled the Suo moto application regarding the  non-appointment the whole-Time company secretary. That during the course of inquiry under section under 206 of the Act, ROC noticed that the paid-up share capital of the company was increased to 7 Cr on 30.03.2015 and the company has appointed whole time company secretary only on 15.03.2019.
The company had responded to the SCN of ROC accepting the default stating that it is due to non-availability of suitable candidate. Therefore, the company failed to appoint whole time company secretary for a period from 30.03.2015 to 14.03.2019 (1446 days).
The 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 22.08.2023. The authorised representative a PCS, appeared on the behalf of the appellants on 22.08.2024 and 29.10. 2024.The authorised representative has made the submission and stated that:

The company is a closely held company, and no public interest is involved in the company.

That as per sub section 4 of section 203 the vacancy in the position of KMP shall be filled within 06 months by the board. Whereas the adjudicating officer while determining the penalty, has taken date of default is from 01st April 2015, very next date of increased in authorised share capital of 5 Crore

Company could not find a suitable candidate to appoint as company secretary during the month of March 2019. However, company finalise the appointment of whole-time company secretary with effect from 15th March 2019

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 Former Director: Rs 4,66,000 each

One 1 Director: Rs. 5,00,000

On Whole time director: Rs. 5,00,000

On 1 director: Rs. 50,000

On 1 director: Rs. 2,47,000

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, 3,00,000

On 2 Former Director: Rs 2,50,000 each

One 1 Director: Rs. 2,50,000

On Whole time director: Rs. 2,50,000

On 1 director: Rs. 50,000

On 1 director: Rs. 1,50,000

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 after considering all the submission made by the company reduce the quantum of penalty up to a great extent.
Our observations:
The case of A-One steeland Alloys Private 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 an MCA adjudication order of One steeland Alloys Private Limited. Company has not appointed a whole-time company secretary for a specific period of time. This leads to a show cause notice from the concerned ROC.

This company has violated 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

A-One steeland Alloys Private 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 adjudication order dated 24.05.2024 passes by the ROC for violation of section 203 of the companies Act 2013.

ROC in his order of adjudication stated that the company has filled the Suo moto application regarding the non-appointment the whole-Time company secretary. That during the course of inquiry under section under 206 of the Act, ROC noticed that the paid-up share capital of the company was increased to 7 Cr on 30.03.2015 and the company has appointed whole time company secretary only on 15.03.2019.

The company had responded to the SCN of ROC accepting the default stating that it is due to non-availability of suitable candidate. Therefore, the company failed to appoint whole time company secretary for a period from 30.03.2015 to 14.03.2019 (1446 days).

The 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 22.08.2023. The authorised representative a PCS, appeared on the behalf of the appellants on 22.08.2024 and 29.10. 2024.The authorised representative has made the submission and stated that:

The company is a closely held company, and no public interest is involved in the company.
That as per sub section 4 of section 203 the vacancy in the position of KMP shall be filled within 06 months by the board. Whereas the adjudicating officer while determining the penalty, has taken date of default is from 01st April 2015, very next date of increased in authorised share capital of 5 Crore
Company could not find a suitable candidate to appoint as company secretary during the month of March 2019. However, company finalise the appointment of whole-time company secretary with effect from 15th March 2019

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 Former Director: Rs 4,66,000 each
One 1 Director: Rs. 5,00,000
On Whole time director: Rs. 5,00,000
On 1 director: Rs. 50,000
On 1 director: Rs. 2,47,000

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, 3,00,000
On 2 Former Director: Rs 2,50,000 each
One 1 Director: Rs. 2,50,000
On Whole time director: Rs. 2,50,000
On 1 director: Rs. 50,000
On 1 director: Rs. 1,50,000

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 after considering all the submission made by the company reduce the quantum of penalty up to a great extent.

Our observations:

The case of A-One steeland Alloys Private 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.