Penalty for Non-Appointment of CS and other KMP's like WTD/MD/CFO

Penalty for Non-Appointment of CS and other KMP's like WTD/MD/CFO . 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
Mahatamil Mining and Thermal Energy 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 29.08.2024 passes by the ROC for violation of section 203 of the companies Act 2013 as the company and its directors had admitted that there was a non-compliance of provisions of above-mentioned section.
ROC observed that the company has not appointed the whole Time Key Managerial personnel as required under section 203 (1) of the companies Act 203 (1) of the companies Act 2013 r/w Rule 8A of the companies (Appointment and Remuneration) Rules 2014 for the following timelines:
1. Company Secretary from 17.12.2014 to 28.01.2015 and 05.01.2018 to 10.12.2023.
2. Whole time Director/Managing Director/CEO 02.10.2014 to 31.07.2015 and 13.03.2018 to 23.01.2020
3. Chief Financial Officer from 02.10.2024 to 28.01.2015, 01.07.2018 to 11.03.2021 and 11.05.2023 to till date.
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, through video conference and contended that the
Practicing Company Secretary are:
1. Imposing maximum penalty by the ROC on the company, its director is burdensome on the company and directors.
2. Company was actually acquired in a CIRP proceedings dated 02.07.2019 and that the provision of 203 was attracted with effect from 02.07.2019.
3. COVID 19 pandemic effected the whole country and none shown interest despite company’s effort during that period to appoint a whole time CS/CFO/WTD
4. Company has not started its business and not a single rupee earned as on date and company is continuously incurred losses since 2019 to 2023.
5. That the default is unintentional and inadvertent and the same has been now made good.
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 4 past Directors: Rs, 5,00,000 each

On 2 past Directors: Rs. 3,15,000 each

On 1 past Directors: Rs. 4,56,000

On 1 past Directors: Rs. 1,42,000

For non- appointment of Whole Time Directors:

On Company: Rs. 5,00,000

On 3 past directors: Rs. 72,000 each

For non-appointment of CFO

On company: Rs. 5,00,000

On 2 past directors: Rs. 3,15,000 each

On 3 past directors: Rs 4,63,000 each

On 1 past directors: Rs. 1,42,000

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 to Rs. 75,000 on each count on the company and by 10% of the penalty on all other individuals.
For non-appointment of Company Secretary:

On Company: Rs, 5,00,000

On 4 past Directors: Rs, 50,000 each

On 2 past Directors: Rs. 31,500 each

On 1 past Directors: Rs. 41,300

On 1 past Directors: Rs. 14,200

For non- appointment of Whole Time Directors:

On Company: Rs. 75,000

On 3 past directors: Rs. 7,200 each

For non-appointment of CFO

On company: Rs. 75,000

On 2 past directors: Rs. 31,510 each

On 3 past directors: Rs 46,300 each

On 1 past directors: Rs. 14,200

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, Mahatamil Mining and Thermal Energy Limited, being a public entity or a company falling outside the defined categories, may not have qualified for the benefits of this section. The applicability of Section 446B would depend on the company’s classification and whether it met the prescribed criteria.
Conclusion
The case of Mahatamil Mining and Thermal Energy 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

Mahatamil Mining and Thermal Energy 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 29.08.2024 passes by the ROC for violation of section 203 of the companies Act 2013 as the company and its directors had admitted that there was a non-compliance of provisions of above-mentioned section.

ROC observed that the company has not appointed the whole Time Key Managerial personnel as required under section 203 (1) of the companies Act 203 (1) of the companies Act 2013 r/w Rule 8A of the companies (Appointment and Remuneration) Rules 2014 for the following timelines:

1. Company Secretary from 17.12.2014 to 28.01.2015 and 05.01.2018 to 10.12.2023.

2. Whole time Director/Managing Director/CEO 02.10.2014 to 31.07.2015 and 13.03.2018 to 23.01.2020

3. Chief Financial Officer from 02.10.2024 to 28.01.2015, 01.07.2018 to 11.03.2021 and 11.05.2023 to till date.

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, through video conference and contended that the

Practicing Company Secretary are:

1. Imposing maximum penalty by the ROC on the company, its director is burdensome on the company and directors.

2. Company was actually acquired in a CIRP proceedings dated 02.07.2019 and that the provision of 203 was attracted with effect from 02.07.2019.

3. COVID 19 pandemic effected the whole country and none shown interest despite company’s effort during that period to appoint a whole time CS/CFO/WTD

4. Company has not started its business and not a single rupee earned as on date and company is continuously incurred losses since 2019 to 2023.

5. That the default is unintentional and inadvertent and the same has been now made good.

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 4 past Directors: Rs, 5,00,000 each
On 2 past Directors: Rs. 3,15,000 each
On 1 past Directors: Rs. 4,56,000
On 1 past Directors: Rs. 1,42,000

For non- appointment of Whole Time Directors:

On Company: Rs. 5,00,000
On 3 past directors: Rs. 72,000 each

For non-appointment of CFO

On company: Rs. 5,00,000
On 2 past directors: Rs. 3,15,000 each
On 3 past directors: Rs 4,63,000 each
On 1 past directors: Rs. 1,42,000

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 to Rs. 75,000 on each count on the company and by 10% of the penalty on all other individuals.

For non-appointment of Company Secretary:

On Company: Rs, 5,00,000
On 4 past Directors: Rs, 50,000 each
On 2 past Directors: Rs. 31,500 each
On 1 past Directors: Rs. 41,300
On 1 past Directors: Rs. 14,200

For non- appointment of Whole Time Directors:

On Company: Rs. 75,000
On 3 past directors: Rs. 7,200 each

For non-appointment of CFO

On company: Rs. 75,000
On 2 past directors: Rs. 31,510 each
On 3 past directors: Rs 46,300 each
On 1 past directors: Rs. 14,200

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, Mahatamil Mining and Thermal Energy Limited, being a public entity or a company falling outside the defined categories, may not have qualified for the benefits of this section. The applicability of Section 446B would depend on the company’s classification and whether it met the prescribed criteria.

Conclusion

The case of Mahatamil Mining and Thermal Energy 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.