Penalty for Non-Compliance of Section 203 for failing to appoint a CS

Penalty for Non-Compliance of Section 203 for failing to appoint a CS . 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
Yindu Textiles 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 MCA adjudication order dated 09.09.2022 passes by the ROC for violation of section 203 of the companies Act 2013. 
ROC observed that the company has not appointed the whole-Time company secretary after the cessation of the previous company secretary on 30.09.2020 to 01.07.2022. Hence, the office of the company secretary is lying vacant beyond 6 months which means contravening the provisions of section 203 of the companies Act 2013. 
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 22.08.2023.
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 Director: Rs. 50,000 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.25,000 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 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 Yindu Textiles 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 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

Yindu Textiles 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 MCA adjudication order dated 09.09.2022 passes by the ROC for violation of section 203 of the companies Act 2013.

ROC observed that the company has not appointed the whole-Time company secretary after the cessation of the previous company secretary on 30.09.2020 to 01.07.2022. Hence, the office of the company secretary is lying vacant beyond 6 months which means contravening the provisions of section 203 of the companies Act 2013.

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 22.08.2023.

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 Director: Rs. 50,000 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.25,000 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 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 Yindu Textiles 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.