Penalty of Rs.10 Lakh for Non Appointment of KMP

Penalty of Rs.10 Lakh for Non Appointment of KMP. If a company fails to appoint Key Managerial Personnel (KMP) as required by the Companies Act, 2013, the primary consequence is a significant penalty imposed on the company, which can include a penalty of up to Rs. 5 lakh, and additional penalties on individual directors and KMPs in default.
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 Top Telemedia Limited & ORS, concerned ROC vide adjudication order dated 04/12/2023 held the company, its whole-time director who have defaulted, liable for penalty under section 203(5) of the Act from 02/11/2018 to 27/06/2023 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 31/05/2024. The authorised representative stated that he did not find any defect in ROC Adjudication order of ROC, but they have applied on the ground of bad financial position of the company in order to reduce penalty amount.
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

To whom penalty imposed

First Default

Maximum Penalty

Section 203(4) r/w 203 (5) of the companies Act 2013

On Company

5,00,000

On whole time director

50,000 +1000*1698

5,00,000

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:

The appeal has not been filled within the stipulated period of 60 days as provided under section 454 (6) of the Act.

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, the present appeal is dismissed 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 Top Telemedia Limited & ORS being a public company does not fall under the criteria of section 446B of the companies Act 2013.
Findings:
The findings of the adjudication proceedings against Top Telemedia 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

If a company fails to appoint Key Managerial Personnel (KMP) as required by the Companies Act, 2013, the primary consequence is a significant penalty imposed on the company, which can include a penalty of up to Rs. 5 lakh, and additional penalties on individual directors and KMPs in default.

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 Top Telemedia Limited & ORS, concerned ROC vide adjudication order dated 04/12/2023 held the company, its whole-time director who have defaulted, liable for penalty under section 203(5) of the Act from 02/11/2018 to 27/06/2023 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 31/05/2024. The authorised representative stated that he did not find any defect in ROC Adjudication order of ROC, but they have applied on the ground of bad financial position of the company in order to reduce penalty amount.

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	To whom penalty imposed	First Default	Maximum Penalty
Section 203(4) r/w 203 (5) of the companies Act 2013	On Company	5,00,000	5,00,000
Section 203(4) r/w 203 (5) of the companies Act 2013	On whole time director	50,000 +1000*1698	5,00,000

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:

The appeal has not been filled within the stipulated period of 60 days as provided under section 454 (6) of the Act.
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 Top Telemedia Limited & ORS being a public company does not fall under the criteria of section 446B of the companies Act 2013.

Findings:

The findings of the adjudication proceedings against Top Telemedia 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.