Regional Director Penalizes Non-Compliance with Section 203

Regional Director Penalizes Non-Compliance with Section 203. In this article, we will take you through the importance of compliance with Section 203 of the Companies Act, 2013, which mandates the timely appointment of key managerial personnel (KMP) such as the Managing Director, Whole-time Director, Chief Financial Officer, and Company Secretary in companies
Applicable Provision
Section 203 of the Companies Act, 2013, mandates that every company, other than a One Person Company (OPC), shall appoint a company secretary, a whole-time director, or a chief financial officer, depending on the size and type of the company. Specifically, the section lays down that the following positions are to be held by appointed individuals in the company:

Managing Director (MD)

Whole-time Director (WTD)

Chief Financial Officer (CFO)

Company Secretary (CS)

Section 203 also prescribes that these key managerial personnel (KMP) should be appointed within a certain time frame after the incorporation or registration of the company, subject to amount of paid-up share capital outlined in the Act. Non-compliance with this section can result in severe penalties, both for the company and the officers in default.
Facts of the Case
Gopuram Enterprises Limited, a being a unlisted company with the pad up share capital of Rs. 7,78,14,060 failed to appoint CS within six months (6) months from the date of casual vacancy i.e 28.06.2019 and appointment of CS was not applicable to the company w.e.f 01.04.2020as the limit of the paid-up capital prescribed under Rul 8A is increased from Rs. 5 Crore to Rs. 10 Crores.
However, the company should have filled the casual vacancy by 29.12.2019, thereby contravened the above provision for a period of 94 days from 29.12.2019 to 31.03.2020 and accordingly concerned ROC imposed the penalty.
In appeal filled by the company, authorised representative stated that the company was not into operational losses for last 3 years, it could not find replacement of the CS and the default on appointment was neither deliberate nor intentional and it was the due to the reason which were beyond the control of the applicants
Penalty Imposed
After considering the fact and circumstances of the above stated company concerned ROC imposed a penalty as per the Section 203 of the Companies Act, 2013,
On company: Rs, 5,00,000
WTD: Rs, 1,44,000
Reduction in penalties
After considering the contended points by the authorised representative on the behalf of the company, RD reduced the penalty as follows:
On Company: Rs, 50,000
WTD: Rs, 14,000
Conclusion
The case of Gopuram Enterprises Limited serves as a critical reminder of the importance of adhering to the provisions under Section 203 of the Companies Act, 2013, regarding the timely appointment of key managerial personnel. Despite the company's challenges in finding a replacement for the Company Secretary due to operational losses, the failure to fill the casual vacancy within the prescribed period led to a delay of 94 days, which resulted in penalties. While the company’s circumstances were considered, the imposed fines underscore the seriousness of non-compliance and the need for companies to prioritize statutory appointments. This case highlights the need for proactive compliance measures to avoid legal repercussions and ensure effective corporate governance.
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In this article, we will take you through the importance of compliance with Section 203 of the Companies Act, 2013, which mandates the timely appointment of key managerial personnel (KMP) such as the Managing Director, Whole-time Director, Chief Financial Officer, and Company Secretary in companies

Applicable Provision

Section 203 of the Companies Act, 2013, mandates that every company, other than a One Person Company (OPC), shall appoint a company secretary, a whole-time director, or a chief financial officer, depending on the size and type of the company. Specifically, the section lays down that the following positions are to be held by appointed individuals in the company:

Managing Director (MD)
Whole-time Director (WTD)
Chief Financial Officer (CFO)
Company Secretary (CS)

Facts of the Case

Gopuram Enterprises Limited, a being a unlisted company with the pad up share capital of Rs. 7,78,14,060 failed to appoint CS within six months (6) months from the date of casual vacancy i.e 28.06.2019 and appointment of CS was not applicable to the company w.e.f 01.04.2020as the limit of the paid-up capital prescribed under Rul 8A is increased from Rs. 5 Crore to Rs. 10 Crores.

However, the company should have filled the casual vacancy by 29.12.2019, thereby contravened the above provision for a period of 94 days from 29.12.2019 to 31.03.2020 and accordingly concerned ROC imposed the penalty.

In appeal filled by the company, authorised representative stated that the company was not into operational losses for last 3 years, it could not find replacement of the CS and the default on appointment was neither deliberate nor intentional and it was the due to the reason which were beyond the control of the applicants

Penalty Imposed

After considering the fact and circumstances of the above stated company concerned ROC imposed a penalty as per the Section 203 of the Companies Act, 2013,

On company: Rs, 5,00,000

WTD: Rs, 1,44,000

Reduction in penalties

After considering the contended points by the authorised representative on the behalf of the company, RD reduced the penalty as follows:

On Company: Rs, 50,000

WTD: Rs, 14,000

Conclusion

The case of Gopuram Enterprises Limited serves as a critical reminder of the importance of adhering to the provisions under Section 203 of the Companies Act, 2013, regarding the timely appointment of key managerial personnel. Despite the company's challenges in finding a replacement for the Company Secretary due to operational losses, the failure to fill the casual vacancy within the prescribed period led to a delay of 94 days, which resulted in penalties. While the company’s circumstances were considered, the imposed fines underscore the seriousness of non-compliance and the need for companies to prioritize statutory appointments. This case highlights the need for proactive compliance measures to avoid legal repercussions and ensure effective corporate governance.