Penalty Order u/s 450: Violation of Sec 173 by D.J. Shah Investment Finance Pvt Ltd

Penalty Order u/s 450: Violation of Sec 173 by D.J. Shah Investment Finance Pvt Ltd. In this article, we will take you through the mandatory provisions under Section 173 of the Companies Act, 2013. According to this section, a company must hold its first board meeting within thirty days of incorporation. Thereafter, board meetings must be held at regular intervals, with no more than 120 days between any two consecutive board meetings. Failure to comply with these requirements may result in penalties for both the company and the officers in default, as specified under Section 450 of the Companies Act, 2013. Therefore, it is essential to adhere to these provisions to avoid any legal consequences.
Applicable Provisions: -
As per section 173(1) of Companies Act 2013, “every company shall hold the first meeting of the board of directors within thirty days from the date of company incorporation and thereafter hold board meetings in such a manner that not more than 120 shall intervene between two consecutive meetings and should be a minimum number of four meetings every year.
Provided that the Central Government may, by notification, direct that the provisions of this sub-section shall not apply in relation to any class or description of companies or shall apply subject to such exceptions, modifications or conditions as may be specified in the notification.]
As per sub-section (2) of section 173 of the Companies Act 2013, it says that “the participation of directors in a meeting of the board may be either in person or through video conferencing or other audiovisual means, as may be prescribed, which are capable of recording and recognizing the participation of the directors and recording and storing the proceedings of such meetings along with date and time: Provided that the Central Government may, by notification, specify such matters which shall not be dealt with in a meeting through video conferencing or other audiovisual means.
Facts of the case: -
It is observed that from the MGT-7 for the year ended 31.03.2018 filed by D.J Shah Investment Finance Private Limited at the MCA portal that the gap between the two board meetings was found more than 120 days.
The dates of company’s board meetings were held as listed below during the financial year 2017-18 (financial year ending as on 31/3/2018)

S.No.

Date of Board Meetings

Remarks

30.06.2017

15.07.2017

The gap between these two meeting was found more than 120 days i.e. 150 days

12.12.2017

24.03.2018

The Registrar of Companies issued show cause Notice to the company and its respondent directors for the violation of section 173 of the Companies Act, 2013.
Penalty Imposed by Registrar of Companies on Company and Officers in Default
After considering the facts and circumstances of the case and submissions made by the Presenting Officer and oral submissions made by the Practicing Company Secretary on behalf of the company, the Registrar of Companies imposed a penalty on company and its directors as per the table below for violation of section 450 of the Companies Act2013 by passing the adjudication order.

Violation of section

Penalty imposed on   company/ directors

Penalty as per sect. 172
of the Act,

Non-compliance; As the Gap between Board Meetings more than120 days    .

Company

40,000

Director 1

40,000

Director 2

40,000

Director 3

40,000

Total

1,60,000

Reduction in penalty
Ground stated for the reduction of penalty that:
(a) Company is a closely held company having small scale business operations and aiming at improved bottom line. Company’s revenue for the last few years is not of substantial amount and it is mainly from rental income received on account of leasing of ideal properties.
(b) Company has not borrowed any money or taken loan from the banks/financial institutions. Therefore, no public money is involved.
Considering all the facts and circumstances of the case, penalty of Rs. 12,500 imposed on the company and its directors.
Exemption to Startup/ Small Company/OPC under section 446B: 
As per sec. 446B of the Companies Act, 2013, if penalty is payable for non-compliance of any of the provisions of this Act by a One Person Company, small company, start-up company or Producer Company, or by any of its officer in default, or any other person in respect of such company, then such company, its officer in default or any other person, as the case may be, shall be liable to a penalty which shall not be more than one-half of the penalty specified in such provisions subject to a maximum of two lakh rupees in case of a company and one lakh rupees in case of an officer who is in default or any other person, as the case may be.
In this case, Section 446B does not apply, as the company does not meet the criteria.
Conclusion
To ensure compliance with the Companies Act 2013, the company must conduct at least four board meetings annually, with no more than 120 days between two board consecutive meetings. Adhering to this schedule is crucial for avoiding regulatory penalties and fines, as well as to prevent unnecessary administrative burdens. The company and its directors must ensure to fulfil these requirements to uphold legal standards and maintain operational efficiency.
Download MCA adjudication order: ROC-Ahmedabad Order u/s 173 for D.J. Shah Investment Finance Private Limited.

In this article, we will take you through the mandatory provisions under Section 173 of the Companies Act, 2013. According to this section, a company must hold its first board meeting within thirty days of incorporation. Thereafter, board meetings must be held at regular intervals, with no more than 120 days between any two consecutive board meetings. Failure to comply with these requirements may result in penalties for both the company and the officers in default, as specified under Section 450 of the Companies Act, 2013. Therefore, it is essential to adhere to these provisions to avoid any legal consequences.

Applicable Provisions: -

As per section 173(1) of Companies Act 2013, “every company shall hold the first meeting of the board of directors within thirty days from the date of company incorporation and thereafter hold board meetings in such a manner that not more than 120 shall intervene between two consecutive meetings and should be a minimum number of four meetings every year.

Provided that the Central Government may, by notification, direct that the provisions of this sub-section shall not apply in relation to any class or description of companies or shall apply subject to such exceptions, modifications or conditions as may be specified in the notification.]

As per sub-section (2) of section 173 of the Companies Act 2013, it says that “the participation of directors in a meeting of the board may be either in person or through video conferencing or other audiovisual means, as may be prescribed, which are capable of recording and recognizing the participation of the directors and recording and storing the proceedings of such meetings along with date and time: Provided that the Central Government may, by notification, specify such matters which shall not be dealt with in a meeting through video conferencing or other audiovisual means.

Facts of the case: -

It is observed that from the MGT-7 for the year ended 31.03.2018 filed by D.J Shah Investment Finance Private Limited at the MCA portal that the gap between the two board meetings was found more than 120 days.

The dates of company’s board meetings were held as listed below during the financial year 2017-18 (financial year ending as on 31/3/2018)

S.No.	Date of Board Meetings	Remarks
1.	30.06.2017
2.	15.07.2017	The gap between these two meeting was found more than 120 days i.e. 150 days
3.	12.12.2017
4.	24.03.2018

The Registrar of Companies issued show cause Notice to the company and its respondent directors for the violation of section 173 of the Companies Act, 2013.

Penalty Imposed by Registrar of Companies on Company and Officers in Default

After considering the facts and circumstances of the case and submissions made by the Presenting Officer and oral submissions made by the Practicing Company Secretary on behalf of the company, the Registrar of Companies imposed a penalty on company and its directors as per the table below for violation of section 450 of the Companies Act2013 by passing the adjudication order.

Violation of section	Penalty imposed on company/ directors	Penalty as per sect. 172 of the Act,
Non-compliance; As the Gap between Board Meetings more than120 days .	Company	40,000
	Director 1	40,000
	Director 2	40,000
	Director 3	40,000
Total		1,60,000

Reduction in penalty

Ground stated for the reduction of penalty that:

(a) Company is a closely held company having small scale business operations and aiming at improved bottom line. Company’s revenue for the last few years is not of substantial amount and it is mainly from rental income received on account of leasing of ideal properties.

(b) Company has not borrowed any money or taken loan from the banks/financial institutions. Therefore, no public money is involved.

Considering all the facts and circumstances of the case, penalty of Rs. 12,500 imposed on the company and its directors.

Exemption to Startup/ Small Company/OPC under section 446B:

As per sec. 446B of the Companies Act, 2013, if penalty is payable for non-compliance of any of the provisions of this Act by a One Person Company, small company, start-up company or Producer Company, or by any of its officer in default, or any other person in respect of such company, then such company, its officer in default or any other person, as the case may be, shall be liable to a penalty which shall not be more than one-half of the penalty specified in such provisions subject to a maximum of two lakh rupees in case of a company and one lakh rupees in case of an officer who is in default or any other person, as the case may be.

In this case, Section 446B does not apply, as the company does not meet the criteria.

Conclusion

To ensure compliance with the Companies Act 2013, the company must conduct at least four board meetings annually, with no more than 120 days between two board consecutive meetings. Adhering to this schedule is crucial for avoiding regulatory penalties and fines, as well as to prevent unnecessary administrative burdens. The company and its directors must ensure to fulfil these requirements to uphold legal standards and maintain operational efficiency.

Download MCA adjudication order: ROC-Ahmedabad Order u/s 173 for D.J. Shah Investment Finance Private Limited.