In this article, we will take you through the mandatory provisions under Section 135 of the Companies Act, 2013. As per section 134(1) of the Companies Act, 2013, The financial statement, including consolidated financial statement, if any, shall be approved by the Board of Directors before they are signed on behalf of the Board by the chairperson of the company where he is authorised by the Board or by two directors out of which one shall be managing director, if any, and the Chief Executive Officer, the Chief Financial Officer and the Company Secretary of the company, wherever they are appointed, or in the case of One Person Company, only by one director, for submission to the auditor for his report thereon.
Section 134(3)(q) of the Companies Act, 2013 mandates that the board’s report to the general meeting must include a statement indicating the company’s compliance with the provisions relating to the constitution of an Internal Complaints Committee under the Sexual Harassment of Women at Workplace (Prevention, Prohibition, and Redressal) Act, 2013. Rule 8(5)(x) of the Companies (Accounts) Rules, 2014 specifies this requirement.
Failure to comply with these requirements may result in penalties for both the company and the officers in default, as specified under section 134(8) of the Companies Act, 2013. Therefore, it is essential to adhere to these provisions to avoid any legal consequences.
Applicable Provisions:-
As per section 134(1) of the Companies Act, 2013, The financial statement, including consolidated financial statement, if any, shall be approved by the Board of Directors before they are signed on behalf of the Board by the chairperson of the company where he is authorised by the Board or by two directors out of which one shall be managing director, if any, and the Chief Executive Officer, the Chief Financial Officer and the Company Secretary of the company, wherever they are appointed, or in the case of One Person Company, only by one director, for submission to the auditor for his report thereon.
As per section 134(3) of the Companies Act, 2013 requires that a board report be attached to a company's financial statement.The report must include the following information:
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The state of the company's affairs
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Amounts proposed to be carried to reserves
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Dividends recommended
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Material changes and commitments affecting the company's financial position
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A statement on risk management policy
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Corporate social responsibility initiatives
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Formal annual evaluation of the Board's performance
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Web address of the annual return
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Number of board meetings
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Directors' responsibilities
The board report must be signed by the company's chairperson if authorized by the board.If the chairperson is not authorized, the report must be signed by at least two directors, one of whom must be a managing director.
Section 134(3)(h): This section pertains to the financial statements of a company, requiring disclosures regarding the company’s policies on accounting and financial reporting.
Section 134(3)(q): This relates to the requirement for the Board of Directors to report on the company’s state of affairs, including significant changes in the financial position.
Section 134(3)(q) of the Companies Act, 2013 mandates that the board’s report to the general meeting must include a statement indicating the company’s compliance with the provisions relating to the constitution of an Internal Complaints Committee under the Sexual Harassment of Women at Workplace (Prevention, Prohibition, and Redressal) Act, 2013. Rule 8(5)(x) of the Companies (Accounts) Rules, 2014 specifies this requirement.
As per section 134 (8) of the Companies Act, 2013: If a company is in default in complying the provisions of this section, the company shall be liable to a penalty of three lakh rupees and every officer who is in default shall be liable to a penalty of fifty thousand rupees.
Facts of the case:
The MCA appointed the Adjudicating Officer under Section 454 of the Companies Act, 2013, to determine penalties for violations of the Act. This case involves Ceeta Industries Limited, which was incorporated on October 31, 1984, and falls under the jurisdiction of the Registrar of Companies in Karnataka. The company’s registered office is currently situated in Tumkur, Karnataka.
During an inquiry under Section 206(4) of the Act, it was observed that Ceeta Industries Limited’s board reports for the financial years ending 31st March 2019 and 31st March 2020 failed to disclose compliance with the Sexual Harassment of Women at Workplace Act. This omission violated Section 134(3) of the Companies Act.
The company was notified of a violation through a Preliminary Findings Letter from the Inspecting Officer on July 28, 2021. A show cause notice followed on April 20, 2023. The company then submitted an application on May 29, 2023. After that, a hearing notice was issued on July 27, 2023, and the hearing took place on August 10, 2023. Mr. Mahaveer Jain, a company secretary, represented the company and its directors. He argued that since the company had fewer than ten employees at each location, it was not required to form an Internal Complaints Committee under the Sexual Harassment of Women at Workplace Act, 2013. The company also mentioned that it had received no complaints from female workers and that the omission in the board reports was unintentional.
With the above observations, the enquiry officer had a strong reason to believe that the company had violated the provisions of the Companies Act 2013 and therefore the company and its directors were liable for penal action.
Penalty Imposed by Registrar of Companies on Company and Officers in Default
Taking into consideration the facts of the appeal and submissions made by the authorized representative, the penalty imposed by Registrar of Companies is reduced to 20%.
|
Violation of section |
Penalty imposed on company/ directors |
Penalty imposed by ROC |
Revised penalty imposed by RD |
|
Sec. 135 of the Companies Act, 2013 |
Company |
6,00,000 |
1,20,000 |
|
|
Managing Director |
1,00,000 |
20,000 |
|
|
CFO |
1,00,000 |
20,000 |
|
|
Company Secretary |
1,00,000 |
20,000 |
|
|
Total |
9,00,000 |
1,80,000 |
Reduction in penalty
The ground stated for the reduction of penalty are as follows:
- That that default was inadvertent and not malafide in nature and is not of such nature as will prejudice the interests of members or creditors or other parties dealing with the company.
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
In conclusion, this situation shows it is important for companies to follow the rules set by the Companies Act 2013, especially when preparing the Board's Report. The company’s failure to address the auditor's concerns led to penalties, highlighting the need for careful attention to these requirements. To prevent similar issues in the future, companies and their directors should create a culture of compliance, ensuring all necessary information is included in their reports. This will help avoid legal troubles and strengthen the company’s reputation..
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