Adjudication order under Sec.454 for violating the provisions of section 134: ROC-Hyderabad Order u/s 134 for Muthoottu Mini Nidhi Ltd.

Adjudication order under Sec.454 for violating the provisions of section 134: ROC-Hyderabad Order u/s 134 for Muthoottu Mini Nidhi Ltd. . 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. 
As per section 134(3)(h) of the Companies Act, 2013 requires that a board report include particulars of contracts or arrangements with related parties. The Report of the Board shall contain the particulars of contracts or arrangements with related parties referred to in sub-section (1) of section 188 in the Form No.AOC-2. 
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:

The state of the company's affairs

Amounts proposed to be carried to reserves

Dividends recommended

Material changes and commitments affecting the company's financial position

A statement on risk management policy

Corporate social responsibility initiatives

Formal annual evaluation of the Board's performance

Web address of the annual return

Number of board meetings

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. 
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 Registrar of Companies in his order has stated the following non compliances:  
(a)Failed to attach form AOC-2 to the Director's Report                                    
(b)Non discloser of details of deposit collected in the Director's Report  
(c)Signing of Board's Report and MGT-8 by only by one director which is not chairman of the company. 
The Registrar of Companies / Adjudication Officer, upon receipt of the adjudication application filed by the company, issued a personal hearing notice, with a view to give a reasonable opportunity to the company and its directors of being heard before imposing the penalty and fixed the date of personal hearing as on 01st April 2024.  
After taking into consideration the facts and submissions of the appeal, the penalty imposed by the Registrar of Companies is reduced to 1,80,000 for the company  and 30000 each for three officers for one of Director Rs. 10,000 total aggregrating to 2,80,000. 
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.

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

3,00,000

1,80,000

Director-1

50,000

30,000

Director-2

50,000

30,000

Director-3

50,000

30,000

Company Secretary

50,000

10,000

Total

5,00,000

2,80,000

Reduction in penalty 
The ground stated for the reduction of penalty are as follows:

That that default due to administrative lapse 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.. 
Download MCA adjudication order:

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.

As per section 134(3)(h) of the Companies Act, 2013 requires that a board report include particulars of contracts or arrangements with related parties. The Report of the Board shall contain the particulars of contracts or arrangements with related parties referred to in sub-section (1) of section 188 in the Form No.AOC-2.

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:

The state of the company's affairs

Amounts proposed to be carried to reserves

Dividends recommended

Material changes and commitments affecting the company's financial position

A statement on risk management policy

Corporate social responsibility initiatives

Formal annual evaluation of the Board's performance

Web address of the annual return

Number of board meetings
Directors' responsibilities

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.

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 Registrar of Companies in his order has stated the following non compliances:

(a)Failed to attach form AOC-2 to the Director's Report

(b)Non discloser of details of deposit collected in the Director's Report

(c)Signing of Board's Report and MGT-8 by only by one director which is not chairman of the company.

The Registrar of Companies / Adjudication Officer, upon receipt of the adjudication application filed by the company, issued a personal hearing notice, with a view to give a reasonable opportunity to the company and its directors of being heard before imposing the penalty and fixed the date of personal hearing as on 01st April 2024.

After taking into consideration the facts and submissions of the appeal, the penalty imposed by the Registrar of Companies is reduced to 1,80,000 for the company and 30000 each for three officers for one of Director Rs. 10,000 total aggregrating to 2,80,000.

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.

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	3,00,000	1,80,000
	Director-1	50,000	30,000
	Director-2	50,000	30,000
	Director-3	50,000	30,000
	Company Secretary	50,000	10,000
	Total	5,00,000	2,80,000

Reduction in penalty

The ground stated for the reduction of penalty are as follows:

That that default due to administrative lapse 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..