ROC-Hyderabad Order u/s 454 for IBM Global Financing India Pvt Ltd violation of Sec. 203

ROC-Hyderabad Order u/s 454 for IBM Global Financing India Pvt Ltd violation of Sec. 203. In this article, we will take you through the mandatory provisions under Section 203 of the Companies Act, 2013. According to this section, every company belonging to such class or classes of companies as may be prescribed shall have the following whole-time key managerial personnel-
(i) Managing director, or Chief Executive Officer or manager and in their absence, a whole-time director;
(ii) Company secretary; and
(iii) Chief Financial Officer 
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 203(1) of Companies Act 2013, Every company belonging to such class or classes of companies as may be prescribed shall have the following whole-time key managerial personnel,
(i) Managing director, or Chief Executive Officer or manager and in their absence, a whole-time director;
(ii) Company secretary; and
(iii) Chief Financial Officer
Provided that an individual shall not be appointed or reappointed as the chairperson of the company, in pursuance of the articles of the company, as well as the managing director or Chief Executive Officer of the company at the same time after the date of commencement of this Act unless, —
(a) The articles of such a company provide otherwise; or
(b) The company does not carry multiple businesses:
If any company makes any default in complying with the provisions of this section, such company shall be liable to a penalty of five lakh rupees and every director and key managerial personnel of the company who is in default shall be liable to a penalty of fifty thousand rupees and where the default is a continuing one, with a further penalty of one thousand rupees for each day after the first during which such default continues but not exceeding five lakh rupees.
Facts of the case: -
Registrar of Companies in his order of adjudication has stated that the company has filed a Suo-motu application on 24.08.2023 regarding non-appointment of whole-time company secretary i.e. violation of section 203 of the Act. Ministry of Corporate Affairs, Hyderabad, the penalty levied on IBM Global Financing India Private Limited and its former directors, has been significantly reduced from Rs.29,94,000 to Rs.4,49,100.
The company and its directors filed an appeal under section 454(5) of the Companies Act, 2013, mentioning that the non-appointment of a company secretary was not intentional or deliberate. They highlighted several other mitigating factors, company’s non-commencement of business and filed an application with Reserve Bank of India for surrendering its certificate of registration and the absence of employees, which rendered the appointment of a company secretary impractical for a significant period.
Taking into consideration the facts of the appeal and submissions made by the authorized representative, the Regional Director after careful consideration of the appeal and the circumstances presented, acknowledged the unintentional nature of the non-compliance. Consequently, the penalty imposed by Registrar of Companies is reduced to 15% of the original amount, totalling Rs. 4,49,100, to be divided equally among the company and the its directors.
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 15%.

Violation of section

Penalty imposed on   company/ directors

Penalty imposed by       ROC

Revised penalty imposed 
by RD

Sec. 203 of the Companies Act, 2013

Company

5,00,000

75,000

Director-1

5,00,000

75,000

Director-2

5,00,000

75,000

Director-3

5,00,000

75,000

Director-4

3,47,000

52,050

Director-5

3,47,000

52,050

Director-6

2,28,000

34,200

Director-7

72,000

10,800

Total

29,94,000

4,49,100

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

The company had not commenced its commercial operations and there were no employees in the company.

The Company had not commenced the business and filed an application with Reserve Bank of India for surrendering its certificate of registration.

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, the adjudication order against IBM Global Financing India Pvt Ltd illustrates the enforcement of Section 203 of the Companies Act, 2013, which mandates the appointment of key managerial personnel.
Initially faced with a significant penalty for non-compliance, the company and its directors successfully appealed for a reduction, acknowledging their financial hardships. This case highlights the importance of adhering to statutory requirements while also showcasing the flexibility of regulatory bodies in adjusting penalties based on a company’s financial situation. It underlines the need for companies to remain vigilant about compliance to avoid substantial penalties and legal consequences.
Download MCA adjudication order

In this article, we will take you through the mandatory provisions under Section 203 of the Companies Act, 2013. According to this section, every company belonging to such class or classes of companies as may be prescribed shall have the following whole-time key managerial personnel-

(i) Managing director, or Chief Executive Officer or manager and in their absence, a whole-time director;

(ii) Company secretary; and

(iii) Chief Financial Officer

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 203(1) of Companies Act 2013, Every company belonging to such class or classes of companies as may be prescribed shall have the following whole-time key managerial personnel,

(i) Managing director, or Chief Executive Officer or manager and in their absence, a whole-time director;

(ii) Company secretary; and

(iii) Chief Financial Officer

Provided that an individual shall not be appointed or reappointed as the chairperson of the company, in pursuance of the articles of the company, as well as the managing director or Chief Executive Officer of the company at the same time after the date of commencement of this Act unless, —

(a) The articles of such a company provide otherwise; or

(b) The company does not carry multiple businesses:

If any company makes any default in complying with the provisions of this section, such company shall be liable to a penalty of five lakh rupees and every director and key managerial personnel of the company who is in default shall be liable to a penalty of fifty thousand rupees and where the default is a continuing one, with a further penalty of one thousand rupees for each day after the first during which such default continues but not exceeding five lakh rupees.

Facts of the case: -

Registrar of Companies in his order of adjudication has stated that the company has filed a Suo-motu application on 24.08.2023 regarding non-appointment of whole-time company secretary i.e. violation of section 203 of the Act. Ministry of Corporate Affairs, Hyderabad, the penalty levied on IBM Global Financing India Private Limited and its former directors, has been significantly reduced from Rs.29,94,000 to Rs.4,49,100.

The company and its directors filed an appeal under section 454(5) of the Companies Act, 2013, mentioning that the non-appointment of a company secretary was not intentional or deliberate. They highlighted several other mitigating factors, company’s non-commencement of business and filed an application with Reserve Bank of India for surrendering its certificate of registration and the absence of employees, which rendered the appointment of a company secretary impractical for a significant period.

Taking into consideration the facts of the appeal and submissions made by the authorized representative, the Regional Director after careful consideration of the appeal and the circumstances presented, acknowledged the unintentional nature of the non-compliance. Consequently, the penalty imposed by Registrar of Companies is reduced to 15% of the original amount, totalling Rs. 4,49,100, to be divided equally among the company and the its directors.

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 15%.

Violation of section	Penalty imposed on company/ directors	Penalty imposed by ROC	Revised penalty imposed by RD
Sec. 203 of the Companies Act, 2013	Company	5,00,000	75,000
	Director-1	5,00,000	75,000
	Director-2	5,00,000	75,000
	Director-3	5,00,000	75,000
	Director-4	3,47,000	52,050
	Director-5	3,47,000	52,050
	Director-6	2,28,000	34,200
	Director-7	72,000	10,800
Total		29,94,000	4,49,100

Reduction in penalty

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

The company had not commenced its commercial operations and there were no employees in the company.
The Company had not commenced the business and filed an application with Reserve Bank of India for surrendering its certificate of registration.

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, the adjudication order against IBM Global Financing India Pvt Ltd illustrates the enforcement of Section 203 of the Companies Act, 2013, which mandates the appointment of key managerial personnel.

Initially faced with a significant penalty for non-compliance, the company and its directors successfully appealed for a reduction, acknowledging their financial hardships. This case highlights the importance of adhering to statutory requirements while also showcasing the flexibility of regulatory bodies in adjusting penalties based on a company’s financial situation. It underlines the need for companies to remain vigilant about compliance to avoid substantial penalties and legal consequences.