ROC-Hyderabad u/s 454: Lazarus Hospitals Pvt Ltd for violating Sec. 203 Provisions

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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: - 

In a significant appeal decision by the Regional Director of the South Eastern Region, Hyderabad, the case involved an appeal under Section 454(5) of the Companies Act, 2013, against an adjudication order from the Registrar of Companies (ROC) in Andhra Pradesh. The ROC had penalized a company and its directors with a fine of Rs.6 lakh for failing to appoint a whole-time company secretary, as mandated by Section 203 of the Companies Act and Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. The company's non-compliance stemmed from its paid-up capital exceeding the statutory limit without the requisite appointment. 

The Regional Director, after reviewing the appeal, found that the company was in dire financial straits, having incurred losses for consecutive years. The company's assets were auctioned by the State Bank of Hyderabad in the financial year 2015-16 and assigned to Asset Reconstruction Company. Recognizing these extraordinary circumstances, the Regional Director determined that the ROC had overlooked these critical factors in its initial ruling. As a result, the Regional Director set aside the ROC’s order and waived the imposed penalty, indicating that in cases of merit-based extraordinary circumstances, companies may seek relief from appellate authorities. 

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 set aside. 

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 

(i) Order of ROC set aside 

(ii) Matter returned back to ROC 

(iii) Directed to re-examine and pass fresh orders. 

 

Managing Director 

50,000 

 

Director 

50,000 

 

Total 

6,00,000 

Set Aside the Order of ROC 
  • That the company's assets were auctioned by the State Bank of Hyderabad in the financial year 2015-16 and assigned to Asset Reconstruction Company. 
  • That the paid up share capital of the Company was increased at the insistence of the Bank for bank funding purpose. 
  • That the matter is pending in Debt Recovery Tribunal (DRT) under SARFAESI Act, 2022. 

The Regional Director, after considering the appeal's facts and the submissions from the authorized practicing company secretary, and taking into account the reasons outlined earlier, issued an order that set aside the Registrar of Companies' adjudication order. The Regional Director directed a comprehensive re-examination of the issues and the issuance of a new adjudication order. 

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 

The MCA's decision to support Lazarus Hospitals in India is a clear example of how regulators can adapt to unusual situations. It highlights the need for regulatory bodies to take into account global issues when evaluating how businesses manage their operations and follow rules. 

This case sets a new standard for how violations are judged, showing that the importance of complying with all legal provisions, as failure to do so led to significant penalties. 

Download MCA adjudication order: 

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