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: -
The appeal under section 454(5) of the Companies Act, 2013, concerns Manipal Finance Corporation Limited’s failure to appoint a whole-time company secretary, violating Section 203 of the Act. The Registrar of Companies imposed penalties on the company.
The company, a non-banking financial entity, cited it was having financial and operational problems. However, the Registrar found the violations serious, stressing that following regulations is crucial for listed companies.
Manipal Finance Corporation argued that the delay in appointment didn’t prejudice stakeholders’ interests and highlighted the industry’s challenges post-stringent RBI norms.
Despite this, the Registrar upheld the penalties, considering the company’s status and the duration of non-compliance. According to Section 203(5), there are fines for the company and those responsible for non-compliance. The company appealed against these penalties, but the Regional Director supported the Registrar’s decision, highlighting the seriousness of the violations.
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 |
Sec. 203 of the Companies Act, 2013 |
Company |
5,00,000 |
|
Managing Director |
5,00,000 |
|
CFO |
5,00,000 |
|
Total |
15,00,000 |
Reduction in penalty
There was no reduction in the penalty amount considering the company’s status and the duration of non-compliance.
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 Manipal Finance Corporation 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 like the COVID-19 pandemic 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.