Adjudication Order u/s 454: Violation of Sec 203 by Trane Technologies India Pvt Ltd.

Adjudication Order u/s 454: Violation of Sec 203 by Trane Technologies India Pvt Ltd.. 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-moto application on 31.07.2023 regarding non-appointment of whole-time company secretary. Ministry of Corporate Affairs, Hyderabad, the penalty levied on Trane Technologies India Private Limited and its former directors, has been significantly reduced from Rs. 15 lakhs to Rs. 2.25 lakhs.
This decision came after the appellants contested an adjudication order for failing to comply with Section 203 of the Companies Act, 2013, which mandates the appointment of a whole-time company secretary for companies with a paid-up capital exceeding Rs. 5 crores.
The original adjudication by the Registrar of Companies, Karnataka, highlighted that Trane Technologies failed to appoint a company secretary between March 31, 2017, and June 9, 2019, crossed the required capital threshold. As a result, a heavy penalty was imposed on both the company and the directors involved.
Upon appeal, it was argued that the company had not been operational and was incurring losses, making the penalty unjustified for both the non-executive directors and the company itself. After reviewing the appeal, the Regional Director acknowledged the default but recognized the financial difficulties presented by the appellants as a valid concern for reducing the penalty. Consequently, the penalty was decreased to 15% of the original amount, totalling Rs. 2.25 lakhs, to be divided equally among the company and the two 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% i.e., 75,000/- each for the Company and its 2 directors.

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

Total

15,00,000

2,25,000

Reduction in penalty
The ground stated for the reduction of penalty is that Company is a loss-making company and had not been operational and was incurring losses. Therefore, the company has not generated any revenue.
This reduction aims to strike a balance between enforcing compliance with the Companies Act and acknowledging the appellants current financial challenges. 
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 Trane Technologies 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-moto application on 31.07.2023 regarding non-appointment of whole-time company secretary. Ministry of Corporate Affairs, Hyderabad, the penalty levied on Trane Technologies India Private Limited and its former directors, has been significantly reduced from Rs. 15 lakhs to Rs. 2.25 lakhs.

This decision came after the appellants contested an adjudication order for failing to comply with Section 203 of the Companies Act, 2013, which mandates the appointment of a whole-time company secretary for companies with a paid-up capital exceeding Rs. 5 crores.

The original adjudication by the Registrar of Companies, Karnataka, highlighted that Trane Technologies failed to appoint a company secretary between March 31, 2017, and June 9, 2019, crossed the required capital threshold. As a result, a heavy penalty was imposed on both the company and the directors involved.

Upon appeal, it was argued that the company had not been operational and was incurring losses, making the penalty unjustified for both the non-executive directors and the company itself. After reviewing the appeal, the Regional Director acknowledged the default but recognized the financial difficulties presented by the appellants as a valid concern for reducing the penalty. Consequently, the penalty was decreased to 15% of the original amount, totalling Rs. 2.25 lakhs, to be divided equally among the company and the two 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% i.e., 75,000/- each for the Company and its 2 directors.

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
Total		15,00,000	2,25,000

Reduction in penalty

The ground stated for the reduction of penalty is that Company is a loss-making company and had not been operational and was incurring losses. Therefore, the company has not generated any revenue.

This reduction aims to strike a balance between enforcing compliance with the Companies Act and acknowledging the appellants current financial challenges.

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 Trane Technologies 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: