Adjudication Order u/s 454: Violation of Sec 203 by Vishnupriya Hotels & Resorts Pvt Ltd

Adjudication Order u/s 454: Violation of Sec 203 by Vishnupriya Hotels & Resorts 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: -
Vishnupriya Hotels and Resorts Private Limited failed to appoint a Company Secretary despite the stipulated requirements under Section 203 of the Companies Act, 2013, since November 2, 2018. The Registrar of Companies, Andhra Pradesh, imposed a penalty of Rs. 5,00,000/- each on the company and its two directors, totaling Rs. 15,00,000.
An opportunity of being heard was given to the Appellants on 02.02.2024. The authorized representative of the appellants reiterated the submissions made in the appeal. The company explained that it had been incurring losses for the past eight financial years, rendering it financially incapable of appointing a Company Secretary. Moreover, the company had been exploring options for closure, which had been hindered by the COVID-19 pandemic.
Taking into consideration the facts of the appeal and submissions made by the authorized representative. deem it would meet the end of justice if the penalty imposed by Registrar of Companies is reduced to 15% i.e., Rs.75,000/- each for the Company and 2 directors i.e., Mr. Kotu Sarat Kumar and Ms. Bhavani Kotu (total aggregating to Rs.2,25,000/-. The appellants are directed to comply with this order and provisions of Section 454(8) of the Companies Act, 2013 read with Companies (Adjudication of Penalties) Rules, 2014.
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.
Reduction in penalty
Ground stated for the reduction of penalty are as follows:
1) Company is not doing any business activities and incurring huge losses.                                                  
2) Management of decided that the company be closed within the next 2 to 3 months.     
3) Company could not even afford the same.
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
Vishnupriya Hotels and Resorts Pvt Ltd was found in violation of Section 203 of the Companies Act, 2013, leading to significant penalties for failing to appoint a Company Secretary. Initially, the company and its directors faced a combined fine of Rs. 15,00,000. However, considering the company's financial difficulties and its plan to close soon, the penalty was reduced to Rs. 2,25,000. This adjustment reflects the need for proportional penalties based on the company's circumstances, ensuring that legal compliance should be  fair and feasible.
Download MCA adjudication order: ROC- Hyderabad Order u/s 203 for Vishnupriya Hotels and Resorts 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: -

Vishnupriya Hotels and Resorts Private Limited failed to appoint a Company Secretary despite the stipulated requirements under Section 203 of the Companies Act, 2013, since November 2, 2018. The Registrar of Companies, Andhra Pradesh, imposed a penalty of Rs. 5,00,000/- each on the company and its two directors, totaling Rs. 15,00,000.

An opportunity of being heard was given to the Appellants on 02.02.2024. The authorized representative of the appellants reiterated the submissions made in the appeal. The company explained that it had been incurring losses for the past eight financial years, rendering it financially incapable of appointing a Company Secretary. Moreover, the company had been exploring options for closure, which had been hindered by the COVID-19 pandemic.

Taking into consideration the facts of the appeal and submissions made by the authorized representative. deem it would meet the end of justice if the penalty imposed by Registrar of Companies is reduced to 15% i.e., Rs.75,000/- each for the Company and 2 directors i.e., Mr. Kotu Sarat Kumar and Ms. Bhavani Kotu (total aggregating to Rs.2,25,000/-. The appellants are directed to comply with this order and provisions of Section 454(8) of the Companies Act, 2013 read with Companies (Adjudication of Penalties) Rules, 2014.

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.

Reduction in penalty

Ground stated for the reduction of penalty are as follows:

1) Company is not doing any business activities and incurring huge losses.

2) Management of decided that the company be closed within the next 2 to 3 months.

3) Company could not even afford the same.

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

Vishnupriya Hotels and Resorts Pvt Ltd was found in violation of Section 203 of the Companies Act, 2013, leading to significant penalties for failing to appoint a Company Secretary. Initially, the company and its directors faced a combined fine of Rs. 15,00,000. However, considering the company's financial difficulties and its plan to close soon, the penalty was reduced to Rs. 2,25,000. This adjustment reflects the need for proportional penalties based on the company's circumstances, ensuring that legal compliance should be fair and feasible.

Download MCA adjudication order: ROC- Hyderabad Order u/s 203 for Vishnupriya Hotels and Resorts Pvt Ltd.