RoC Imposed penalty for delay in appointing whole time Company Secretary

RoC Imposed penalty for delay in appointing whole time Company Secretary. In this article, we will take you through the provisions of Section 203 of the Companies Act, 2013, which deals with the appointment of key managerial personnel, including the requirement for companies to appoint a whole-time Company Secretary, Managing Director, or Chief Executive Officer. The section aims to ensure proper corporate governance and compliance with regulatory standards by mandating the presence of qualified professionals in key roles.
If a whole-time KMP position becomes vacant, it must be filled within six months by the Board. In case of failure company will get penalised up to 5,00,000 and for directors and KMP in default penalty amount would be ?50,000 + ?1,000 per day for continuing default (capped at ?5,00,000).
Applicable Provisions
The case involves an appeal under Section 454(5) of the Companies Act, 2013, concerning the adjudication of penalties. The relevant rules include the Companies (Adjudication of Penalties) Rules, 2014. The matter was brought before the Regional Director (WR), Hyderabad, for consideration.
Facts of the Case with ROC and RD
Tata Electronics System Solutions Private Limited, a company, was found to be in default of Section 203 of the Companies Act 2013. The appellants have filed the appeal under section 454 (4) of the Companies Act, 2013 against the adjudication order dated 24.05.2024 passes by the ROC for violation of section 203 of the companies Act 2013.
ROC in his order of adjudication stated that the company has filled the Suo moto application as on 17.01.2024 regarding the  non-appointment the whole-Time company secretary. The company has submitted that  it’s paid-up share capital crossed the required threshold of Rs 5Cr on 11.05.2018 and it was required to appoint a company secretary till 02.11.2018 and again from 17.06.2020 to 30.09.2020 after resignation of the incumbent company secretary.
The Registrar of Companies (ROC) imposed penalties for non-compliance, leading the company to file an appeal before the Regional Director (RD) and an opportunity of being heard was given by the RD Adjudication Order to appellants on 07.10.2024. The authorised representative a PCS, appeared on the behalf of the appellants has made the submission and stated that:

The company diligently took efforts in finding a suitable candidate for the appointment of the whole-time company secretary. However, owing to the outbreak of COVID 19 pandemic and partial restriction appellant company found even more difficult in finding the suitable candidate for the position of whole-time company secretary.

The delay in the appointment was purely by inadvertence and without any mala fide intention and as such no public interest was affected.

The preset management had taken over the company and the violation had taken place before take over and now management has decided to address the past violation and therefore suo moto application for adjudication has been filled.

Imposed Penalty
The ROC after considering the fact and circumstances of the case levied penalties. The penalty amount was determined based on the company's failure to comply with the relevant legal requirements. The details of the penalty, are as follows
For non-appointment of Company Secretary:

On Company: Rs, 5,00,000

On Former Managing Director: Rs 2,24,000

On 3 former directors: Rs. 1,55,000

Reduction in Penalty
Upon hearing the appeal, the RD reviewed the circumstances surrounding the non-compliance. The company’s arguments, including mitigating factors and potential rectifications, were considered. Consequently, the RD exercised its discretion to reduce the penalty amount as follows:
For non-appointment of Company Secretary:

On Company: Rs, 2,25,000

On Former Managing Director: Rs 50,000

On 3 former directors: Rs. 20,000

Any Benefit of Section 446B of Companies Act
Section 446B of the Companies Act, 2013, provides for lesser penalties in cases involving small companies and startups. However, in this case, concerned RD after considering all the submission made by the company reduce the quantum of penalty up to a great extent.
Our observations:
The case of Tata Electronics System Solutions Private Limited highlights the procedural aspects of penalty adjudication under the Companies Act, 2013. While the ROC initially imposed penalties for non-compliance, the RD provided a reconsideration platform, leading to a reduction in the penalty. This highlights the importance of timely appeals and the discretion available under the law to mitigate financial liabilities in justified cases. Companies must ensure adherence to statutory requirements to avoid penalties while also leveraging available legal remedies for relief when necessary.
Download MCA Adjudication Order

In this article, we will take you through the provisions of Section 203 of the Companies Act, 2013, which deals with the appointment of key managerial personnel, including the requirement for companies to appoint a whole-time Company Secretary, Managing Director, or Chief Executive Officer. The section aims to ensure proper corporate governance and compliance with regulatory standards by mandating the presence of qualified professionals in key roles.

If a whole-time KMP position becomes vacant, it must be filled within six months by the Board. In case of failure company will get penalised up to 5,00,000 and for directors and KMP in default penalty amount would be ?50,000 + ?1,000 per day for continuing default (capped at ?5,00,000).

Applicable Provisions

The case involves an appeal under Section 454(5) of the Companies Act, 2013, concerning the adjudication of penalties. The relevant rules include the Companies (Adjudication of Penalties) Rules, 2014. The matter was brought before the Regional Director (WR), Hyderabad, for consideration.

Facts of the Case with ROC and RD

Tata Electronics System Solutions Private Limited, a company, was found to be in default of Section 203 of the Companies Act 2013. The appellants have filed the appeal under section 454 (4) of the Companies Act, 2013 against the adjudication order dated 24.05.2024 passes by the ROC for violation of section 203 of the companies Act 2013.

ROC in his order of adjudication stated that the company has filled the Suo moto application as on 17.01.2024 regarding the non-appointment the whole-Time company secretary. The company has submitted that it’s paid-up share capital crossed the required threshold of Rs 5Cr on 11.05.2018 and it was required to appoint a company secretary till 02.11.2018 and again from 17.06.2020 to 30.09.2020 after resignation of the incumbent company secretary.

The Registrar of Companies (ROC) imposed penalties for non-compliance, leading the company to file an appeal before the Regional Director (RD) and an opportunity of being heard was given by the RD Adjudication Order to appellants on 07.10.2024. The authorised representative a PCS, appeared on the behalf of the appellants has made the submission and stated that:

The company diligently took efforts in finding a suitable candidate for the appointment of the whole-time company secretary. However, owing to the outbreak of COVID 19 pandemic and partial restriction appellant company found even more difficult in finding the suitable candidate for the position of whole-time company secretary.
The delay in the appointment was purely by inadvertence and without any mala fide intention and as such no public interest was affected.
The preset management had taken over the company and the violation had taken place before take over and now management has decided to address the past violation and therefore suo moto application for adjudication has been filled.

Imposed Penalty

The ROC after considering the fact and circumstances of the case levied penalties. The penalty amount was determined based on the company's failure to comply with the relevant legal requirements. The details of the penalty, are as follows

For non-appointment of Company Secretary:

On Company: Rs, 5,00,000
On Former Managing Director: Rs 2,24,000
On 3 former directors: Rs. 1,55,000

Reduction in Penalty

Upon hearing the appeal, the RD reviewed the circumstances surrounding the non-compliance. The company’s arguments, including mitigating factors and potential rectifications, were considered. Consequently, the RD exercised its discretion to reduce the penalty amount as follows:

For non-appointment of Company Secretary:

On Company: Rs, 2,25,000
On Former Managing Director: Rs 50,000
On 3 former directors: Rs. 20,000

Any Benefit of Section 446B of Companies Act

Section 446B of the Companies Act, 2013, provides for lesser penalties in cases involving small companies and startups. However, in this case, concerned RD after considering all the submission made by the company reduce the quantum of penalty up to a great extent.

Our observations:

The case of Tata Electronics System Solutions Private Limited highlights the procedural aspects of penalty adjudication under the Companies Act, 2013. While the ROC initially imposed penalties for non-compliance, the RD provided a reconsideration platform, leading to a reduction in the penalty. This highlights the importance of timely appeals and the discretion available under the law to mitigate financial liabilities in justified cases. Companies must ensure adherence to statutory requirements to avoid penalties while also leveraging available legal remedies for relief when necessary.