Section 10A Non-Compliance and Penalty Reduction on Appeal

Section 10A Non-Compliance and Penalty Reduction on Appeal. In this article we will take you through the Adjudication order in the matter of Glorritus Pharmaceuticals Private Limited incorporated under the jurisdiction of the Southern Region (Chennai) which mandates to file a declaration under Section 10A of the Companies Act, 2013. This section mandates to file a declaration in Form INC-20A within 180 days of its incorporation. It refers that every company with share capital must declare that subscribers to the memorandum have paid the value of shares agreed upon. Failure to comply these requirements can attract penalties under the company shall be liable to a penalty of fifty thousand rupees and every officer who is in default shall be liable to a penalty of one thousand rupees for each day during which such default continues but not exceeding an amount of one lakh rupees.
Applicable Provision – Section 10A of the Companies Act, 2013
The case involves an appeal under Section 454(5) of the Companies Act, 2013, concerning the adjudication of penalties for defaulting in filling of its declaration in the E form INC-20A as per section 10A of the companies Act 2013. The matter was brought before the concerned Regional Director, Chennai, for consideration
Section 10A states that a company incorporated after the commencement of the Companies (Amendment) Act, 2019, shall not commence business or exercise any borrowing powers unless:

A declaration is filed by a director within 180 days of incorporation, confirming that every subscriber to the memorandum has paid the value of shares agreed upon.

The company has filed verification of its registered office with the ROC.

Non-compliance with this provision results in penalties imposed on the company and its officers in default.
Facts of the Case
Glorritus Pharmaceuticals Private Limited, incorporated under the jurisdiction of the Southern Region (Chennai), was incorporated on 02.01.2019 failed to comply with the provisions of Section 10A. The company did not file the required declaration within 106 days of incorporation and had filed said belatedly with a delay of 106 days on 15.10.2019.
ROC Kerla examined the said default and passed the adjudication order under section 454 (3) & (4) of the Act for the delay of 106 days delay in filling the Form INC-20A under section 10A (2) of the Act.
Aggrieved by the order, company has filled the appeal. An opportunity of being heard was given to the Appellants on 18.11.2020. The Appellant while filing the appeal contended that the company is a startup company and not started its business. The penalty imposed on company and director will bring it to the edge of shut down and debt and was not intentional default.
Penalty Imposed by the Registrar of Companies
Upon identifying the non-compliance, the ROC imposed penalties as per the prescribed legal framework:

Company Penalty: Rs.50,000 for failure to comply with Section 10A.

Officers in Default: Rs.1,00,000 being the maximum penalty

Reduction in Penalty on Appeal (If Any)
Considering the grounds urged by the Appellants in the Appeal RD reduce the penalties up to 50% for both which are as under:

On Company: Rs, 25,000

Officers in default: Rs, 50,000

The appellant shall pay the penalty in 30 days
Exemption to Startups, Small Companies, and OPCs Under Section 446B
Section 446B provides relief to startups, small companies, and One Person Companies (OPCs) by reducing the penalty amount levied under various provisions of the Companies Act. However, Section 10A is not explicitly covered under Section 446B, and hence, no exemption is available in such cases. The full penalty amount applies unless reduced through appeal.
Conclusion
The adjudication order in the case of Glorritus Pharmaceuticals Private Limited highlights the strict compliance requirements under Section 10A of the Companies Act, 2013. While the law mandates timely filing of Form INC-20A to ensure transparency in capital contributions, delays in compliance can attract substantial penalties. In this case, although the company contended that the default was unintentional and due to its startup status, the Regional Director exercised discretion and reduced the penalties by 50%. This case underscores the importance of adhering to statutory obligations within prescribed timelines to avoid financial liabilities and legal complications.
Download MCA Adjudication Order

In this article we will take you through the Adjudication order in the matter of Glorritus Pharmaceuticals Private Limited incorporated under the jurisdiction of the Southern Region (Chennai) which mandates to file a declaration under Section 10A of the Companies Act, 2013. This section mandates to file a declaration in Form INC-20A within 180 days of its incorporation. It refers that every company with share capital must declare that subscribers to the memorandum have paid the value of shares agreed upon. Failure to comply these requirements can attract penalties under the company shall be liable to a penalty of fifty thousand rupees and every officer who is in default shall be liable to a penalty of one thousand rupees for each day during which such default continues but not exceeding an amount of one lakh rupees.

Applicable Provision – Section 10A of the Companies Act, 2013

The case involves an appeal under Section 454(5) of the Companies Act, 2013, concerning the adjudication of penalties for defaulting in filling of its declaration in the E form INC-20A as per section 10A of the companies Act 2013. The matter was brought before the concerned Regional Director, Chennai, for consideration

Section 10A states that a company incorporated after the commencement of the Companies (Amendment) Act, 2019, shall not commence business or exercise any borrowing powers unless:

A declaration is filed by a director within 180 days of incorporation, confirming that every subscriber to the memorandum has paid the value of shares agreed upon.
The company has filed verification of its registered office with the ROC.

Non-compliance with this provision results in penalties imposed on the company and its officers in default.

Facts of the Case

Glorritus Pharmaceuticals Private Limited, incorporated under the jurisdiction of the Southern Region (Chennai), was incorporated on 02.01.2019 failed to comply with the provisions of Section 10A. The company did not file the required declaration within 106 days of incorporation and had filed said belatedly with a delay of 106 days on 15.10.2019.

ROC Kerla examined the said default and passed the adjudication order under section 454 (3) & (4) of the Act for the delay of 106 days delay in filling the Form INC-20A under section 10A (2) of the Act.

Aggrieved by the order, company has filled the appeal. An opportunity of being heard was given to the Appellants on 18.11.2020. The Appellant while filing the appeal contended that the company is a startup company and not started its business. The penalty imposed on company and director will bring it to the edge of shut down and debt and was not intentional default.

Penalty Imposed by the Registrar of Companies

Upon identifying the non-compliance, the ROC imposed penalties as per the prescribed legal framework:

Company Penalty: Rs.50,000 for failure to comply with Section 10A.
Officers in Default: Rs.1,00,000 being the maximum penalty

Reduction in Penalty on Appeal (If Any)

Considering the grounds urged by the Appellants in the Appeal RD reduce the penalties up to 50% for both which are as under:

On Company: Rs, 25,000
Officers in default: Rs, 50,000

The appellant shall pay the penalty in 30 days

Exemption to Startups, Small Companies, and OPCs Under Section 446B

Section 446B provides relief to startups, small companies, and One Person Companies (OPCs) by reducing the penalty amount levied under various provisions of the Companies Act. However, Section 10A is not explicitly covered under Section 446B, and hence, no exemption is available in such cases. The full penalty amount applies unless reduced through appeal.

Conclusion

The adjudication order in the case of Glorritus Pharmaceuticals Private Limited highlights the strict compliance requirements under Section 10A of the Companies Act, 2013. While the law mandates timely filing of Form INC-20A to ensure transparency in capital contributions, delays in compliance can attract substantial penalties. In this case, although the company contended that the default was unintentional and due to its startup status, the Regional Director exercised discretion and reduced the penalties by 50%. This case underscores the importance of adhering to statutory obligations within prescribed timelines to avoid financial liabilities and legal complications.