Time limit for appointment of Company secretary and penalty for delay

Time limit for appointment of Company secretary and penalty for delay . 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.
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
Amal Motors 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 MCA adjudication order dated 29.01.2024 passes by the ROC for violation of section 203 of the companies Act 2013 as the company and its managing director had admitted that there was a non-compliance of provisions of above-mentioned section for 78 days.
ROC observed that the company has not appointed the whole-Time company secretary as required under section 203 (1) of the companies Act 203 (1) of the companies Act 2013 r/w Rule 8A of the companies (Appointment and Remuneration) Rules 2014 for the period 78 days.
ROC while imposing penalty stated that appellant company had increased its paid-up capital from Rs. 99,00,000 to Rs. 11,23,00,000 on 22.12.20200 and as per section 203(1) of the companies Act 2013, the company was required to appoint whole time company secretary within 6 months i.e. 21st June 2023. However, the company has appointed the said CS on 09th September 2023 with a delay of 78 days.
The Registrar of Companies (ROC) imposed penalties for non-compliance, leading the company to file an appeal before the Regional Director (RD). The hearing was attended by the company's representative, a Practicing Company Secretary and contended that the:

In terms of said section of 203 (5), penalty for the continuing default is only imposed on the director and KMP of the company who is in default, and not on a company. Also, the maximum penalty that can be imposed cannot exceed Rs. 5,00,000

Appellant No. 1 was unable to find suitable candidate even after continuous efforts. Thus appellants No.1, unintentionally and inadvertently defaulted in compliance of provision of Section 203, by causing a delay of 78 days in appointing whole time company secretary.

However, the company has finally appointed a whole time company Secretary since 01.08.2023.

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 Managing Director: Rs. 1,28,000

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 to Rs. 1,50,000 for the company and by 10% of the penalty on all other individuals.
For non-appointment of Company Secretary:

On Company: Rs, 1,00,000

On Managing Director: Rs. 50,000

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 Tethys Properties Private Limited, concerned RD has already reduce the amount of penalties after considering all the facts and circumstances up to a great extent.
Our observations:
The case of Amal Motors 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.

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

Amal Motors 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 MCA adjudication order dated 29.01.2024 passes by the ROC for violation of section 203 of the companies Act 2013 as the company and its managing director had admitted that there was a non-compliance of provisions of above-mentioned section for 78 days.

ROC observed that the company has not appointed the whole-Time company secretary as required under section 203 (1) of the companies Act 203 (1) of the companies Act 2013 r/w Rule 8A of the companies (Appointment and Remuneration) Rules 2014 for the period 78 days.

ROC while imposing penalty stated that appellant company had increased its paid-up capital from Rs. 99,00,000 to Rs. 11,23,00,000 on 22.12.20200 and as per section 203(1) of the companies Act 2013, the company was required to appoint whole time company secretary within 6 months i.e. 21st June 2023. However, the company has appointed the said CS on 09th September 2023 with a delay of 78 days.

The Registrar of Companies (ROC) imposed penalties for non-compliance, leading the company to file an appeal before the Regional Director (RD). The hearing was attended by the company's representative, a Practicing Company Secretary and contended that the:

In terms of said section of 203 (5), penalty for the continuing default is only imposed on the director and KMP of the company who is in default, and not on a company. Also, the maximum penalty that can be imposed cannot exceed Rs. 5,00,000
Appellant No. 1 was unable to find suitable candidate even after continuous efforts. Thus appellants No.1, unintentionally and inadvertently defaulted in compliance of provision of Section 203, by causing a delay of 78 days in appointing whole time company secretary.
However, the company has finally appointed a whole time company Secretary since 01.08.2023.

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 Managing Director: Rs. 1,28,000

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 to Rs. 1,50,000 for the company and by 10% of the penalty on all other individuals.

For non-appointment of Company Secretary:

On Company: Rs, 1,00,000
On Managing Director: Rs. 50,000

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 Tethys Properties Private Limited, concerned RD has already reduce the amount of penalties after considering all the facts and circumstances up to a great extent.

Our observations:

The case of Amal Motors 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.