What is the penalty for non compliance of secretarial audit under Section 204(4)?

What is the penalty for non compliance of secretarial audit under Section 204(4)?. Section 204 of the Companies Act, 2013, mandates secretarial audits for every listed company and certain prescribed classes of public companies must obtain a secretarial audit report from a Company Secretary in Practice. The report, prepared in accordance with Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, must be annexed to the Board’s report. If a company or its officers fail to comply with Section 204, they are liable for penalties under Section 204(4). The company faces a fine of up to ?5 lakh, while every officer in default, including the company secretary in practice who issues a misleading or incorrect report, may be fined up to ?1 lakh. This provision ensures greater transparency, corporate governance, and legal accountability in corporate affairs.
Applicable Provisions
The case involves an appeal under Section 454(5) of the Companies Act, 2013, concerning the MCA adjudication of penalties. The relevant rules include the Companies (Adjudication of Penalties) Rules, 2014. The matter was brought before the Regional Director (ER), Kolkata, for consideration.
Facts of the Case with ROC and RD
Welter Securities Limited, a company, was found to be in default of Section 204 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 21.03.2023 passes by the ROC for violation of section 204 of the companies Act 2013.
Considering the fact and circumstances of the case, the adjudicating authority had imposed penalty for violation of section 204 of companies Act, 2013.
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 to appellants on 25.06.2024.
The authorised representative was asked to make submissions regarding the infirmity if any in the order of Registrar of Companies. The authorised representative stated that applicant company id having a negligible amount of turnover and is making losses for most of the period of alleged default.
The appellant further submitted that the company has appointed as MD w.e.f 24.04.2021. The company further submitted that the company has appointed MD w.e.f 22nd April 2019, therefore since FY 2018-19 the other directors on the board should not have been penalised as per provisions of the section 204 in correct interpretation of officer in default and such a relief ought to have been considered by concerned ROC during adjudication
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:

Name of the applicant company

Total period of default

Total maximum penalty (In Rs.)

On Company

6 yrs

Rs.12,00,000

1st Director

6 yrs

Rs.12,00,000

2nd Director

6 yrs

Rs.12,00,000

3rd Director

5 yrs

Rs.10,00,000

4th Director

1 yr

Rs.2,00,000

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 under section 446B, were considered. Consequently, the RD reduce the penalty amount as follows:

Name of the applicant company

Total period of default

Total maximum penalty (In Rs.)

On Company

6 yrs

Rs.12,00,000

1st Director

2 yrs

Rs.4,00,000

2nd Director

4 yrs

Rs.8,00,000

3rd Director

2 yrs

Rs.4,00,000

4th Director

2 yr

Rs.4,00,000

Any Benefit of Section 446B of Companies Act
Section 446B of the Companies Act, 2013 provides a significant relief mechanism for small companies and start-ups by reducing the penalty burden for certain non-compliances. Under this provision, if a small company or a start-up commits a default for which a penalty is prescribed under the Act, the penalty imposed shall not be more than half of the specified penalty, subject to a maximum limit. However, Welter Securities Limited being a public company does not fall under the criteria of 446B.
Summary:
In conclusion, the appeal under Section 454(5) of the Companies Act, 2013, was carefully examined by the Regional Director, considering the financial position of Welter Securities Limited and the circumstances surrounding its non-compliance with Section 204. While the initial penalties imposed by the ROC were significant, the RD provided partial relief by reducing the penalties based on mitigating factors. However, since the company does not qualify as a small company or start-up, the benefit of Section 446B could not be extended. This case underscores the importance of strict adherence to corporate compliance requirements while also recognizing the need for a balanced approach in adjudicating penalties, considering the financial and operational realities of the company.
Download MCA Adjudication Order

Section 204 of the Companies Act, 2013, mandates secretarial audits for every listed company and certain prescribed classes of public companies must obtain a secretarial audit report from a Company Secretary in Practice. The report, prepared in accordance with Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, must be annexed to the Board’s report. If a company or its officers fail to comply with Section 204, they are liable for penalties under Section 204(4). The company faces a fine of up to ?5 lakh, while every officer in default, including the company secretary in practice who issues a misleading or incorrect report, may be fined up to ?1 lakh. This provision ensures greater transparency, corporate governance, and legal accountability in corporate affairs.

Applicable Provisions

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

Facts of the Case with ROC and RD

Welter Securities Limited, a company, was found to be in default of Section 204 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 21.03.2023 passes by the ROC for violation of section 204 of the companies Act 2013.

Considering the fact and circumstances of the case, the adjudicating authority had imposed penalty for violation of section 204 of companies Act, 2013.

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 to appellants on 25.06.2024.

The authorised representative was asked to make submissions regarding the infirmity if any in the order of Registrar of Companies. The authorised representative stated that applicant company id having a negligible amount of turnover and is making losses for most of the period of alleged default.

The appellant further submitted that the company has appointed as MD w.e.f 24.04.2021. The company further submitted that the company has appointed MD w.e.f 22^nd April 2019, therefore since FY 2018-19 the other directors on the board should not have been penalised as per provisions of the section 204 in correct interpretation of officer in default and such a relief ought to have been considered by concerned ROC during adjudication

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:

Name of the applicant company	Total period of default	Total maximum penalty (In Rs.)
On Company	6 yrs	Rs.12,00,000
1^st Director	6 yrs	Rs.12,00,000
2^nd Director	6 yrs	Rs.12,00,000
3^rd Director	5 yrs	Rs.10,00,000
4^th Director	1 yr	Rs.2,00,000

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 under section 446B, were considered. Consequently, the RD reduce the penalty amount as follows:

Name of the applicant company	Total period of default	Total maximum penalty (In Rs.)
On Company	6 yrs	Rs.12,00,000
1^st Director	2 yrs	Rs.4,00,000
2^nd Director	4 yrs	Rs.8,00,000
3^rd Director	2 yrs	Rs.4,00,000
4^th Director	2 yr	Rs.4,00,000

Any Benefit of Section 446B of Companies Act

Section 446B of the Companies Act, 2013 provides a significant relief mechanism for small companies and start-ups by reducing the penalty burden for certain non-compliances. Under this provision, if a small company or a start-up commits a default for which a penalty is prescribed under the Act, the penalty imposed shall not be more than half of the specified penalty, subject to a maximum limit. However, Welter Securities Limited being a public company does not fall under the criteria of 446B.

Summary:

In conclusion, the appeal under Section 454(5) of the Companies Act, 2013, was carefully examined by the Regional Director, considering the financial position of Welter Securities Limited and the circumstances surrounding its non-compliance with Section 204. While the initial penalties imposed by the ROC were significant, the RD provided partial relief by reducing the penalties based on mitigating factors. However, since the company does not qualify as a small company or start-up, the benefit of Section 446B could not be extended. This case underscores the importance of strict adherence to corporate compliance requirements while also recognizing the need for a balanced approach in adjudicating penalties, considering the financial and operational realities of the company.