As we can see in this MCA adjudication company being a public did not appoint a whole time Key Managerial Personnel that leads to the hefty mount of penalty for company and other officers in default.
As per section 203 of the companies Act the appointment of KMP must be made by a resolution of the Board of Directors, and any vacancy in these positions must be filled within six months from the date of such vacancy to maintain smooth corporate functioning. Additionally, the section restricts a whole-time KMP from holding a similar position in more than one company, except in its subsidiary company, ensuring that key managerial personnel dedicate their efforts effectively to their respective organizations.
Applicable Provisions
The MCA adjudication order 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 (ER), Kolkata, for consideration.
Facts of the Case with ROC and RD
In Kusum Industrial Gases Ltd, concerned ROC had issued adjudication notice for violation of section 203 (1) of the companies Act dated 10.10.2022 to the company and its officers. In this regard, no adequate reply to the adjudication notice as mentioned above has been received from the company and its concerned officers in default as to why penalty shall not be imposed.
Considering the fact and circumstances of the case, 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 01/02/2024 The authorised representative submitted:
- A reference letter issued by the Calcutta Stock Exchange (CSE) Limited to the company stating the facts that the said company is suspended from the records of exchange w.e.f 05th April 2023.
- With regard to the order of Adjudicating authorities imposing penalty on the company and other three directors no cogent reason was pointed out for interference. Hence, the order of Adjudicating officer to that extent is confirmed.
Imposed Penalty
Considering all the facts, circumstances and all the submission made by the company, the adjudicating authority had imposed penalty on companies and officers in default as follows:
Violation of Section |
Period of default |
To whom penalty imposed |
Maximum Penalty |
Section 203(4) r/w 203 (5) of the companies Act 2013 |
788 |
On Company |
5,00,000 |
788 |
On 1st Director |
5,00,000 |
|
788 |
On 2nd Director |
5,00,000 |
|
788 |
On 3rd Director |
5,00,000 |
Confirming ROC Order
The appeal was heard on 01/02/2024 Authorised Representative was asked to make submissions regarding any infirmity in order of ROC. After considering all the facts, circumstances and submissions made by the appellant company, concerned RD did not confirm the order of ROC.
Further RD directed that the amount shall be paid within a period of 90 days from the date pf receipt of the copy of the order. In the company and its directors fail to deposit the penalty amount within the prescribed time limit action under section 454 (8)(i) and (ii) of the companies Act 2013 shall be initiated against the company and its directors.
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. In adjudication matter of Kusum Industrial Gases Ltd being a public company does not fall under the criteria of section 446B of the companies Act 2013.
Findings:
The findings of the adjudication proceedings against Kusum Industrial Gases Ltd highlight a clear violation of Section 203 of the Companies Act, 2013, due to the company's failure to appoint Company Secretary within the prescribed time. Despite receiving an adjudication notice from the ROC, the company and its officers failed to provide an adequate response, leading to the imposition of penalties. During the appeal before the Regional Director (RD), authorised representatives did not able to make any cogent ground thus RD confirm the order of ROC.