What is the timeline for appointment of independent director?

What is the timeline for appointment of independent director?. Management of any company are required to fill the requirement of Independent Directors within the prescribed time period else the company and its officers in default will get penalised under the companies Act 2013. As it has been demonstrated in the MCA adjudication order of Mukka Proteins Limited.
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), Hyderabad, for consideration.
Facts of the Case with ROC and RD
In Mukka Proteins Limited, concerned ROC had passed adjudication order dated 23.11.2023 for violation of section 178 (1) of the companies Act 2013.
ROC in his adjudication order stated that has filed an application on 07.08.2023 for violation of section 178 (1) of the Act. It is seen that the company had converted from private limited company to public limited company with effect from 02.12.2019.
As a result of such a conversion, the provision of section 149 (4) of the Act became applicable to the company and it was required to appoint independent directors from 02.12.2019, but the company had appointed independent directors only on 15.01.2022.
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 01.02.2024.
Imposed Penalty
Considering all the facts, circumstances and all the submission made by the company, the adjudicating authority had imposed penalty for the period 01.11.2022 to 25.07.2023 (266 days) of Rs. 2,85,000 each on company and 2 Directors and for the period 01.05.2023 to 25.07.2023 (85 days) Rs 1,04,000 each on the company and 2 directors.
Reduction in Penalty
After considering all the facts and submissions made by the company, the then RD upon hearing had reduced the penalty imposed by the ROC to 50% which are as follows: -

Violation of Section

To whom penalty Imposed

Amount

Section 149 of the companies Act 2013

On Company

5,00,000

On 7 directors

1,00,000 each

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 this adjudication matter of Samsung R&D Institute India- Bangalore Private Limited company does not fall under the criteria of a small company thus cannot claim the benefit of section 446B of the companies Act 2013 though after considering all the submissions concerned RD already reduced the penalty up to some extent.
Findings: -
In conclusion, the appeal under Section 454(5) of the Companies Act, 2013, was carefully examined by the Regional Director and considering all the fact and circumstances reduce the penalty amount on both company and its officers in default. This adjudication order demonstrates that how important it is to present appeal and submission in the proper way. This order also highlights that the company needs to be compliant with each and every section and provision of the companies Act 2013.
Download MCA Adjudication Order

Management of any company are required to fill the requirement of Independent Directors within the prescribed time period else the company and its officers in default will get penalised under the companies Act 2013. As it has been demonstrated in the MCA adjudication order of Mukka Proteins Limited.

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), Hyderabad, for consideration.

Facts of the Case with ROC and RD

In Mukka Proteins Limited, concerned ROC had passed adjudication order dated 23.11.2023 for violation of section 178 (1) of the companies Act 2013.

ROC in his adjudication order stated that has filed an application on 07.08.2023 for violation of section 178 (1) of the Act. It is seen that the company had converted from private limited company to public limited company with effect from 02.12.2019.

As a result of such a conversion, the provision of section 149 (4) of the Act became applicable to the company and it was required to appoint independent directors from 02.12.2019, but the company had appointed independent directors only on 15.01.2022.

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 01.02.2024.

Imposed Penalty

Considering all the facts, circumstances and all the submission made by the company, the adjudicating authority had imposed penalty for the period 01.11.2022 to 25.07.2023 (266 days) of Rs. 2,85,000 each on company and 2 Directors and for the period 01.05.2023 to 25.07.2023 (85 days) Rs 1,04,000 each on the company and 2 directors.

Reduction in Penalty

After considering all the facts and submissions made by the company, the then RD upon hearing had reduced the penalty imposed by the ROC to 50% which are as follows: -

Violation of Section

To whom penalty Imposed

Amount

Section 149 of the companies Act 2013

On Company

5,00,000

On 7 directors

1,00,000 each

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 this adjudication matter of Samsung R&D Institute India- Bangalore Private Limited company does not fall under the criteria of a small company thus cannot claim the benefit of section 446B of the companies Act 2013 though after considering all the submissions concerned RD already reduced the penalty up to some extent.

Findings: -

In conclusion, the appeal under Section 454(5) of the Companies Act, 2013, was carefully examined by the Regional Director and considering all the fact and circumstances reduce the penalty amount on both company and its officers in default. This adjudication order demonstrates that how important it is to present appeal and submission in the proper way. This order also highlights that the company needs to be compliant with each and every section and provision of the companies Act 2013.