Nomination & Remuneration Committee (NRC) remained un-constituted – MCA imposes Penalty
The Ministry of Corporate Affairs has imposed a penalty on PTC India Financial Services Limited for the violation of Section 178 of the Companies Act, 2013. The company failed to constitute the Nomination & Remuneration Committee (NRC), resulting in penalties.
GOVERNMENT OF INDIA
MINISTRY OF CORPORATE AFFAIRS,
OFFICE OF REGISTRAR OF COMPANIES,
NCT OF DELHI & HARYANA
4TH FLOOR, IFCI TOWER,
61, NEHRU PLACE, NEW DELHI -110019
ORDER FOR PENALTY FOR VIOLATION UNDER SECTION 178 OF THE COMPANIES ACT, 2013 IN THE MATTER OF PTC INDIA FINANCIAL SERVICES LIMITED (CIN: L65999DL2006PLC153373)
1. Appointment of Adjudicating Officer: –
Ministry of Corporate Affairs vide its Gazette Notification No. A-42011/112/2014-Ad.II, dated 24.03.2015 appointed Registrar of Companies, NCT of Delhi & Haryana as Adjudicating Officer in exercise of the powers conferred by section 454(1) of the Companies Act, 2013 (hereinafter known as Act) r/w Companies (Adjudication of Penalties) Rules, 2014 for adjudging penalties under the provisions of this Act.
2. Company: –
Whereas the company viz. PTC India Financial Services Limited (herein after known as ‘company’ or ‘subject company’ or `PFS’) was incorporated under the Companies Act, 195 having its registered office as per MCA21 Registry at address 7th Floor, Telephone Exchange, Building 8, Bhikaji Cama Place, New Delhi-DL 110066 IN.
| Sr. No. | Particulars | Details |
| 1. | Paid up capital | Rs. 64,22,83,335 |
| 2. | Turnover (F.Y. 2021-22) | Rs. 9,52,87,79,000 |
| 3. | Holding Company | YES |
| 4. | Subsidiary Company | NO |
| 5. | Whether company registered under Section 8 of the Act? | NO |
3. Facts about the Case: –
I. Three independent directors (IDs), namely Shri. Kamlesh Shivji Vikamsey, Shri. Thomas Mathew T and Shri. Santosh B Nayar of the company resigned on 19.01.2022 citing corporate governance issues highlighted in similarly worded resignation letters. In the filings made by the company before the stock exchanges on the same date, the company stated that it has received confirmations from the IDs that there are no other material reasons other than those provided in their resignation letters. One such reason quoted by the IDs was that the Nomination & Remuneration Committee (NRC) remained un-constituted.
II. Consequently, an Inquiry was ordered by Ministry based on issues raised by three IDs. Pursuant to this, sanction was accorded by the competent authority to initiate adjudication proceedings in this matter.
4. Details of the proceedings: –
I. A show cause notice (SCN) dated 14.02.2023 was issued to the company and the then officers of the company namely, Sh. Pawan Singh, CEO/MD, Shri. Sanjay Rustagi, CFO, Sh. Vishal Goyal, CS.
II. In response to the SCN, while the subject company and Shri Pawan Singh submitted a joint reply, Shri Sanjay Rustagi and Shri Vishal Goyal submitted replies in their individual capacity. The relevant extract of the replies is as follows:
a. Shri. Sanjay Rustagi, CFO (reply dated 13.03.2023, received on 14.03.2023)
Shri. Sanjay Rustagi submitted that neither he was holding any Board level position nor he was aware of any communications being marked by any Director (including erstwhile IDs) in this matter. Further, he came to know about this matter only after going through the resignation letter of the erstwhile IDs.
b. Shri. Vishal Goyal, CS (reply dated 21.03.2023)
Shri. Goyal submitted that he was victimized by the situation and unfortunate sequence of events that happened in the subject company. He explained his stance by narrating the following sequence of events:
A. In line with the provisions of Regulation 19 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements), Regulations, 2015 and provisions of Section 178 of the Companies Act, 2013, the Nomination & Remuneration Committee of the Company consisted of following three (3) members, upto December 10, 2021:-
a. Shri. Santosh B. Nayar (Independent Director)
b. Shri. Thomas Mathew T. (Independent Director)
c. Ms. Renu Narang (Nominee Director of PTC India Ltd., holding company)
B. Consequent to the cessation of Mrs. Pravin Tripathi (Women Independent Director) w.e.f October 14, 2021, the Company was required to appoint one (1) Woman Independent Director on its Board within a period of three (3) months i.e. by January 13, 2022 in line with the provisions of Regulation 17 (1)(a) of SEBI Listing Regulations.
C. In this regard, Shri. Santosh B. Nayar (the then Chairman of the NRC), vide his e-mail dated November 25, 2021 had requested to conduct the meeting of the NRC to fill the vacancy of Woman Independent Director.
D. Further, Shri. Santosh B. Nayar vide another e-mail dated December 07, 2021 being the Chairman of the NRC fixed the meeting of the Committee for December 10, 2021.
E. In response to his e-mail dated December 07, 2021, PFS under the instructions of the Chairman- PFS, requested Shri. Santosh B. Nayar that the Chairman-PFS has desired that the meeting of Committee may be scheduled by giving the required notice and agenda as per the statutory provisions.
F. On December 10, 2021, the date on which the meeting of NRC was scheduled, the CS received a communication from the PTC India Ltd. (Promoter company) regarding withdrawal of the nomination of Mrs. Renu Narang (Nominee of PTC India Ltd.) with immediate effect.
G. Due to the withdrawal of the nomination of Ms. Renu Narang, Shri. Santosh B. Nayar vide his email dated December 12, 2021 requested the Chairman- PFS to conduct the Board Meeting to reconstitute the NRC. However, no meeting of the Board was scheduled by Chairman-PFS.
H. Being the CS, he had already informed the Chairman and MD & CEO, PFS vide e-mail dated December 12, 2021 about the status of the non-compliances arising due to the fact that the NRC was rendered dysfunctional.
I. The Company on December 31, 2021 had circulated the proposal for the reconstitution of the various Committees of the Board including the NRC to ensure the compliances. However, the resolution was not approved by the Board.
J. In line with his statutory duties, without any delay when the Board meeting was scheduled for January 22, 2022, he circulated the agenda informing the Board about all the non-compliances. However, the Board meeting could not be held due to the resignation of all IDs on the Board of the Company on January 19, 2022.
K. The above facts were also duly captured by the forensic auditor (CNK & Associates) in their report which is available in the stock exchanges website. However, the report available on stock exchanges website has been redacted, but certain identities/information can be identified from the description mentioned in earlier paragraphs.
c. Company and MD&CEO (joint reply dated 14th March, 2023):
A. Ms. Renu Narang was appointed to the Board of the Company as a Non-Executive Director, as nominated by PTC India Ltd, the Holding Company of the Company. Subsequently, PTC India Ltd. by way of a communication dated 10.12.2021, withdrew the nomination of Ms. Renu Narang from the Company’s Board. Consequently, Ms. Renu Narang ceased to be the Director in the Company w.e.f. 10.12.2021 including from the Committees of the Company.
B. Upon the discontinuation of Ms. Renu Narang as a Non-Executive Director of the Company with effect from 10.12.2021, the Company was indeed required to reconstitute the NRC.
C. Recognizing the need for such reconstitution, the Company requested the Directors to pass appropriate resolutions for reconstitution of the NRC, by way of a circular resolution. To this end, the Company had circulated an agenda on 31.12.2021. However, the majority of the board chose not to approve the same on 31.12.2021.
D. In these circumstances, by way of a Notice dated 14.01.2022, a meeting of the Board was called for 22nd January, 2022, inter alia, to consider the reconstitution of the NRC and other committees. The agenda for this meeting specifically provided for consideration of reconstitution of NRC. However due to the resignation of all IDs vide resignation letters dated 19.01.2022, the said meeting could not be held.
E. By virtue of Regulation 17(2A) of the SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015, a listed company is mandatorily required to ensure that at least one independent director is part of its Board meeting, to ensure legal quorum. Therefore, in the absence of any IDs, the Company could not hold a meeting of the Board.
F. Therefore, the Company, vide letter dated 22.01.2022, requested SEBI for waiver of Regulation 17(2A), to enable it to hold a meeting of the Board, to appoint IDs and reconstitute the committees. However, SEBI did not permit the same.
G. The Company continuously followed up with the Regulators to permit reconstitution of the Board and its committees, although the same was to no avail. Finally, in consultation with SEBI and the Reserve Bank of India, IDs sitting on the Board of PTC India Limited were appointed as independent directors of the Company on 29.03.2022. At the first meeting of the newly constituted Board on 06.04.2022 and at the 1st instance, NRC was immediately constituted.
H. Thus, any delay in reconstitution of the NRC was for reasons beyond the control of the company.
III. On the basis of reply submitted by the subject company and request made therein, a hearing in this matter was scheduled on 10th April, 2023. Ms. Shweta Aggarwal, Company Secretary of PTC India Financial Services Ltd along with Shri. Ranjeet Pandey, CS Authorised Representative appeared before the undersigned. In their oral submission it was re-iterated that they have explained this issue in their written submission dated 14.3.2023. The representatives were informed that separate reply has been received from CS. To this, company requested to provide them time for making further written submission Accordingly, two weeks time was provided.
IV. In response, a written reply was received vide letter dated 24.04.2023. The company reiterated its stance submitted in the earlier written replies. Further, company requested for another hearing as MD&CEO of the subject company wanted to make in-person submission before the Adjudicating Authority.
V. Thereafter, hearing was scheduled earlier on 18th May, 2023. However, as per request made by the subject company, the hearing was then rescheduled to 29th May, 2023. Accordingly, the MD&CEO along with Ms. Shweta Aggarwal, Company Secretary of PTC India Financial Services Ltd and Shri. Ranjeet Pandey, CS-Authorised Representative appeared for the hearing and orally reiterated their stance as submitted in their written reply.
VI. Since, this proceeding was initiated on the basis of allegations of erstwhile IDs, comments of the IDs on the response submitted by subject company and CS were material to conclude these proceedings. Accordingly, vide email dated 2nd June 2023, the 3 erstwhile IDs, namely Shri Kamlesh Shivji Vikamsey, Shri Santosh B. Nayar and Shri Thomas Mathew T were asked to submit their response. Joint reply was submitted vide email dated 11th June, 2023 and relevant extracts of the reply are as under:
A. Quite clearly the company has admitted that the NRC was dysfunctional from 10.12.2021.
B. No reason has been given for the company to take this unprecedented step. Normally no committee is made dysfunctional, and a substitute member/Director is posted when any change is required.
C. The very fact that the proposal to replace Ms Narang was made on 31.12.2021 makes it clear that the entire purpose in making the NRC dysfunctional was to deny Mr Rakesh Kacker an extension in his term beyond 31.12.2021.
D. The Independent Directors on the Board of PFS including the Chairman NRC PFS, Sh. Nayar (email dated 25.11.2021, 07.12.2021 etc.) has kept on asking to convene the meeting of the NRC for the appointment of one-Woman ID (the vacancy arose after completion of tenure of Mrs. Pravin Tripathi on 14.10.2021) and for the issues of WTDs. But his repeated requests were not acceded/responded to by either PFS MD nor by Chairman PFS (i.e. Dr Rajib K. Mishra).
E. In order to ensure the timely compliance, Chairman NRC (Mr. Santosh B. Nayar), had called the meeting of NRC for 10th December, 2021 and which on the request of Dr Rajib K. Mishra, Shri Nayar was rescheduled for the next week. This meeting could not happen as the NRC was made dysfunctional on 10.12.2021.
F. The reply of the Company is also misleading as they have not given the reasons for the circular resolution not being approved. The circular resolution for reconstituting the NRC was not sent to the then Director Finance, who was a member of the Board, making it invalid. Also, it had proposed MD PFS as a permanent invitee which was completely wrong. Sending a proposal which was invalid was not in order. Knowing the stand of the IDs on the then Director Finance, there was no need to send the proposal again on 15th January 2022 without inviting him to the Board meeting.
5. Findings:
The following sequence of events are required to be considered:
| Date | Description of the event |
| 14.10.2021 | Cessation of Mrs. Pravin Tripathi (woman ID) [vacancy to be filled in 3 months]. |
| 07.12.2021 | Chairman NRC (Santosh B. Nayar) fixed the date on 10.12.2021 for holding NRC meeting to fill vacancy of woman ID. |
| 09.12.2021 | On the request of Shri. Rajib K Mishra, Chairman NRC (Santosh B. Nayar) vide email postponed the NRC meeting to next week (15.12.2021/ 16.12.2021). |
| 10.12.2021 | Though no Board meeting of PTC India Limited (i.e. Holding Company) was held, the nomination of Mrs. Renu Narang (nominee of PTC India) was withdrawn from the Board of PFS) Thus, NRC now consisted of only 2 directors Santosh B Nayar and Thomas Mathew T, and hence it became dysfunctional. |
| 12.12.2021 | Santosh B Nayar wrote to Chairman PFS for reconstituting NRC by holding a Board meeting. |
| 31.12.2021 | Instead of Board meeting, circular resolutions were sent, which were turned down. Thereafter Board meeting was scheduled on 22.01.2022. |
| 19.01.2022 | Before the Board meeting could actually take place, all three IDs resigned. |
| 29.03.2022 | Finally, in consultation with SEBI and the Reserve Bank of India, independent directors sitting on the Board of PTC India Limited were appointed as independent directors of the Company |
| 06.04.2022 | NRC reconstituted. |
II. Since the company is a listed public company, under section 178(1), it is mandatorily required to constitute an NRC consisting of three or more non-executive directors out of which not less than half shall be independent directors. The total strength of the NRC cannot be reduced below three. Any such step undertaken would make it dysfunctional. As far as the role of the NRC is concerned, the same is provided under sub-sections (2), (3) and (4) of section 178 which reads as follows:
“(2) The Nomination and Remuneration Committee shall identify persons who are qualified to become directors and who may be appointed in senior management in accordance with the criteria laid down, recommend to the Board their appointment and removal and shall specify the manner for effective evaluation of performance of Board, its committees and individual directors to be carried out either by the Board, by the Nomination and Remuneration Committee or by an independent external agency and review its implementation and compliance.
(3) The Nomination and Remuneration Committee shall formulate the criteria for determining qualifications, positive attributes and independence of a director and recommend to the Board a policy, relating to the remuneration for the directors, key managerial personnel and other employees.
(4) The Nomination and Remuneration Committee shall, while formulating the policy under sub-section (3) ensure that—
(a) the level and composition of remuneration is reasonable and sufficient to attract, retain and motivate directors of the quality required to run the company successfully:
(b) relationship of remuneration to performance is clear and meets appropriate performance benchmarks; and
(c) remuneration to directors, key managerial personnel and senior management involves a balance between fixed and incentive pay reflecting short and long-term performance objectives appropriate to the working of the company and its goals:
Provided that such policy shall be placed on the website of the company, if any, and the salient features of the policy and changes therein, if any, along with the web address of the policy, if any, shall be disclosed in the Board’s report.”
III. Quite clearly, the role of the NRC is seminal in identifying persons who are suitable for becoming directors in a company. It is also responsible for laying down the criteria qualifications, positive attributes and independence of a director, besides laying down policies for syncing remuneration with the performance benchmarks.
IV. It is noted from the records that no Board meeting of PTC India Ltd. took place on 10th December, 2021. Thus, it is plainly inexplicable as to why the nominee director was withdrawn by the holding company on 10.12.2021, without providing a suitable replacement, even though on the request of Shri. Rajib K. Mishra, Shri Nayar had rescheduled the meeting of NRC by a week, which was earlier scheduled for 10.12.2021. Such action rendered the NRC dysfunctional as the number of directors fell below three. This development is unfathomable considering the fact that the position of woman director in the company fell vacant and NRC in its meeting would have initiated the steps to fill up such vacancy.
V. It is evident that the company did not show any alacrity in reconstituting the NRC either. While the erstwhile IDs insisted on holding a Board meeting immediately thereafter, the next move happened only on 31.12.2021 in the form of a circular resolution, which was turned down by the majority in the Board.
VI. The erstwhile IDs believe that a palpable reason, which led to this chain of events was aimed at denying Shri Rakesh Kacker (also an erstwhile ID) an extension in his term beyond 31.12.2021. Without, going into such reasons, the facts and circumstances in itself clearly demonstrate that the NRC was made dysfunctional and the company and the MD&CEO at its helm did not take swift action to restore normalcy by reconstituting the NRC.
VII. Hence, company and its MD&CEO failed to comply with the provision of Section 178 of the Act.
VIII. As far as Shri Sanjay Rustagi, CFO is concerned, his submission is satisfactory. He was not in a position to undertake any act of omission or commission with respect to alleged violation on part of the company.
IX. As far as Shri Vishal Goyal, CS is concerned, his submissions are satisfactory. Comments of the company, MD&CEO and erstwhile IDs were called on the reply submitted by Shri Goyal. No one refuted the submissions made by the CS and accordingly the undersigned has sufficient cause to believe that he is not party to any act of omission or commission with respect to alleged violation on part of the company.
6. Relevant provisions
Sections 178 of the Companies Act, 2013 reads as under:
178. Nomination and Remuneration Committee and Stakeholders Relationship Committee.—(1) The Board of Directors of every listed public company and such other class or classes of companies, as may be prescribed shall constitute the Nomination and Remuneration Committee consisting of three or more non-executive directors out of which not less than one-half shall be independent directors:
Provided that the chairperson of the company (whether executive or non-executive) may be appointed as a member of the Nomination and Remuneration Committee but shall not chair such Committee.
(2) The Nomination and Remuneration Committee shall identify persons who are qualified to become directors and who may be appointed in senior management in accordance with the criteria !aid down, recommend to the Board their appointment and removal and shall specify the manner for effective evaluation of performance of Board, its committees and individual directors to be carried out either by the Board, by the Nomination and Remuneration Committee or by an independent external agency and review its implementation and compliance.
(3) The Nomination and Remuneration Committee shall formulate the criteria for determining qualifications, positive attributes and independence of a director and recommend to the Board a policy, relating to the remuneration for the directors, key managerial personnel and other employees.
(4) The Nomination and Remuneration Committee shall, while formulating the policy under sub-section (3) ensure that—
(a) the level and composition of remuneration is reasonable and sufficient to attract, retain and motivate directors of the quality required to run the company successfully;
(b) relationship of remuneration to performance is clear and meets appropriate performance benchmarks; and
(c) remuneration to directors, key managerial personnel and senior management involves a balance between fixed and incentive pay reflecting short and long-term performance objectives appropriate to the working of the company and its goals:
Provided that such policy shall be placed on the website of the company, if any, and the salient features of the policy and changes therein, if any, along with the web address of the policy, if any, shall be disclosed in the Board’s report.
(5) The Board of Directors of a company which consists of more than one thousand shareholders, debenture-holders, deposit-holders and any other security holders at any time during a financial year shall constitute a Stakeholders Relationship Committee consisting of a chairperson who shall be a non-executive director and such other members as may be decided by the Board.
(6) The Stakeholders Relationship Committee shall consider and resolve the grievances of security holders of the company.
(7) The chairperson of each of the committees constituted under this section or, in his absence, any other member of the committee authorised by him in this behalf shall attend the general meetings of the company.
(8) In case of any contravention of the provisions of section 177 and this section, the company shall be liable to a penalty of five lakh rupees and every officer of the company who is in default shall be liable to a penalty of one lakh rupees:
Provided that inability to resolve or consider any grievance by the Stakeholders Relationship Committee in good faith shall not constitute a contravention of this section.
Explanation.—The expression “senior management” means personnel of the compa4 who are members of its core management team excluding Board of Directors comprising all members of management one level below the executive directors, including the functional heads.
7. Adjudication of penalty: –
i. In view of the above findings, the subject company was duty bound to constitute an NRC consisting of three or more non-executive directors out of which not less than one-half shall be independent directors. Evidently, the constitution of the NRC fell short on 10th December, 2021. Even after that swift steps were not taken to re-constitute the NRC. The company and its MD&CEO have failed to discharged their obligation under Sections 178 of the Companies Act, 2013.
ii. Now in exercise of the powers conferred vide Notification dated 24th March, 2015, I do hereby impose the penalty on the company and its officers in default for violation of Section 178 (8) of the Act:
Table
| Violation section | Penalty imposed on company/ director(s) | Penalty imposed in terms of Section 178 (8) (in Rs.) |
| A | B | |
| Section 178 (1) of the Act | PTC India Financial Services Limited | 5,00,000 |
| Pawan Singh, MD&CEO | 1,00,000 |
8. Order:
a. Names of parties as mentioned in the table above are hereby directed to pay the penalty amount as per column no. ‘C’ therein. In case of parties other than company, such amount is required to be paid out of their own funds.
b. The said amount of penalty shall be paid through online by using the website www.mca.gov.in (Misc. head) in favor of “Pay & Accounts Officer, Ministry of Corporate Affairs, New Delhi, within 90 days of receipt of this order, and intimate this office with proof of penalty paid.
c. Appeal against this order may be filed with the Regional Director (NR), Ministry of Corporate Affairs, B-2 Wing, 2nd Floor, Paryavaran Bhawan, CGO Complex, Lodhi Road, New Delhi-110003 within a period of sixty days from the date of receipt of this order, in Form ADJ [available on Ministry website www.mca.gov.in] setting forth the grounds of appeal and shall be accompanied by a certified copy of the order. [Section 454(5) & 454(6) of the Act read with Companies (Adjudicating of Penalties) Rules, 2014].
d. Your attention is also invited to section 454(8) of the Act in the event of non-compliance of this order.
(Pranay Chaturvedi, ICLS)
Registrar of Companies
NCT of Delhi & Haryana
To,
No. ROC/D/Adj/2023/Section 178/PFS/2511-2515
Dated: 27/06/2023
