Three independent directors of the company resigned, citing corporate governance issues related to the appointment of a director. They had requested legal advice, but their communications went unanswered. An inquiry was ordered, and adjudication proceedings were initiated.
A show cause notice was issued to the company and its officers. The company and some officers submitted their replies, stating that the company was only obligated to bear the expenses of obtaining legal advice. The IDs and the company had different interpretations of their obligations under the law.
The Adjudicating Officer examined the relevant provisions of the Companies Act, 2013, and Schedule IV, which outlines the duties of independent directors. It was concluded that the company failed to fulfill its obligation to facilitate the IDs in obtaining legal advice, as required by Section 149(8) of the Act.
Based on the findings, the Adjudicating Officer imposed a penalty on PTC India Financial Services Limited and its MD & CEO for the violation of Section 149(8) of the Companies Act, 2013.
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 149 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 (hereinafter known as ‘company’ or ‘subject company’ or ?FS’) was incorporated under the Companies Act, 1956 having its registered office as per MCA21 Registry at address 7th Floor, Telephone Exchange, Building 8, Bhikaji Cama Place, New Delhi-DL 110066 IN.
| S. 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 of 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 Ds that there are no other material reasons other than those provided in their resignation letters. One such reason quoted by the IDs was that they were not facilitated in obtaining legal opinion in a matter regarding appointment/joining of Shri. Ratnesh as a director in the company, in terms of the provisions of section 149 of the Act r/w Schedule IV.
II. Consequently, an Inquiry was ordered by the Ministry based on issues raised by the three erstwhile 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, Shri Pawan Singh, CEO/MD, Shri. Sanjay Rustagi, CFO, Shri. Vishal Goyal, CS. In the SCN, it was stated that the erstwhile IDs have made a case that during the F.Y. 2021-22 (December 2021), various emails were sent by them requesting for obtaining legal counsel at the expense of the company. However, the communications went unanswered. Under Section 149(8) r/w sub-para (2) of para III of Schedule IV, the company was duty bound to render such assistance to the IDs.
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. The erstwhile IDs had written an email on 7th December, 2021 and attached therewith a letter addressed to MD & CEO for seeking legal assistance on various issues related to the company and accordingly requested for issuance of a direction to the Company Secretary (CS) to issue appointment letter to the lawyer named by them.
B. In response, on 10th December, 2021, Shri. Rajib K Mishra (Chairman, PFS) vide e-mail informed the IDs that matter is being examined by PTC officials (i.e. Holding Company) holistically and they will address the issue on priority as requested by IDs.
C. Thereafter, erstwhile IDs replied vide email dated 12th December, 2021 requesting for information relevant to be submitted to the legal counsel at the time of obtaining legal advice. Thereafter, Shri Pawan Singh, MD & CEO replied vide email dated 13th December, 2021 that the matter was being handled by PTC officials, as per the PFS Board’s decision and so he had to bring it to the attention of Chairman, PFS/CMD, PTC as they alone were best suited to address the issues.
D. Thereafter, one ID Sh. Rakesh Kacker wrote an email dated 13th December, 2021 highlighting that for providing legal assistance to the IDs, MD & CEO had to give instruction to the CS by 10th Dec, 2021, and the same has not happened.
E. On 17th Dec, 2021, the Chairman, PFS had written to IDs stating that:
“We strongly believe that any legal consultation separately by independent Director at this stage would be premature. We will certainly consider the need for it, in case there is ambiguity.”
F. Shri Goyal further highlighted that the facts mentioned in his reply have been duly captured by forensic auditor (CNK & Associates) in their report and the report is available on the stock exchange website.
G. At last, he highlighted that no direction had been issued to him either by the Chairman or by the MD & CEO of PFS and in all these communications, he was only marked in the copy.
c. Company and MD & CEO (joint reply dated 14th March, 2023):
A. In the written submission, company highlighted that the SCN does not enclose the documents on the basis of which the allegations of the breach of the Act have been levelled and failure to have access to the documents restricts the ability of the Noticees to adequately address the allegations.
B. It was submitted that under section 149(8) r/w sub-para (2) of para III of Schedule IV of the Act, the obligation of the company is to only bear the expenses incurred by its IDs in obtaining “appropriate professional advice and opinion of outside experts”. Thus, apart from the obligation to bear the expenses for the legal advice obtained by the IDs, the company has no other statutory obligation in this regard.
C. It was acknowledged that an email dated 7th December, 2021 was received from the erstwhile IDs with a request to direct the Company Secretary (CS) to issue an appointment letter to the lawyer named by them. Similar, request was re-iterated on 12th December, 2021.
D. It was emphasized that the Act places no requirement upon the company to issue letters of appointment to the experts whose independent opinion/ advice is sought by its independent director. The role of the company is only limited to discharging the financial obligations associated with such engagement. The company did not refuse to bear such expenses.
E. The erstwhile IDs informed them by way of communication dated 15.12.2021 that they had engaged M/s Khaitan & Co. to obtain legal advice to which company did not question or object.
F. Till the resignation of the erstwhile IDs on 19.01.2022, the company did not receive any communication from the erstwhile IDs regarding the expenses incurred in the aforesaid engagements.
G. There is no non-compliance of Section 149(8) r/w sub-para 2 of para III of Schedule IV and hence no penalty ought to be imposed under 172 of the Act. Further, a request for a personal hearing was also made.
III. On the basis of the reply submitted by the subject company, a hearing in this matter was scheduled on 10th April, 2023. Ms. Shweta Aggarwal, Company Secretary of PFS along with Shri. Ranjeet Pandey, CS and Authorised Representative appeared before the undersigned. In their oral submissions, it was re-iterated that they have explained this issue in their written submission dated 14.3.2023. The representatives were informed that a separate reply has been received from CS. To which, they requested time for making additional written submissions and also affirmed to provide a copy of email dated 15th December, 2021 (which according to the company showed that the IDs had infact already appointed a legal counsel). Accordingly, two weeks time was provided.
IV. Thereafter, the response of the company was received vide letter dated 24.04.2023. The company re-iterated its stance and submitted the copy of email dated 15 December, 2021. Further, they requested for another hearing as MD & CEO of the subject company wanted to make submissions before the Adjudicating Authority.
V. The email dated 15.12.2021 sent by Shri Karnlesh Vikamsey, reads as follows:
“Dear Dr Pawan,
Please refer to the mail from Mr. Rakesh Kacker dated 13th December, 2021 regarding the legal counsel to be selected by us. But, there has unfortunately been no response to our requests. We have therefore gone ahead with the selection of the counsel, and we are appointing Advocate Mr. Haigreve Khaitan, Partner of Khaitan & Co., One World Centre, 10th & 13th Floor, Tower 1C, 841, Senapati Bapat Marg, Mumbai 400013 as our Lawyer to give us appropriate legal advice and opinion and the fees are to be borne by the Company as per the provisions of Company Law.
We once again request you to provide all documents as mentioned in our letter dated 7th December, 2021 and subsequent emails.”
VI Thereafter, a hearing was scheduled on 18th May, 2023. However, as per the request made by the subject company, the hearing was rescheduled to 29th May, 2023. Accordingly, the MD & CE0 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 the same stance as submitted in their written reply earlier.
VII. Since, this proceeding was initiated on the basis of the issues highlighted by the erstwhile IDs, comments of the IDs on the response submitted by subject company and CS were considered to be 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. The relevant extracts of the reply are as under:
A. The main point urged by the Company is that their only obligation is to meet the expenses of the legal consultation and that they received no claim. This is factually incorrect as in an email dated December 17, 2021, Chairman PFS stated that legal consultation was premature. This was refuted by the IDs and a note dated 18.12.2021 was sent to the Chairman. Despite repeated mails, the Company did not give approval and so the IDs went ahead and appointed a lawyer. Mr. Sharad Abhyankar, the partner of the law firm, finally gave them the advice.
B. Later in February 2022, Mr. Kamlesh Vikamsey, one of the IDs, got a mail from the said lawyer regarding an invoice for Rs 4 lakhs for which the GST number of the company was required. This was sent to the company and when no response came, the matter was taken up with MD&CEO vide email dated 05.04.2022.
C. No response on this has come till now. Quite clearly the company is in default as stated in the SCN issued by the ROC.
5. Findings:
I. The reply of the company insofar as it states that necessary documents were not provided to them is misconceived as the allegations against the company were made by the IDs in the resignation letters submitted by them to the Board. To say that the company is not privy to the documents does not hold any water. In any case, the right of representation and natural justice was solemnly adhered to in this matter, which is evident from the aforementioned paragraphs.
II. As far as section 149(8) of the Act is concerned, it casts an onus on the company and IDs to abide by the provisions specified in Schedule IV [Code for Independent Directors]. Para III of the Code specifies the duties of the independent directors. Here it is noteworthy to peruse sub-para (2), which reads as under:
“(2) seek appropriate clarification or amplification of information and, where necessary, take and follow appropriate professional advice and opinion of outside experts at the expense of the company”.
III. The aforesaid sub-para casts a duty on the ID to “take and follow appropriate professional advice” in matters “where necessary”. The sub-para expressly provides that such advice would be at the “expense of the company”. Clearly the Code (Schedule IV) casts an onus on the ID to seek professional advice. The only test to be satisfied here is to see whether the need to take professional advice is “necessary” or not. Therefore, once such requisition for seeking professional advice is made by the ID, the company may go only as far as to ask the ID as to whether the said advice is “necessary”. Once the ID confirms with reasons about the necessity for obtaining the advice, the company becomes duty bound to facilitate the ID in obtaining such advice and to incur the expenses on that account.
IV. The necessity of obtaining the “professional advice” will be decided by the ID, as the duty is cast on the ID to obtain “professional advice” where it is necessary. On such occasions by fulfilling his duty, an ID is upkeeping the rights of the company and its stakeholders. Also, so as to allow the ID to fulfill his duty, an obligation is also cast upon the company to ensure that it bears the expenses for obtaining such advice.
V. In the instant case, the documents placed on record show that at best the company remained silent on the requests of the IDs for obtaining legal advice and at worst it denied the need for obtaining such advice as premature [Chairman’s communication to the IDs dated 17.12.2021]. This is not sufficient to satisfy the undersigned that the company fulfilled its concomitant obligation for facilitating the IDs in obtaining the legal advice. Silence of the decision makers cannot be treated as acceptance of incurring financial obligation. The company simply chose to ignore the communications received from the IDs regarding their requirement of obtaining legal advice. No instructions were issued to the CS to issue an appointment letter to the counsel, nor were the IDs given a go-ahead to claim payment from the company. Clearly the company, headed by the MD&CEO failed in its bounden duty. It is noted that the erstwhile IDs vide email dated 7th December, 2021 had requested the MD&CEO of the company to direct the Company Secretary to issue appointment letter to a lawyer of their choice, by 10th December, 2021.
VI. The plea of the company that it has never denied to bear the expenses and so no default lies on its part is devoid of all merits on the following grounds:
i. The email sent by MD&CEO on 13th December, 2021 to erstwhile IDs does not give any affirmative nod on the issue of engagement of legal counsel. Rather, it indicates that matter has been referred to attention of Chairman of the subject company. Clearly, the MD&CEO cannot subvert his responsibility in making such decisions.
ii. The erstwhile IDs and the then Company Secretary in their reply have invited attention to the email dated 15th December, 2021 and 17th December, 2021. Shri Kamlesh Vikamsey, one of the erstwhile ID vide email dated 15.12.2021 communicated that they have engaged one counsel of their choice and requested for various documents as mentioned in their email dated 7th December, 2021. In reply to this, the email of Chairman, PFS vide email dated 17 December, 2021 stated that:
“We strongly believe that any legal consultation separately by independent Director at this stage would be premature. We will certainly consider the need for it, in case there is ambiguity.”
iii. As far as bearing of expenses in concerned, the company says that it had not denied bearing the expenses and till 19th January, 2022 (date on which the IDs resigned from the company), no communication had been received. However, it is important to note that the reply of the company is evasive and incomplete. The company in its reply has not mentioned that on 5th April, 2022, Shri Kamlesh Vikamsey, one of the erstwhile ID had written a mail to the then MD&CEO. As per the submission made by Shri Kamlesh Vikamsey, in his email dated 5th April, 2022, he had highlighted issues regarding raising invoices for expenses incurred on engagement of legal counsel. In this regard, no reply was provided by the company to the erstwhile ID.
iv. In view of observations in above para, it is quite clear that company and its MD&CEO failed to discharge the statutory obligation.
v. 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.
vi. As far as Shri Vishal Goyal, CS is concerned, he submitted that he did not receive any instruction from the management for engagement of legal counsel. Comments of company, MD&CEO and erstwhile IDs were called in respect of 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 a party to the default committed by the company.
6. The relevant provision of the sections 149 (8) of the Companies Act, 2013 (Chapter XI Appointment Of Qualification of Directors) are as under:
“149 (8) The company and independent directors shall abide by the provisions specified in Schedule IV.”
7. The relevant provision of Schedule IV of the Companies Act, 2013 are as under
The independent directors shall—
“(2) seek appropriate clarification or amplification of information and, where necessary, take and follow appropriate professional advice and opinion of outside experts at the expense of the company”
8. The relevant Section 172 of the Companies Act, 2013 as on date of default are as under:
“If a company is in default in complying with any of the provisions of this Chapter and for which no specific penalty or punishment is provided therein, the company and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees, and in case of continuing failure, with a further penalty of five hundred rupees for each day during which such failure continues, subject to a maximum of three lakh rupees in case of a company and one lakh rupees in case of an officer who is in default.”
9. Adjudication of penalty: –
i. In view of the above findings, the subject company was duty bound to render assistance to the IDs in obtaining legal assistance. Vide email dated 7th December, 2021 the erstwhile IDs had requested for assistance from the company and its MD&CEO by 10th December, 2021, which was clearly not provided by the company. Thus the period of default is being assessed from 11th December, 2021 onwards upto 19th January, 2022 (date of resignation of the IDs). The company and its MD & CEO have failed to discharged the obligation under Sections 149 (8) of the Companies Act, 2013 r/w Schedule IV 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 149 (8) of the Act:
Table
| Violation section & period | Penalty imposed on company/ director(s) | Calculation of penalty amount (in Rs.) | Penalty imposed in terms of Section 172 (in Rs.) |
| A | B | C | D |
| Section 149 (8) r/w Schedule IV of the Act
[Delay of 40 |
PTC India Financial Services Limited | 70000
[50000 +20000 (40×500)] |
70,000 |
| Pawan Singh, MD & CEO | 70000
[50000 +20000 (40×500)] |
70,000 |
10. Order:
a. Names of parties as mentioned in the table above are hereby directed to pay the penalty amount as per column no. `D’ 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 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. Additionally, in exercise of the powers under section 454(3)(b), the company [PTC India Financial Services Limited] is also directed to clear the dues of the legal counsel engaged by the erstwhile IDs as noted above and to submit a compliance report to this office, after making such payment, within a period of 60 days of this order, with a copy marked to the erstwhile IDs.
d. 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 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].
e. 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
No. ROC/D/Adj/2023/Section 149/PTC/ 250|-2505
Date: 27/06/2023
