The Ministry of Corporate Affairs (MCA) in India has taken a firm stance on ensuring gender diversity in corporate boards. In a recent development, the MCA imposed a penalty of ₹4.85 lakh on Krishna Solvechem Limited for violating Section 149(1) of the Companies Act, 2013. This penalty was levied due to the company’s failure to appoint a woman director, despite clear statutory requirements.
Appointment of Adjudicating Officer: The MCA appointed B. Mishra as the Adjudicating Officer with the authority to adjudicate penalties under Section 454(1) of the Companies Act, 2013. The Officer’s role is to ensure companies comply with statutory regulations.
Company Overview: Krishna Solvechem Limited, a registered company, failed to appoint a woman director as mandated by Section 149 of the Companies Act. The company’s paid-up share capital and turnover exceeded the thresholds that required them to have a woman director on their board.
Section 149 Requirements: Section 149 of the Companies Act, 2013, mandates that every company, depending on its category, must have at least one woman director on its board. These requirements are intended to promote gender diversity in corporate leadership.
Facts About the Case: As of March 31, 2022, the company’s paid-up share capital was ₹4,45,16,000.00, and its turnover was ₹320,45,26,321.93. Despite these figures exceeding the thresholds, the company failed to appoint a woman director.
Company’s Response: The company’s reply stated that they became aware of the requirement for a woman director in mid-June 2022, after the completion of their financial audit. Efforts were made to identify a suitable candidate, but an appointment was not made before the violation was flagged.
Penalty Provisions: The Companies Act, Section 172, provides for penalties in cases of default for non-compliance. In this case, a penalty of ₹1,85,500 was imposed on the company, and ₹1,00,000 on each officer in default. The maximum penalty for the company was ₹3,00,000.
Hearing and Company’s Reply: The company’s representative, Prakash M. Vora, attended the hearing and emphasized that the default was due to unavoidable circumstances and without any malicious intent. The company later informed that a woman director had been appointed.
Findings and Observations: The period of default was considered from 1st July of the financial year of default, and the company eventually appointed a woman director. The penalty was deemed commensurate with the violation.
Order: The company was directed to pay the penalty through the MCA portal within 30 days of receiving the order. The company was also instructed to file the e-form DIR-12 for the newly appointed woman director and comply with Section 149. Failure to pay the penalty could lead to further fines or even imprisonment for company officers.
Conclusion
The imposition of a penalty for non-compliance with the requirement to appoint a woman director under Section 149 of the Companies Act, 2013, reflects the Indian government’s commitment to promoting gender diversity in corporate leadership. Companies are urged to be vigilant in adhering to statutory mandates, as failure to do so can result in substantial penalties and legal consequences. It serves as a reminder that legal compliance is a crucial aspect of corporate governance in India.
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GOVERNMENT OF INDIA
MINISTRY OF CORPORATE AFFAIRS
OFFICE OF THE REGISTRAR OF COMPANIES
100, “EVEREST”, MARINE DRIVE, MUMBAI – 400 002
Website : www.mca.gov.in
e-mail ID : [email protected]
No.ROC(M)/S.149(1)/KRISHNA/ADJ-ORDER/4854 to 4857 RD-52
Date: 23rd OCT 2023
Order for Penalty under Section 454 for violation of Section 149(1) of the Companies Act, 2013.
IN THE MATTER OF KRISHNA SOLVECHEM LIMITED
(CIN: U51102MH2006PLC160204)
(I) Adjudicating Officer: B. Mishra, ICLS, ROC, Mumbai
(II) Presenting Officer: Rujuta Bankar, ICLS, AROC, Mumbai
APPOINTMENT OF ADJUDICATING OFFICER:
1. Ministry of Corporate Affairs vide its Gazette Notification No.A-42011/112/2014-Ad.II dated 24.03.2015 appointed the undersigned as Adjudicating Officer in exercise of the powers conferred by section 454(1) of the Companies Act, 2013 [herein after known as Actj read with Companies (Adjudication of Penalties) Rules, 2014 for adjudging penalties under the provisions of this Act.
COMPANY:
2. WHEREAS the company viz KRISHNA SOLVECHEM LIMITED (herein after known as (`Company’) is a registered company with this office under the provisions of the Companies Act, 1956 having its registered office as per MCA21 Registry at address M-2, SRINIWAS BLDG.,382/384, NARSHI NATHA STREET MUMBAI-9.
SECTION 149 IS REPRODUCED AS UNDER:
3. Section 149:
(1) Every company shall have a Board of Directors consisting of individual as directors and shall have-
(a) A minimum number of three directors in the case of a public company, two directors in the case of a private company, and one director in the case of a One Person Company; and
(b) A maximum of fifteen directors:
Provided that a company may appoint more than fifteen directors after passing a special resolution:
Provided further that such class or classes of companies as may be prescribed, shall have at least one women director.
Rule 3 of the Companies (Appointment and qualification of Directors) Rules, 2014: The following class of companies shall appoint at least one-woman director-
(i) Every listed company
(ii) Every other public company having-
(a) Paid-up share capital of one hundred crore rupees or more; or
(b) Turnover of three hundred crore rupees or more:
Provided that a company, which has been incorporated under the Act and is covered under provision of second proviso to sub-section (1) of section 149 shall comply with such provisions within a period of six months from the date of its incorporation:
Provided further that any intermittent vacancy of a women director shall be filled-up by the Board at the earliest but no later than immediate next Board meeting or three months from the date of such vacancy whichever is later.
Explanation- For the purposes of this rule, it is hereby clarified that the paid-up share capital or turnover, as the case may be, as on the last date of latest audited financial statements shall be taken into account.
FACTS ABOUT THE CASE:
4. As per the Financial Statements filed by the company its Paid up share capital and turnover as on 31.03.2022 is as under:-
| Paid up Share Capital | Rs. 445,16,000.00/- |
| Turnover | Rs. 320, 45,26,321,93/- |
5. The company is required to appoint a Woman Director based on the thresholds stated above, but it failed to do so.
6. This office had issued show cause notice under section 454 for violation of section 149(1) of the Companies Act, 2013 dated 28.03.2023 to the Company and its directors.
7. Reply dated 28.04.2023 was received from the Company and relevant para of the Company reply is reproduced as under:
a. The Company is engaged into the business of chemical trading in which the net profit
margin is generally very marginal as compared to the turnover of goods in an organization.
b. The audit of the financial statements of the Company for FY 2021-22 was concluded around mid- June 2022 by when the Company and its officers became aware about the final numbers of turnover, net profit and other financial indicators.
c. Since the turnover of the Company for FY 2021-22 was marginally exceeded which triggered the limit of Rs. 300 Crores for having the woman director on the Board of the Company, it was not possible for the Company and its officers before finalization of the financial numbers to understand the requirement of woman director as per the provisions of the section 149(1) of the Act.
d. Upon being aware of the provision for having a Woman Director on the Board of Directors of the Company, the Company and the officers have taken the efforts by engaging with few candidates to get appointed on the Board of Directors, but due to one or other reasons the appointment was not yet made, but efforts were going on to identify the suitable candidate for appointing as woman director.
e. The section 149(2) of the Act, per-se not applicable in the present case, but the intent of the law makers was to provide a period of one year to comply with the provisions which get attracted due to enactment of a new law and hence we request you to consider the same also in our case wherein the applicability of having a Woman Director by the company was made aware in mid-June 2022 and reasonable time must be given in order identify any suitable person which must have in mind the degree of responsibility and duties towards the stakeholders in accordance with the Act.
f. The Company and officers would like to place on your records that, the Company is fully compliant and has zero tolerance towards applicable statutory compliances and follows high standards of compliance system mechanism in order to achieve the desired outcome for the Company and its various stakeholders including the governmental authorities.
PENALTY PROVISION FOR VIOLATION:
Section 172:
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, 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.
HEARING AND REPLY OF THE COMPANY:
8. Prakash M. Vora (Whole-time Director) being authorized representative of the Company attended the hearing in person on 17.05.2023
9. He submitted that there was no mens rea and default was committed due to unavoidable circumstances, however, there was no mala fide intention. He reiterated that a reasonable time must be given to the Company to comply with the provisions of Section 149.
10. The Company vide its letter dated 14.06.2023 has submitted further reply informing this office that Mrs. Jaya Ankur Singhania (DIN: 01990322) has been appointed as Additional Non-Executive Independent Woman Director w.e.f. 20.05.2023 and that she had further been appointed as Non-Executive Independent Woman Director w.e.f. 12.06.2023.
11. The presenting officer has submitted that the Company in its reply dated 28.04.2023 stated that it became aware of the applicability of Section 149 regarding appointment of Woman Director around mid June 2022. Yet , the Company failed to appoint a Woman Director, despite knowing its statutory mandate a period of one year as requested by the Company is an unreasonable amount of time to find suitable Woman Candidate and should not be granted.
FINDINGS AND OBSERVATIONS
12. As per the FS filed by the company its Paid up share Capital and Turnover as on 31.03.2022 is as under:-
| Paid up Share Capital | Rs. 4,45,16,000.00/- |
| Turnover | Rs. 320, 45,26,321,93/- |
13. The Company is required to appoint a Women Director based on the thresholds stated above, but it failed to do so. Therefore, the Company and its Officers in default have violated the provision of section 149(1) of the Companies Act, 2013.
14. Further, on the issue of providing, ‘reasonable time’ to comply with the provision, attention is drawn to the Explanation to Rule 3 which states that “For the purposes of this rule, it is hereby clarified that the paid-up share capital or turnover, as the case may be, as on the last date of latest audited financial statements shall be taken into account.” In the present case, the Company meets the criteria for appointment of a woman director based on the last date of the latest audited financial statements i.e. 31.03.2022.
15. The issue to be determined is whether the period of default begins from 01.04.2022 or the Company may be provided with a certain time frame to find a suitable candidate. The proviso to Rule 3 provides a period of six months to newly incorporated companies to appoint a Woman Director while the second proviso to Rule 3 states that any intermittent vacancy of a woman director shall be filled-up by the Board at the earliest but no later than immediate next Board meeting or three months from the date of such vacancy whichever is later. The present case does not fall under either of these categories. However, in the interest of justice and through a harmonious reading of these provisions, a period of three months from the beginning of the Financial Year may be considered in order to provide a time to the Company to find a suitable candidate and comply with the provisions of the law. Hence, the period of default in the present case is being considered from 1st July of the financial year of default.
16. Krishna Solvechem Limited Board appointed Mrs. Jaya Singhania having DIN 01990322 as Woman Director w.e.f. 20.05.2023 as informed to this office vide letter dated 13.06.2023 However, as per MCA21 database, no DIR-12 to that effect has been found to have been filed.
ORDER
17. In exercise of the powers conferred on me vide Notification dated 24th March 2015 and having considered the facts and circumstances of the case besides reply of the company after taking into account the factors mentioned in the relevant Rules followed by amendments in section 454(3) of the Companies Act, 2013, I am of the opinion that penalty shall be imposed for the default related to non-compliance of section 149(1) of the Act.
18. Having considered the facts and circumstances of the cases and after taking into account the factors above, I hereby impose a penalty of Rs. 1,85,500 on the Company and Rs. 1,00,000 on each officers in default as per table below for violation of provisions of Section 149(1) of the Companies Act, 2013.
| No. of days of default | Penalty imposed on company/ directors | First default penalty in (Rs.) | Default continues penalty in (Rs.) | Total penalty in (Rs.) | Maximum penalty in (Rs.) | Penalty levied in (Rs.) |
| 270 | 1. KRISHNA SOLVECHEM LIMITED (COMPANY) | 50,000 | 270X500 | 50,000 + 1,35,500 = 1,85,000 | 3,00,000/- | 1,85,000/- |
| 270 | 2. ATUL MANMOHAN VORA (MANAGING DIRECTOR) | 50,000 | 270X500 | 50,000 + 1,35,500 = 1,85,000 | 1,00,000/- | 1,00,000/- |
| 270 | 3. YOGESH MANMOHANDAS VORA (WHOLETIME DIRECTOR) | 50,000 | 270X500 | 50,000 + 1,35,500 = 1,85,000 | 1,00,000/- | 1,00,000/- |
| 270 | 4. PRAKASH MANMOHAN VORA (WHOLETIME DIRECTOR) TOTAL | 50,000 | 270×500 | 50,000 + 1,35,500 = 1,85,000 | 1,00,000/- | 1,00,000/- |
| TOTAL | 7,40,000 | 4,85,000/- |
TOTAL PENALTY PAYABLE – Rs. 4,85,000
(♦) The period of violation of provisions under Section 149 of the Companies Act, 2013 is from 01st July, 2022 till 28th March, 2023 and delay is 270 days. As per signatory details available on MCA-21 portal, the above-mentioned individuals were Officers in default during the period of violation.
19. I am of this opinion that, the penalty is commensurate with the aforesaid failure committed by every officer of the Company.
20. The Noticee shall pay the said amount of penalty through “Ministry of Corporate Affairs” portal and proof of payment be produced for verification within 30 days of receipt of this order.
21. The company is further directed as on this date of this Order to file the e-form DIR-12 for Mrs. Jaya Ankur Singhania and comply with the provisions of Section 149 of the Companies Act, 2013 and furnish proof of the same to this office.
22. Please note that as per Section 454(8)(i) of the Companies Act, 2013, where company does not pay the penalty imposed by the Adjudicating Officer or the Regional Director within a period of ninety days from the date of receipt of the copy of the order, the company shall be punishable with fine which shall not be less than twenty-five thousand rupees, but which may extend to five lakh rupees.
23. Where an officer of a company who is in default does not pay the penalty within a period of ninety days from the date of the receipt of the copy of the order, such officer shall be punishable with imprisonment which may extend to six months or with fine which shall not be less than twenty-five thousand rupees, but which may extend to one lakh rupees, or with both.
24. Therefore, in case of default in payment of penalty, prosecution will be filed under Section 454(8)(i) and (ii) of the Companies Act, 2013 at your own cost without any further notice.
(B MISHRA)
Adjudication officer and Registrar of Companies,
Maharashtra, Mumbai.
