Penalty Imposed for Board Resolution Passed Without Directors’ Presence by M/s Bestow Finishing School Private Limited
Introduction: The Registrar of Companies, Punjab and Chandigarh, has imposed a penalty on M/s Bestow Finishing School Private Limited and its directors for violating Section 179(3)(g) of the Companies Act, 2013. The violation pertains to the passing of Board resolutions on 25.08.2018 and 26.06.2019 without the physical presence of the directors, as mandated by the Companies Act.
Background: The Order under Section 454 was issued on December 14, 2023, by the Adjudicating Officer, Karma Sharma, appointed by the Ministry of Corporate Affairs. The case involves M/s Bestow Finishing School Private Limited, a company registered under the Companies Act, 2013, with its registered office in Chandigarh.
Alleged Violation: Section 179(3)(g) of the Companies Act, 2013, specifies that the Board of Directors must exercise the power to approve financial statements by passing resolutions at meetings. The violation in this case involves the passing of Board resolutions on 25.08.2018 and 26.06.2019 without the physical presence of the directors.
The penalty provisions under Section 450 of the Companies Act, 2013, were invoked. The company and its officers in default were found liable for a penalty of Rs. 10,000, with an additional penalty of Rs. 1,000 per day for continuing contravention. The maximum penalty was capped at Rs. 2,00,000 for the company and Rs. 50,000 for officers in default.
Company’s Response: The company and its directors were issued a Show Cause Notice on October 19, 2023, but no response was received. Subsequently, an opportunity for oral submission was provided to Mr. Sukhdev Gandhi, one of the directors. During the submission, Mr. Gandhi claimed that M/s Bestow Finishing School Private Limited is a non-working company with no business activities. He stated that he did not receive the Show Cause Notice due to hospitalization, but no proof was provided. Mr. Gandhi agreed orally to pay the imposed penalty.
Penalty Imposed: The Adjudicating Officer concluded that the company and its officers violated Section 179(3)(g) of the Companies Act, 2013. The penalty details are as follows:
For the Default Dated 25.08.2018:
- Penalty for 1937 days (from 25.08.2018 to 13.12.2023)
- Penalty for the company: Rs. 1,00,000
- Penalty for Sh. Sukhdev Gandhi: Rs. 25,000
- Penalty for Sh. Robin Arora: Rs. 25,000
For the Default Dated 26.06.2019:
- Penalty for 1632 days (from 26.06.2019 to 13.12.2023)
- Penalty for the company: Rs. 1,00,000
- Penalty for Sh. Sukhdev Gandhi: Rs. 25,000
- Penalty for Sh. Robin Arora: Rs. 25,000
Considering M/s Bestow Finishing School Private Limited as a small company, a reduced penalty of 50% was imposed, resulting in a final penalty of Rs. 10,000 for the company and Rs. 25,000 each for the directors.
Payment Instructions: The penalty is to be paid through the Ministry of Corporate Affairs portal, as per Rule 3(14) of the Company (Adjudication of Penalties) (Amendment) Rules, 2019. The Adjudicating Officer emphasized that the penalty should be paid from personal sources/income of the officers in default.
Appeal Process: The order specifies that an appeal against this decision can be filed in writing with the Regional Director (Northern Region), Ministry of Corporate Affairs, New Delhi, within sixty days from the date of receipt of the order, using Form ADJ. The appeal should outline the grounds and include a certified copy of this order.
Consequences of Non-Payment: In case of non-payment of the penalty, the company and its officers may face additional fines and even imprisonment, as per Sections 454(8)(i) and 454(8)(ii) of the Companies Act, 2013.
Communication and Record: Copies of the order were sent to M/s Bestow Finishing School Private Limited and its directors, and the Regional Director (Northern Region), Ministry of Corporate Affairs, for information. The order will also be uploaded on the official website.
Conclusion: This order emphasizes the importance of adhering to the prescribed procedures for passing Board resolutions. Companies, even if non-operational, are required to comply with the legal provisions of the Companies Act, 2013, to maintain transparency and corporate governance. The penalty serves as a deterrent for similar violations and underscores the significance of conducting meetings in accordance with the statutory requirements.
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Government of India
Ministry of Corporate Affairs
Office of the Registrar of
Companies Punjab and Chandigarh,
Corporate Bhawan
Plot No. 4-B, Sector 27B,
Chandigarh Phone No. 172-2639415, 2639416
Order No. ROC CHD/Adj/684 Dated: 14 Dec 2023
ORDER UNDER SECTION 454 FOR VIOLATION OF SECTION 179 OF THE COMPANIES ACT, 2013, READ WITH COMPANIES (ADJUDICATION OF PENALTIES) RULES, 2014
IN THE MATTER OF M/s BESTOW FINISHING SCHOOL PRIVATE LIMITED
(CIN: U74900CH2013PTC034445)
1. The Ministry of Corporate Affairs vide its gazette notification no. S.O.831(E) dated 24.3.2015, has appointed the undersigned as Adjudicating Officer (AO) in exercise of the powers conferred by section 454 of the Companies Act, 2013 (hereinafter known as an Act) read with Companies (Adjudication of Penalties) Rules, 2014 for adjudging penalties under the provisions of this Act.
2. Whereas M/s Bestow Finishing School Private Limited (hereinafter referred to as “the Company”) is a company registered with this office under the provisions of the Companies Act, 2013/1956 (or previous Acts in force, as applicable) having its registered office situated at H. NO 647 SECTOR-16, CHANDIGARH, Chandigarh, India, 160017 as per data available with MCA website.
Provisions of the Act: –
3. As per Section 179(3) -The Board of Directors of a company shall exercise the following powers on behalf of the company by means of resolutions passed at meetings of the Board, namely: —
(a) to make calls on shareholders in respect of money unpaid on their shares;
(b) to authorise buy-back of securities under section 68;
(c) to issue securities, including debentures, whether in or outside India;
(d) to borrow monies;
(e) to invest the funds of the company;
(f) to grant loans or give guarantee or provide security in respect of loans;
(g) to approve financial statement and the Board’s report;
(h) to diversify the business of the company;
(i) to approve amalgamation, merger or reconstruction;
(j) to take over a company or acquire a controlling or substantial stake in another company;
(k) any other matter which may be prescribed.
As per Section 450- If a company or any officer of a company or any other person contravenes any of the provisions of this Act or the rules made thereunder, or any condition, limitation or restriction subject to which any approval, sanction, consent, confirmation, recognition, direction or exemption in relation to any matter has been accorded, given or granted, and for which no penalty or punishment is provided elsewhere in this Act, the company and every officer of the company who is in default or such other person shall be liable to a penalty of ten thousand rupees, and in case of continuing contravention, with a further penalty of one thousand rupees for each day after the first during which the contravention continues, subject to a maximum of two lakh rupees in case of a company and fifty thousand rupees in case of an officer who is in default or any other person.
Facts about the case: –
4. That inquiry under Section 206(4) of the Companies Act, 2013 was conducted against M/s. Bestow Finishing School Private Limited and during inquiry it was found that board of directors have passed Board resolution on 25.08.2018 & 26.06.2019 without the members being physically present. Thereafter, this office has issued Show Cause Notice for violation of section 179(3)(g) of the Companies Act, 2013 read with Companies (Adjudication of Penalties) Rules, 2014 to the company and its directors vide this office letter No. ROC CHD/2023-24/582 to 584 dated 19.10.2023. However, no reply or communication has been received to the Show cause notice sent to the company and its the directors regarding passing of Board resolution without directors being physically present.
Further, on the request of the company for making an oral submission, Sh. Sukhdev Gandhi was given an opportunity to make an oral submission/representation either personally or through an authorized representative before undersigned on 06 December,2023 at 12:30 p.m.
In this context, Mr. Sukhdev Gandhi, director appeared before the undersigned on 06.12.2023 at 11:00 a.m. During the oral submission he has stated that M/s Bestow Finishing School Private Limited is a non-working company and there is no instance of any type of sales/purchase or other activities in the company, there is no inventories or other business activities in the company and the directors have not performed any business since its incorporation and he further stated that they have not received the show cause notice as he was admitted to the hospital, so during that time the show cause notice might have reached his office. However, his reply was not found to be satisfactory as he has not submitted any proof of hospitalization. He also agreed orally to pay the penalty imposed by this office.
5. Therefore, in view of above, company and its directors have violated the provision of section 179(3)(g) of the Companies Act, 2013 for which penalty under section 450 of the Companies Act, 2013 is applicable as no penalty is prescribed in section 179 of the Companies Act, 2013. So, it is concluded, that the company and its officers in default are liable for penalty as prescribed under Section 450 of the Act.
Accordingly, I am inclined to impose a penalty as prescribed under Section 450 of the Companies Act, 2013. The details of the penalty imposed on the company and officers in default are as under:
i. For the default dated 25.08.2018, penalty for 1937 days i.e., with effect from 25.08.2018 (Date of passing resolution) to 13.12.2023 (date of order) as shown in the following table:
Nature of Default |
Violation section under Companies Act,2013 |
Name of person on whom penalty imposed |
No. of days of default |
Penalty for default (Rs) |
Total Default amount (Rs) |
Maximum Limit for penalty (Rs) |
Final penalty Imposed (Rs) |
Final penalty Imposed- 50% being small company u/s. 446B.
|
Passed BOD Resolution dated 25.08.2018 without the BOD Members’ Presence |
Sec. 179 |
On Company |
1937 |
10000+ 1000/Day |
10000+1000* 1937= 1947000 |
200000 |
200000 |
100000 |
Sh. Sukhdev Gandhi |
1937 |
10000+ 1000/Day |
10000+1000* 1937= 1947000 |
50000 |
50000 |
25000 |
||
Sh. Robin Arora |
1937 |
10000+ 1000/DaY |
10000+1000* 1937= 1947000 |
50000 |
50000 |
25000 |
ii. For the default dated 26.06.2019, penalty for 1632 days i.e., with effect from 26.06.2019 (Date of passing resolution) to 13.12.2023 (date of order) as shown in the following table:
Nature of Default |
Violation section under Companies Act,2013 |
Name of person on whom penalty imposed |
No. of days of default |
Penalty for
|
Total
|
Maximum Limit for penalty (Rs) |
Final penalty Imposed (Rs) |
Final penalty Imposed- 50% being small company u/s. 446B.
|
Passed BOD Resolution dated 26.06.2019 without the BOD Members’ Presence |
Sec. 179 |
On Company |
1632 |
10000 + 1000/ Day |
10000 + 1000 * 1632=1642000 |
200000 |
200000 |
100000 |
Sh. Sukhdev Gandhi |
1632 |
10000+ 1000/ Day |
10000 + 1000 * 1632=1642000 |
50000 |
50000 |
25000 |
||
Sh. Robin Arora |
1632 |
10000 + 1000/ Day |
10000 + 1000 * 1632=1642000 |
50000 |
50000 |
25000 |
I am of this opinion that penalty is commensurate with the aforesaid failure committed by the Noticees and penalty so imposed upon the Officers-in-default shall be paid from their personal sources/income.
It is further directed that penalty imposed shall be paid through the Ministry of Corporate Affairs portal only as mentioned under Rule 3(14) of Company (Adjudication of Penalties) (Amendment) Rules, 2019 under intimation to this office.
6. Appeal against this order may be filed in writing with the Regional Director (Northern Region), Ministry of Corporate Affairs, CGO Complex, Lodhi Road, New Delhi, within a period of sixty days from the date of receipt of this order, in Form ADJ setting forth the grounds of appeal and shall be accompanied by a certified copy of this order. [Section 454(5) & 454(6) of the Act, read with Companies (Adjudication of Penalties) Rules, 2014].
7. Your attention is also invited to Section 454(8)(i) and 454(8)(ii) of the Companies Act, 2013, which state that in case of non-payment of penalty amount, 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 and officer in default 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.
8. In terms of the provisions of sub-rule (9) of Rule 3 of the Companies (Adjudication of Penalties) Rules, 2014, copy of the order is being sent to: – (1.) M/s Bestow Finishing School Private Limited, H. NO 647 SECTOR-16, CHANDIGARH, Chandigarh, India, 160017, (2.) Sukhdev Gandhi, Director, (3.) Sh. Robin Arora, Director and (4.) Regional Director (Northern Region), Ministry of Corporate Affairs, CGO Complex, Lodhi Road, New Delhi and will also be uploaded on website.
(Kam a Sharma)
Registrar of Companies & Adjudicating Officer
Punjab and Chandigarh.
Copy to: – The Regional Director (NR), Ministry of Corporate Affairs, New Delhi for information.
