Introduction: The Ministry of Corporate Affairs, Office of the Registrar of Companies (ROC) in Mumbai, recently issued an order penalizing Wurknet Private Limited for contraventions of Sections 101 and 118 of the Companies Act, 2013.
Background: Wurknet Private Limited, a startup registered under the Companies Act, 2013, faced penalties for failing to comply with Sections 101 and 118 during an extraordinary general meeting (EGM). The violations occurred in the context of approving a sub-division of the company’s share capital.
Facts of the Case: On April 2, 2021, the Board of Directors of Wurknet Pvt Ltd approved a proposal to sub-divide its share capital. The EGM for member approval was convened on April 5, 2021, on shorter notice, communicated orally to shareholders who were promoters and their close associates. Although the resolutions passed in the meeting were filed with the ROC, the procedure outlined in Section 101 was not followed.
Relevant Sections of the Companies Act: Section 101 stipulates that a general meeting must be called by giving at least 21 days’ notice, with provisions for shorter notice if 95% of the members agree. Section 118 mandates the proper recording and signing of minutes of meetings and adherence to Secretarial Standards.
Hearing and Reply of the Company: Ms. Ashwini Shah, representing Wurknet Pvt Ltd, attended the hearing on May 16, 2023. She cited the company’s startup status and lack of compliance knowledge as reasons for the procedural lapses. She emphasized that the non-compliance was inadvertent and not intended to deceive.
Findings and Order: The ROC found that Wurknet Pvt Ltd had violated Sections 101(1) and 118(10). Consequently, penalties were imposed on the company and its directors as follows:
Violations under Section 101:
- Company: Rs. 31,000 (reduced to Rs. 15,500 under Section 446B)
- Directors (Vivan Puri and Sanjay Dinkar Ramugade): Rs. 31,000 each (reduced to Rs. 15,500 each under Section 446B)
Violations under Section 118(11):
- Company: Rs. 25,000 (reduced to Rs. 12,500 under Section 446B)
- Directors (Vivan Puri and Sanjay Dinkar Ramugade): Rs. 5,000 each (reduced to Rs. 2,500 each under Section 446B)
The total penalties payable were:
- Wurknet Pvt Ltd: Rs. 28,000
- Directors: Rs. 18,000 each
The company and its directors were ordered to pay the penalties within 90 days and were informed of their right to appeal the decision.
Conclusion: The penalty imposed on Wurknet Pvt Ltd highlights the importance of strict compliance with the procedural requirements of the Companies Act, 2013. Despite being a startup, the company was held accountable for its lapses, emphasizing that ignorance of the law is no excuse. This case serves as a reminder to all companies, regardless of size, to ensure adherence to statutory regulations to avoid such penalties.
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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: roc.mumbai@mca.gov.in
No.ROC(M)/WPL-101 & 118/A1DJ-ORDER/2312
Date : 29 FEB 2024
Order for Penalty under Section 454 for Contravention of Section 101 & Section 118 of the
Companies Act, 2013.
IN THE MATTER OF WURKNET PRIVATE LIMITED (CIN: U74999MH2019PTC333001).
1. Adjudicating Officer: Shri B. Mishra, ICLS, ROC, Mumbai
2. Presenting Officer: Ms. Rujuta Bankar, ICLS,, AROC, Mumbai
3. Authorised representative of Company: Ms Ashwini Shah, Partner of HAS & Co
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 of the Companies Act, 2013 [herein after known as Act] read with Companies (Adjudication of Penalties) Rules, 2014 for adjudging penalties under the provisions of this Act.
COMPANY:
2. Whereas the Company WURKNET PRIVATE LIMITED [herein after known as Company] is registered with this office under the provisions of Companies Act, 2013 having its registered address at office 204, 2nd Floor, Shalaka, Juhu Tara Road, Santacruz (West), MUMBAI, Mumbai City, Maharashtra, 400054, India., as per the MCA21 portal.
FACTS ABOUT THE CASE:
3. On 02.04.2021, the Board of Directors in its meeting approved the proposal of sub-division of the existing share capital of the Company from 10,000 Equity Shares of Rs. 10 each to 1,00,000 Equity Shares of Re. 1 each.
4. It was also proposed in the said board meeting that approval of members in the extra ordinary general meeting would be sought on 05.04.2021 by convening the said meeting at a shorter notice.
5. Since the then existing shareholders of the Company were promoters and friends & family members of the promoters, it was orally informed to them that the extra ordinary general meeting would be held on 05.04.2021 for seeking approval for sub-division of shares as per details mentioned above.
6. The meeting was convened, and all the shareholders present provided their necessary approval. However, the due procedure laid down under Section 101 of the Act was not followed.
7. Subsequently, the ordinary resolutions passed on 05.04.2021 approving sub-division of share capital and alteration of Memorandum of Association were filed vide SRN T17681917 in e-form MGT-14.
8. While’ carrying internal due diligence of the Company, the Directors/Officers-in-default were made aware of such non-compliance. Since the proposal for subdivision of shares was already approved in the extra ordinary general meeting convened on 05.04.2021, the directors noted said non-compliance in the Board Meeting and decided to file a suo-moto compounding application with the Registrar of Companies, Maharashtra, Mumbai, India which was subsequently considered for adjudication.
RELEVANT SECTIONS OF THE ACT ARE REPRODUCED AS UNDER:––
9. 101. Notice of meeting. — (1) A general meeting of a company may be called by giving not less than clear twenty-one days’ notice either in writing or through electronic mode in such manner as may be prescribed:
Provided that a general meeting may be called after giving a shorter notice if consent is given in writing or by electronic mode by not less than ninety-five per cent. of the members entitled to vote at such meeting.
(2) Every notice of a meeting shall specify the place, date, day and the hour of the meeting and shall contain a statement of the business to be transacted at such meeting.
(3) The notice of every meeting of the company shall be given to —
(a) every member of the company, legal representative of any deceased member or the assignee of an insolvent member;
(b) the auditor or auditors of the company; and
(c) every director of the company.
(4) Any accidental omission to give notice to, or the non-receipt of such notice by, any member or other person who is entitled to such notice for any meeting shall not invalidate the proceedings of the meeting.
118. Minutes of proceedings of general meeting, meeting of Board of Directors and other meeting and resolutions passed by postal ballot.—
(1) Every company shall cause minutes of the proceedings of every general meeting of any class of shareholders or creditors, and every resolution passed by postal ballot and every meeting of its Board of Directors or of every committee of the Board, to be prepared and signed in such manner as may be prescribed and kept within thirty days of the conclusion of every such meeting concerned, or passing of resolution by postal ballot in books kept for that purpose with their pages consecutively numbered.
(2) The minutes of each meeting shall contain a fair and correct summary of the proceedings thereat.
(3) All appointments made at any of the meetings aforesaid shall be included in the minutes of the meeting.
(4) In the case of a meeting of the Board of Directors or of a committee of the Board, the minutes shall also contain —
(a) the names of the directors present at the meeting; and
(b) in the case of each resolution passed at the meeting, the names of the directors, if any, dissenting from, or not concurring with the resolution.
(5) There shall not be included in the minutes, any matter which, in the opinion of the Chairman of the meeting, —
(a) is or could reasonably be regarded as defamatory of any person; or
(b) is irrelevant or immaterial to the proceedings; or
(c) is detrimental to the interests of the company.
(6) The Chairman shall exercise absolute discretion in regard to the inclusion or non-inclusion of any matter in the minutes on the grounds specified in sub-section (5).
(7) The minutes kept in accordance with the provisions of this section shall be evidence of the proceedings recorded therein.
(8) Where the minutes have been kept in accordance with sub-section (1) then, until the contrary is proved, the meeting shall be deemed to have been duly called and held, and all proceedings thereat to have duly taken place, and the resolutions passed by postal ballot to have been duly passed and in particular, all appointments of directors, key managerial personnel, auditors or company secretary in practice, shall be deemed to be valid.
(9) No document purporting to be a report of the proceedings of any general meeting of a company shall he circulated or advertised al the expense of the company, unless it includes the matters required by this section to be contained in the minutes of the proceedings of such meeting.
(10) Every company shall observe secretarial standards with respect to general and Board meetings specified by the Institute of Company Secretaries of India constituted under section 3 of the Company Secretaries Act, 1980 (56 of 1980), and approved as such by the Central Government.
(11) If any default is made in complying with the provisions of this section in respect of any meeting, the company shall be liable to a penalty of twenty-five thousand rupees and every officer of the company who is in default shall he liable to a penalty of thousand rupees.
(12) !fa person is found guilty of tampering with the minutes of the proceedings of meeting, he shall be punishable with imprisonment for a term winch may extend lo two years and with fine which shall not be less than twenty-five thousand rupees but which may–extend to one lakh rupees.
446B. Lesser penalties for certain companies.— Notivithstanding anything contained in this Act, if penalty is payable for non-compliance of any of the provisions of this Act by a One PerSon. Company, small company, start-up company or Producer Company, or by any of its officer in default, or any other person in respect of such company, then such company, its officer in default or any other person, as the case may be, shall be liable to a penalty Which shall not he more than one-half of the penalty specified in such provisions subject to a maximum of two lakh rupees in case of a company and one lakh rupees in case of an officer who is in default or any other person, as the case May he.
Explanation. — For the purposes of this section, —
(a) “Producer Company” means o company as defined in clause (I) of section 378A;
(b) “start-up company” means a private company incorporated under this Act or under the Companies Act, 1956 (7 of 7956) and recognized as start-up in accordance with the notification issued by the Central Government in the Department for PromOtion of Industry and Internal Trade.
HEARING AND REPLY OF THE COMPANY
10. Ashwini Shah, Partner of HAS & Co, being authorized representative of the Company attended the hearing in person on 16.05.2023 at 02.30 pm.
11. She submitted that being Startup Company, the initial months were largely occupied in trying to gain a foothold for its business in the market and trying different strategies to raise funds. Hence, the promoters and directors were engaged in the business development.
12. With limited legal and compliance knowledge, the directors were absolutely unaware of non-compliance under the act.
13. However, while carrying internal due diligence of the Company, the Applicants were made aware of such non-compliance.
14. Since the proposal for sub-division was already approved in the general meeting convened on 05.04.2021, the Directors noted said non-compliance and decided to file a suo moto compounding application with the Registrar of Companies, Maharashtra, Mumbai, India.
15. The convening of extra ordinary general meeting without following the prescribed procedure under Section 101 of the act was accidental omission, committed inadvertently and without any malafide intention.
16. Further, she submitted that the shareholders during the meeting held on 05.04.2021, were given detailed information of the proposed resolutions of the sub-division. Sub-section 4 of Section 101 of the Act provides that any accidental omission to give notice to, or the non-receipt of such notice by, any member or other person who is entitled to such notice for any meeting shall not invalidate the proceedings of the meeting. Hence in view of the above the in-principle approval of the members ought to be treated as valid.
17. Authorized representative further submitted that since the then existing shareholders of the Company were promoters and friends & family members of the promoters, it was orally informed to them that the extra ordinary general meeting would be held on 05.04.2023 for seeking approval for sub-division of shares as per details mentioned above.
18. The extraordinary general meeting was convened, and all the shareholders present provided their necessary approval. However, the due procedure laid down under Section 101 of the Act was not followed.
19. She also stated that the Company is a small company as well as registered as a “Startup” and submitted a copy of Registration certificate. She requested that in terms of section 446B of the Companies Act, 2013, one-half of the total penalty should be levied on the company.
FINDINGS
20. The Company has Submitted the Certificate of Registration issued by Department of Promotion Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry bearing certificate No. DIPP 49670. Thus, provisions of Section 44613 will be applicable to the Company, being a startup recognized by the Government of India.
21. As per provisions of S. 101(1) of Companies Act, 2013, ‘A general meeting of a company may be called by giving not less than clear twenty-one days’ notice either in writing or through electronic mode.’
By failing to give 21-days’ clear notice, the Company has violated S. 101(1) punishable u/s 450 of the Companies Act, 2013.
22. Further, Secretarial Standard 2 (SS-2) provides that, the consent of not less than ninety five percent of the members entitled to vote is required in writing, either physically or electronically in order to convene a general meeting on the basis of a shorter notice of less than 21 days.
In the present case, the company has failed to follow the provisions of Secretarial Standard 2 (SS-2), by orally informing the members of convening of the EGM at a shorter notice. The Company and its Officers in default are thus liable under S. 118(11) for violation of S. 118(10) which makes it mandatory for every Company to observe Secretarial Standards with respect to General & Board Meetings.
ORDER
23. Having considered the facts and circumstances of the case and after taking into account the factors above, I hereby impose a penalty on Company and its Officers in default, for violation of provisions of Section 101 read with Section 450, and Section 118(11) read with Section 446B of the Companies Act, 2013 respectively, as per tables given below.
| No. of days of default |
Penalty imposed on Company/ Director(s) |
First default Penalty in (Rs.)
(a) |
Default continues Penalty in (Rs.)(b) |
Total Penalty in (Rs.)
(a) + (b) |
Penalty levied u/s 450 read with s.446B in (Rs.) |
| 21 | 1 WURKNET PRIVATE LIMITED (COMPANY) | 10,000/- | 21 * 1,000 = 21,000/- | 10,000 + 21,000 = 31,000/- | 15,500/- |
| 2. VIVAN PURI, Director | 10,000/- | 21* 1,000 = 21,000/- | 10,000 + 21,000 = 31,000/- | 15,500/- | |
| 3. SANJAY DINKAR RAMUGADE, Director | 10,000/- | 21 X 1,000 = 21,000/- | 10,000 + 21,000 = 31,000/- | 15,500/- |
–
| Penalty imposed on Company/ Director(s) | Penalty in (Rs.) | Penalty levied u/s 118(11) read with s.446B in (Rs.) |
| 1. WURKNET PRIVATE LIMITED (COMPANY) | 25,000 | 12,500 |
| 2. VIVAN PURL, Director | 5,000 | 2,500 |
| 3. SANJAY DINKAR RAMUGADE, Director |
5,000 | 2,500 |
TOTAL PENALTY PAYABLE:
1. WURKNET PRIVATE LIMITED (COMPANY) = 28,000/-
2. VIVAN PURI, (Director) = 18,000/-
3. SANJAY DINKAR RAMUGADE, (Director) = 18,000/-
24. 1 am of this opinion that, the penalty is commensurate with the aforesaid failure committed by every officer of the Company.
25. The Noticee/ s shall pay the said amount of penalty through “Ministry of Corporate Affairs” portal and proof of payment be produced for verification within 90 days of receipt of this order.
26. Appeal against this order may be filed with the Regional Director (WR), Ministry of Corporate Affairs, 5TH Floor, 100 Everest Building, Marine Drive, Mumbai, Maharashtra within a period of sixty days from the date of receipt of this order, in Form ADJ [available on Ministry website www.nlca.gov.in] setting forth the grounds of appeal and shall be accompanied by a certified copy of the order. [Section 454(3) & 454(6) of the Act read with Companies (Adjudicating of Penalties) Rules, 2014].
27. 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.
28. 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.
29. Therefore, in case of default in payment of penalty, prosecution will he filed under Section 454(8)(i) and (ii) of the Companies Act, 2013 at your own costs without any further notice.
(BENUDHAR 1VIISHRA)
Registrar of Companies and Adjudicating Officer,
Maharashtra, Mumbai.
To,
1. WURKNET PRIVATE LIMITED (Company)
MUMBAI, Mumbai City,
Maharashtra, 400054, India.
2. MR. VIVAN PURI, (Director)
MUMBAI, 400049, Maharashtra, India.
3. MR SANJAYDINKAR RAMUGADE, (Director)
DAHISAR (W), MUMBAI, 400068, Maharashtra, India.
4. Copy to:-
The Regional Director (WR),
Ministry of Corporate Affairs,
Mumbai.
