The Ministry of Corporate Affairs (MCA), through its Office of Registrar of Companies (ROC) in Chennai, has issued an adjudication order against M/s Best & Crompton Engineering Projects Limited. This action stems from the company’s failure to constitute an Audit Committee as mandated under Section 177(1) of the Companies Act, 2013, read with applicable rules. The adjudication order highlights the legal requirements, violations, and subsequent penalties imposed on the company and its directors for multiple financial years.
Detailed Analysis
Appointment of Adjudicating Officer:
The MCA, through a Gazette Notification dated 24.03.2015, appointed the Registrar of Companies, Chennai, as the Adjudicating Officer under Section 454(1) of the Companies Act, 2013. This officer is empowered to adjudicate penalties under the provisions of the Companies Act, 2013.
Company Background:
M/s Best & Crompton Engineering Projects Limited, with CIN U28920TN1999PLC043385, is registered under the Companies Act, 2013. The company’s registered office is located in Nungambakkam, Chennai. According to the MCA-21 portal, the company’s financials and other details are as follows:
- Company Status: Active
- Financial Statement Filing: Up to 31.03.2022
- Paid-up Capital (FY 2021-22): Rs.55,99,23,660/-
- Revenue from Operations: NIL
- Other Income: Rs.13,59,225/-
- Profit for the Period: (Rs.2,46,97,010)
- Subsidiary Company: Yes
Directors During the Period of Violation:
1 Ravi Narayanasamy Balachandran (Whole time Director from 01.04.2010 to 10.10.2018)
2. Kakulamaari Srinivas Kalyan Rao (Managing Director from 06.02.2012 to 01.01.2018)
Legal Provisions and Violations:
Section 177 of the Companies Act, 2013 mandates that every listed public company and certain other classes of companies constitute an Audit Committee. This committee must consist of a minimum of three directors, with independent directors forming a majority. Failure to constitute such a committee results in penalties for both the company and its officers in default.
Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014, and Rule 6 of the Companies (Meetings of Board and its Powers) Rules, 2014, further elaborate on the requirement of independent directors and committees for certain classes of companies.
Inspection and Adjudication Notice:
An inspection under Section 206(5) of the Companies Act, 2013 revealed that M/s Best & Crompton Engineering Projects Limited failed to constitute an Audit Committee for the financial years 2014-15 to 2019-20. Consequently, the MCA directed the ROC to initiate necessary action, resulting in the issuance of an adjudication notice on 31.05.2023.
Company’s Reply and Hearing:
In response to the adjudication notice, the company and its officers submitted an adjudication application, citing financial difficulties and other pending issues as reasons for non-compliance. Despite their explanations, the Adjudicating Authority held a hearing on 20.02.2024, where the company’s representatives presented their case.
Decision and Penalties:
After considering the facts and circumstances, the Adjudicating Authority concluded that the company and its officers had indeed violated Section 177 of the Companies Act, 2013. The penalties imposed are detailed as follows for each financial year from 2014-15 to 2019-20:
- Company: Rs. 5,00,000/- per year
- Ravi Narayanasamy Balachandran: Rs. 1,00,000/- per year
- Kakulamaari Srinivas Kalyan Rao: Rs. 1,00,000/- per year
The total penalties amount to Rs. 7,00,000/- per year, summing up to a significant financial repercussion for the company and its officers.
Conclusion
The MCA’s action against M/s Best & Crompton Engineering Projects Limited underscores the importance of compliance with statutory requirements, especially the constitution of mandatory committees like the Audit Committee. This adjudication order serves as a reminder to all companies to adhere to the provisions of the Companies Act, 2013, to avoid substantial penalties and ensure corporate governance standards are upheld.
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GOVERNMENT OF INDIA
MINISTRY OF CORPORATE AFFAIRS
OFFICE OF REGISTRAR OF COMPANIES, TAMIL NADU, ANDAMAN & NICOBAR ISLANDS, CHENNAI
II FLOOR, C- WING, SHASTRI BHAVAN, 26, HADDOWS ROAD, NUNGAMBAKKAM, CHENNAI- 6
F.NO.ROC/CHN/BEST & CROMPTON /ADJ/S.177(1)/2024 DATE: 30 APR 2024
ADJUDICATION ORDER UNDER SECTION 177(1) OF THE COMPANIES ACT, 2013 READ WITH RULE 6 OF THE COMPANIES (MEETINGS OF BOARD AND ITS POWERS) RULES ,2014 & RULE 4 OF THE COMPANIES (APPOINTMENT AND QUALIFICATION OF DIRECTORS), RULES 2014 IN THE MATTER OF M/S BEST & CROMPTON ENGINEERING PROJECTS LIMITED
Failure to Constitute Audit Committee (Section 177): MCA Imposes Penalty
1. Appointment of Adjudicating Officer:-
The Ministry of Corporate Affairs vide its Gazette Notification No. A-42011/112/2014-Ad.II, dated 24.03.2015 has appointed Registrar of Companies, Chennai as Adjudicating Officer in exercise of the powers conferred by section 454(1) of the Companies Act, 2013 (hereinafter referred as Act or Companies Act, 2013) r/w Companies (Adjudication of Penalties) Rules, 2014for adjudging penalties under the provisions of this Act.
2. Company: –
Whereas the company viz M/s. Best & Crompton Engineering Projects Limited with CIN U28920TN1999PLC043385 (herein after referred as ‘ company’ or ‘ subject company’) is a registered company with this office under the Companies Act, 2013 having its registered office as per MCA21 Registry at No. 19A, Emerald Apartments, Flat No. 4, First Floor, Wheat crofts Road, Nungambakkam, Chennai, Tamil Nadu 600034. The financial & other details of the subject company as available on MCA-21 portal is stated as under:
| S. No. | Particulars | Details |
| 1. | Company’s Status | Active |
| 2. | Filing Position | Financial Statement: up to 31.03.2022
Annual Return: |
| 3. | Paid up Capital (as per FY 2021-22) | Rs.55,99,23,660/- |
| a. Revenue from Operation | NIL | |
| b. Other Income | Rs.13,59,225/- | |
| c. Profit for the Period | (Rs.2,46,97,010) | |
| 4. | Whether it is a Holding Company | No |
| 5. | Whether it is a Subsidiary Company | Yes |
| 6. | Whether company registered under Section 8 of the Act? | No |
| 7. | Whether company is a small
company? |
No |
| 8. | Whether company registered under any other special Act? | No |
3, Directors during the period of violation
| S.No. | Name of Director Default | Designation | Date of Appointment | Date of Cessation |
| 1. | Ravi Narayanasamy Balachandran | Whole time Director | 01.04.2010 | 10.10.2018 |
| 2 | Kakulamaari Srinivas Kalyan Rao |
Managing Director | 06.02.2012 | 01.01.2018 |
4. Section and Penal Provision as per Companies Act, 2013
Section 177 Audit Committee –
(1) The Board of Directors of 5[every listed public company] and such other class or classes of companies, as may be prescribed, shall constitute an Audit Committee.
(2) The Audit Committee shall consist of a minimum of three Directors 2[with independent Directors forming a majority]:
Provided that majority of members of Audit Committee including its Chairperson shall be persons with ability to read and understand, the financial statement.
(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.
Rule 4 of The Companies (Appointment and Qualifications of Directors) Rules, 2014: Number of Independent Directors
(1) The following class or classes of companies shall have at least two directors as independent directors –
(i) the Public Companies having paid up share capital of ten crore rupees or more; or
(ii) the Public Companies having turnover of one hundred crore rupees or more; or
(iii) the Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding fifty crore rupees:
Provided that in case a company covered under this rule is required to appoint a higher number of independent directors due to composition of its audit committee, such higher number of independent directors shall be applicable to it:
Provided further that any intermittent vacancy of an independent director shall be filled-up by the Board at the earliest but not later than immediate next Board meeting or three months from the date of such vacancy, whichever is later:
Provided also that where a company ceases to fulfil any of three conditions laid down in sub-rule (1) for three consecutive years, it shall not be required to comply with these provisions until such time as it meets any of such conditions;
Rule 6 of The Companies (Meetings of Board and its Powers) Rules, 2014 Committees of the Board –
The Board of directors of every listed public company and a company covered under rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014 shall constitute an ‘Audit Committee’, and a ‘Nomination and Remuneration Committee of the Board’.”
5. Issue of Adjudication Notice:
An Inspection of Books and Accounts of the company M/s. Best & Crompton Engineering Projects Limited was carried out U/s 206(5) of the Companies Act, 2013 by an Officer authorized by the Central Government wherein the observations of the Inspecting Officer are as follows:
The company , being a Public Limited Company and having outstanding loan of more than fifty crores, has not constituted the Audit Committee for the Financial Years 201415 to 2019-20 as mandated under Section 177 (1) of the Companies Act,2013 read with Rule 6 of the Companies (Meetings of Board and its Powers), Rules, 2014 read with Rules 4 of the Companies (Appointment and Qualification of Directors), Rules 2014. Hence, the company and its directors have violated Section 178 of the Companies Act, 2013 and are liable for penal action under Section 178(8) of the Companies Act,2013.
Accordingly, on submission of the Inspection Report by the Inspecting Officer, the Ministry vide letter dated 10.04.2023 has directed this Office to take necessary action against the defaulters of the company as per provisions of the Companies Act, 2013.
After that the Adjudicating Authority has issued Adjudication Notice to the company and its directors vide Notice No. ROC/CHN/INSPN.FOLL/43385/P.16/S.177(1)/2021/2023 dated 31.05.2023.
6. Reply of Company and Directors for Adjudication Notice issued:
Pursuant to the Adjudication notice, the company, and Directors/ Officers namely Shri. Seshagiri Rao Ippagunta, Shri. Ravi Narayanasamy Balachandran, Shri. Kakulamaari Srinivas Kalyan Rao and Shri. Amuvil Krishnaswamy Rangarajan have filed an Adjudication application in eform GNL-1 vide SRN: F62903356 dated 04.08.2023 and submitted a physical application on 28.08.2023.
7. Adjudication Hearing:
On receipt of the Adjudication application form the company and its Officers in default, the Adjudicating Authority had issued notice of Hearing dated 14.02.2024 by fixing the hearing on 20.02.2024 at 01:45 PM. Pursuant to the said notice, Mr. Rohan Rajasekaran, Advocate has appeared on behalf of the company and its director/ Officers in default before the Adjudicating Authority on 20.02.2024 and made submissions that due to various difficulties and financial position of the company and other pending issues, litigations , the company and its directors could not constitute the Audit Committee and there is no amount of disproportionate gain or unfair advantage, wherever quantifiable made as a result of the default.
(ii) The company being a subsidiary with paid up capital of Rs.55 Crores does not fall under the definition of small company as per provision of section 2(85) of the companies Act, 2013. Therefore, of imposing the provision lesser penalty as per section 446(b) shall not be applicable in this case.
8. Decision
Having considered the facts and circumstances of the case and after taking into account the factors above, it is concluded that applicant company and its officers, have violated the provisions of Section 177 of the Companies Act,2013 as the company has defaulted in appointment of Independent Directors on the board and has failed to constitute proper balance of Executive and Non-Executive Directors on Board of the Company which resulted in default in constituting Audit Committee as per Section 177 of the Companies Act, 2013 r/w Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014 and are liable for penalties under section 178(8) of the Companies Act, 2013 for the period 2014-15 to 2019-20.
Accordingly, I am inclined to impose a penalty as prescribed under Sub-section 8 of Section 178 of the Companies Act, 2013. The details of the penalty imposed on the company and officers in default are shown in the table below:
I. FY 2014-15
| S. No | Company and Officers in default | Penalty for default (Rs.) | Maximum Penalty (Rs.) |
Final Penalty Imposed (Rs.) |
| 1. | M/s. Best & Crompton Engineering Projects Limited | Rs.5,00,000/- | Rs.5,00,000/- | Rs.5,00,000/- |
| 2. | Ravi Narayanasamy Balachandran |
Rs.1,00,000/- | Rs.1,00,000/- | Rs.1,00,000/- |
| 3. | Kakulamaari Srinivas Kalyan Rao |
Rs.1,00,000/- | Rs.1,00,000/- | Rs.1,00,000/- |
Therefore, in view of the above said violation, in exercise of the powers vested to the undersigned under Section 454(1) & (3) of the Companies Act, 2013 a penalty of Rs.5,00,000/- (Rupees Seven lakhs) is imposed on the Company and Rs.1,00,000/- (Rupees One lakh) is imposed on Officers in default as mentioned above. Totally Rs. 7,00,000/-(Rupees Seven lakhs) as penalty amount for violation of Section 177(1) of the Companies Act, 2013 for the FY 2014-15.
IL FY 2015-16
| S. No | Company and Officers in default | Penalty for default
(Rs.) |
Maximum Penalty (Rs.) |
Final Penalty Imposed (Rs.) |
| 1. | M/s. Best & rompton Engineering Projects Limited | Rs.5,00,000/- | Rs.5,00,000/- | Rs.5,00,000/- |
| 2. | Ravi Narayanasamy Balachandran | Rs.1,00,000/- | Rs.1,00,000/- | Rs.1,00,000/- |
| 3. | Kakulamaari Srinivas Kalyan Rao |
Rs. L00,000/- | Rs.1,00,000/- | Rs.1,00,000/- |
Therefore, in view of the above said violation, in exercise of the powers vested to the undersigned under Section 454(1) & (3) of the Companies Act, 2013 a penalty of Rs.5,00,000/- (Rupees Seven lakhs) is imposed on the Company and Rs.1,00,000/7 (Rupees One lakh) is imposed on Officers in default as mentioned above. Totally Rs. 7,00,000/-(Rupees Seven lakhs) as penalty amount for violation of Section 177(1) of the Companies Act, 2013 for the FY 2015-16.
III. FY 2016-17
| S. No | Company and Officers in default | Penalty for default (Rs.) | Maximum Penalty (Rs.) |
Final Penalty Imposed (Rs.) |
| 1. | M/s. Best & Crompton Engineering Projects Limited | Rs.5,00,000/- | Rs.5,00,000/- | Rs.5,00,000/- |
| 2. | Ravi Narayanasamy Balachandran |
Rs.1,00,000/- | Rs.1,00,000/- | Rs.1,00,000/- |
| 3. | Kakulamaari Srinivas | Kalyan Rao Rs.1,00,000/- | Rs.1,00,000/- | Rs.1,00,000/- |
Therefore, in view of the above said violation, in exercise of the powers vested to the undersigned under Section 454(1) & (3) of the Companies Act, 2013 a penalty of Rs.5,00,000/- (Rupees Seven lakhs) is imposed on the Company and Rs.1,00,000/- (Rupees One lakh) is imposed on Officers in default as mentioned above. Totally Rs. 7,00,000/-(Rupees Seven lakhs) as penalty amount for violation of Section 177(1) of the Companies Act, 2013 for the FY 2016-17.
IV. FY 2017-18
| S. No | Company and Officers in default | Penalty for default (Rs.) | Maximum Penalty (Rs.) |
Final Penalty Imposed (Rs.) |
| 1. | M/s. Best & Crompton Engineering Projects Limited | Rs.5,00,000/- | Rs.5,00,000/- | Rs.5,00,000/- |
| 2. | Ravi Narayanasamy Balachandran |
Rs.1,00,000/- | Rs.1,00,000/- | Rs.1,00,000/- |
| 3. | Kakulamaari Srinivas Kalyan Rao |
Rs.1,00,000/- | Rs.1,00,000/- | Rs.1,00,000/- |
Therefore, in view of the above said violation, in exercise of the powers vested to the undersigned under Section 454(1) & (3) of the Companies Act, 2013 a penalty of Rs.5,00,000/- (Rupees Seven lakhs) is imposed on the Company and Rs.1,00,000/- (Rupees One lakh) is imposed on Officers in default as mentioned above. Totally Rs. 7,00,000/-(Rupees Seven lakhs) as penalty amount for violation of Section 177(1) of the Companies Act, 2013 for the FY 2017-18.
V. FY 2018-19
| S. No | Company and Officers in default | Penalty for default (Rs.) | Maximum Penalty (Rs.) |
Final Penalty Imposed (Rs.) |
| 1. | M/s. Best & Crompton Engineering Projects Limited | Rs.5,00,000/- | Rs.5,00,000/- | Rs.5,00,000/- |
| 2. | Ravi Narayanasamy Balachandran |
Rs.1,00,000/- | Rs.1,00,000/- | Rs.1,00,000/- |
Therefore, in view of the above said violation, in exercise of the powers vested to the undersigned under Section 454(1) & (3) of the Companies Act, 2013 a penalty of Rs.5,00,000/- (Rupees Seven lakhs) is imposed on the Company and Rs.1,00,000/- (Rupees One lakh) is imposed on Officers in default as mentioned above. Totally Rs. 6,00,000/-(Rupees Seven lakhs) as penalty amount for violation of Section 177(1) of the Companies Act, 2013 for the FY 2018-19.
VI. FY 2019-20
| S. No | Company and Officers in default | Penalty for default (Rs) | Maximum Penalty (Rs.) |
Final Penalty Imposed (Rs.) |
| 1. | M/s. Best & Crompton Engineering Projects Limited | Rs.5,00,000/- | Rs.5,00,000/- | Rs.5,00,000/- |
The company had only Additional Directors during the FY 2019-20. Therefore, in view of the above said violation, in exercise of the powers vested to the undersigned under Section 454(1) & (3) of the Companies Act, 2013 a penalty of Rs.5,00,000/- (Rupees Seven lakhs) is imposed only on the Company for violation of Section 177(1) of the Companies Act, 2013 for the FY 2019-20.
9. The said amount of penalty shall be paid through online by using the website www.mca.gov.in(Misc. head) within 90 days of receipt of this order, and intimate this office with proof of penalty paid.
10. Whereas Appeal against this order may be filed with the Regional Director (SR), Ministry of Corporate Affairs, 5th Floor, Shastri Bhavan, 26 Haddows Road, Chennai-600006, Tamil Nadu 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 this order. [Section 454(5) & 454(6) of the Act read with Companies (Adjudication of Penalties) Rules, 2014].
11. Your attention is also invited to section 454(8) of the Act in the event of non-compliance of this order, “(8)(i) Where company tails to comply with the order made under subsection (3) or sub-section (7), as the case may be within a period of ninety days from the date of the receipt of the copy of the order, the company shall be punishable with fine which shall not be less than twenty fly,– thousand rupees but which may extend to five lakh rupees.
(ii) Where an officer of a company or any other person who is in default fails to comply with the order made under sub-section (3) or sub-section (7), as the case may be 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
(B. SRIKUMAR, ICLS)
REGISTRAR OF COMPANIES
TAMILNADU, CHENNAI.
ADJUDICATING OFFICER
