1116 days delay in CS Appointment- MCA imposes hefty 21.47 Lakh penalty

Introduction: In a significant development, the Registrar of Companies in Karnataka has imposed a substantial penalty of 21.47 lakh rupees on Webex Communications (India) Private Limited for a delay spanning 1116 days in the appointment of a company secretary. This adjudication, conducted under Section 454 of the Companies Act, 2013, has raised important legal and compliance issues.

Background and Authority: The Ministry of Corporate Affairs appointed an Adjudicating Officer under Section 454 of the Companies Act, 2013, and related rules to adjudicate penalties for violations of the Act. Webex Communications (India) Private Limited, incorporated in 1995, falls under the jurisdiction of the Registrar of Companies, Karnataka.

Violation of Section 203: The company voluntarily admitted a violation of Section 203 of the Companies Act, 2013. The violation pertained to the delay in appointing a whole-time company secretary, as required by the Act, resulting in an increase in paid-up capital.

Penalties Under Section 203(5): According to Section 203(5) of the Act, non-compliance with Section 203 may lead to penalties. The company is liable to a penalty of five lakh rupees, and every director and key managerial personnel in default could face a penalty of fifty thousand rupees, with additional penalties for continuing defaults.

Imposition of Penalties: The subsidiary company did not qualify as a small company under the Act, and therefore, lesser penalties per Section 446B did not apply. The Adjudicating Officer, considering the facts and submissions, imposed penalties on both the company and its directors/key managerial personnel for the period of violation.

Payment and Appeal: The company and its directors/key managerial personnel have been directed to pay the penalty within 90 days from the date of the order. An appeal process is also outlined in case the parties wish to contest the decision.

Conclusion: The imposition of a 21.47 lakh penalty for an 1116-day delay in appointing a company secretary serves as a reminder of the importance of strict adherence to company law provisions. This case underscores the need for companies to comply with key requirements to avoid significant financial penalties. It also demonstrates the thoroughness of the legal and adjudication processes in upholding corporate governance standards and regulatory compliance.

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Registrar of Companies, Karnataka
Kendriya Sadan, 2nd Floor, ‘E’ Wing,
Koramangala. Bengaluru -560 034
Phone: 080 25537449/25633105
E-mail ID: roc. bangalore@mca.gov.in

File No. ROC(B)/Adj.Ord454-203/WEBEX/Co.No.019075/2023/ Date:13.09.2023

ORDER OF ADJUDICATION OF PENALTY UNDER SECTION 454 OF COMPANIES ACT, 2013 READ WITH RULE 3 OF THE COMPANIES (ADJUDICATION OF PENALITES) RULES.2014, FOR VIOLATION OF PROVISIONS OF SECTION 203 OF THE COMPANIES ACT. 2013 READ WITH RULES (AS AMENDED FROM TIME TO TIMF) FRAMFD THEREIN BY WEBEX  COMMUNICATIONS (INDIA) PRIVATE LIMITED

1. Ministry of Corporate Affairs vide its Gazette Notification No. A-42011/112/2014-Ad.II dated 24.03.2015 has appointed the undersigned as Adjudicating Officer in exercise of the powers conferred by section 454 of the Companies Act, 2013 (hereinafter referred to as Act) read with Companies (Adjudication of Penalties) Rules, 2014 for adjudging penalties under the provisions of Companies Act, 2013.

2. The company, Webex Communications (India) Private Limited (hereinafter referred to as Company) was incorporated on 27.10.1995 and is presently registered under the jurisdiction of Registrar of Companies, Karnataka with its registered office situated at Prestige Solitaire Level – II, No. 6, Brunton Road Bangalore – 560001, Karnataka.

3. The company has filed a suo-motu application on 10.07.2023 for violation of section 203 of the Act. This application has been signed and filed on behalf of the company as well as officers In default The company has submitted that the paid-up capital of the company was increased to Rs. 10,00,43,740 on 27.04.2020 pursuant to further issue of equity shares and the company was required to appoint a whole-time company secretary from this date onwards.

4. As per section 203(1) of the Act, every company belonging to such class or classes of companies as may be prescribed shall have whole-time key managerial personnel and as per Rule 8A of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, every private company which has a paid-up share capital of Rs. 5 crore or more shall have a whole-time company secretary and this threshold was further increased to Rs. 10 crore or more applicable in respect of financial years commencing on or after 01.04.2020.

5. Pursuant to the adjudication application filed by the company, a Notice of hearing dated 27.07.2023 was sent to the company and its officers in default and physical hearing was held on 10.08.2023. It was attended by Ms. Vanisha Bharadwaj and Ms. Vini Jain, Advocates from Kocchar & Co., and authorised representatives who made their submissions as mentioned in the adjudication application already filed.

6. As per records, it is seen that the company has appointed company secretary on 18.05.2023. Hence the company has violated the provisions of section 203 of the Act for a period of 1116 days from 27.04.2020 to 17.05.2023. The company and its officers in default have violated the provisions of section 203(1) of the Act for delay as mentioned above and are liable to penalty under section 203(5) of the Act.

7. As per section 203(5) of the Act, if any company makes any default in complying with the provisions of this section, such company shall be liable to a penalty of five lakh rupees and every director and key managerial personnel of the company who is in default shall be liable to a penalty of fifty thousand rupees and where the default is a continuing one, with a further penalty of one thousand rupees for each day after the first during which such default continues but not exceeding five lakh rupees.

8. It is seen that the company. being a subsidiary company, does not fall under the definition of a small company as per the provisions of section 2(85) of the Companies Act. 2013. Therefore, the provisions of imposing lesser penalty as per the section 446B of the Act shall not be applicable in this case.

9. Therefore, having considered the facts and circumstances of the case and the submissions made by the company / director / key managerial personnel through their authorised representative. in view of the above said violation of non-appointment of a company secretary under the provisions of section 203(1) of the Act read with Rule 8A of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, in exercise of the powers vested under Section 454(3) of the Companies Act 2013. I do hereby impose penalty in the following manner on the company and all the directors / key managerial personnel in default during the period of offence committed:

10. The company and is directors / key managerial personnel are hereby directed to pay the penalty amount as tabulated above within 90 days from the date of receipt of this Order and file Form INC- 28 attaching a copy of the Order and payment challans, In case of directors, such penalty amount is required to be paid out of their own funds. The noticee shall pay the said amount of penalty online by using the website www.mca.goitin (Miscellaneous head) specifying the details of this Order and the notice who is paying the penalty.

11. Appeal, if any, against this Order may be filed with the Regional Director (South East Region), Hyderabad within a period of 60 days from the date of receipt of this Order in Form ADJ setting forth the grounds of appeal and shall be accompanies by a certified copy of this Order.

12. Your attention is also invited to section 454(8) of the Companies Act, 2013 In case of non-compliance of this Order wherein necessary penal action will be initiated under 454(8)(i)  and (ii) of the Companies Act, 2013 against the company and directors / key managerial personnel without further notice in the matter.

13. The company is required to serve a copy of this order on the directors/ officers in default mentioned herein under the provisions of section 20 of the Act.

(Sanjay Sood)
Registrar of Companies, Karnataka
and Adjudicating Officer