Adjudication Penalty For Non-Appointment of Company Secretary

SHORT SUMMARY:

Under Section 203 (Appointment of Key Managerial Personnel) of Companies act 2013 and Rule 8 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014: –

Every listed company and every other public company having a paid-up share capital of Five crore rupees or more shall have whole-time key managerial personnel. And Further this Limit Increased to Ten Crore or More & Applicable in respect of FY Commencing on or after 01-04-2020.

Further as per Section 203(4) If the office of any whole-time key managerial personnel is vacated, the resulting vacancy shall be filled-up by the Board at a meeting of the Board within a period of six months from the date of such vacancy.

Every corporation must comply with the above provision in order to preserve good governance. Many Companies registered with the MCA (Ministry of Corporate Affairs) do not follow this clause of the Company Act 2013.

Ministry of Corporate Affairs appointed undersigned as Adjudicating Officer in exercise of the powers conferred by Section 454 of the Act, 2013

According to MCA ROC Chhattisgarh data, a company registered in Durg has received an adjudication order for failing to Company Secretary.

One of those orders will be discussed in this editorial:

“Adjudication Order in the Matter of R.R. LIFESCIENCES PRIVATE LIMITED”

 FACTS OF THE CASE:

1. The Paid up Capital of the Company is Rs.50 Crores & it is required by the Company to comply with above mentioned statutory provisions.

2. Whereas the Company has filed an application U/s 13(4) read with Rule 30 of Companies (Incorporation) Rules, 2014 For Shifting of its Registered Office from One State to Another on 06.06.2023.

3. Whereas During the Examination of Profile of the Company ROC observed that office of Company Secretary of the company was vacant because of Previous Company Secretary Resigned from the Company w.e.f. 31.07.2020 and the Company Ought to Appoint a Company Secretary on or Before 31.01.2021.

4. Whereas Company Appointed Company Secretary w.e.f. 25.04.2022, i.e. with a Delay of 448 Days.

5. Therefore an Adjudication Notice under Section 454 for the violations of Section 203(4) of the Companies Act, 2013 were issued to the Company and its three directors in default, to show cause for Non- Appointment of Company Secretary.

6. Company argued that Company was in Business of providing Goods to IRCTC Catering Services. in March 2020, Due to COVID Pandemic, the Ban was Imposed on Catering services in trains which Results in Complete Shut down of the Company for entire FY.

7. And than Company Secretary Resigned on 31.07.2020 and Company was unable to appoint another Company Secretary because of various restrictions was imposed by the govt. on Physical Movement & on one to one meeting.

8. & in 2021 Govt. given some relaxations but again imposed complete lockdown throughout the country and once Business activities of the company started, Company appointed Company Secretary on 25.04.2022.

2. ORDER:

As per Section 203(5), 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.

ROC Carefully Perused the Reply Made by the Company and Found that Submissions made by the Company are NOT Tenable Because other Companies had Complied the Provisions of Section 203 & Appointed Company Secretary during the same period.

The Adjudicating Officer do hereby impose a penalty under Section 203(5) on the Company and its Directors as per Table below for violation of Section 203 (4) of the Companies Act, 2013.

 3.CONCLUSION:-

The company secretary is a person who is in charge of the company’s smooth operation and advises the board of directors of their legal obligation to ensure that the company complies with statutory legislation and that business complies with all legal requirements.

Companies whose threshold exceeds the limit prescribed for the appointment of a company secretary must comply with the statutory requirements for the appointment and reappointment of a company secretary to avoid Reputational and financial losses, i.e., penalties.

Further, Every Company Secretary and auditor of the Company should report this non-compliance in MGT-7, MGT-8, and their Statutory Audit report to avoid future penalties.

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Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com).

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