Non Appointment of CS & CFO: MCA imposes penalty of Rs. 79.40 Lakh

MCA Imposes ₹79.40 Lakh Penalty on Virupaksha Organics for KMP Non-Compliance

The Ministry of Corporate Affairs (MCA), through the Registrar of Companies (RoC), Hyderabad, imposed a penalty of ₹79.40 lakh on Virupaksha Organics Limited for its failure to comply with the provisions of Section 203 of the Companies Act, 2013. The company failed to appoint a Company Secretary (CS) and Chief Financial Officer (CFO) within the required timeline.

The adjudication order, issued by the RoC Hyderabad under Section 454 of the Companies Act, cited prolonged periods of non-compliance with the appointment of key managerial personnel (KMP) as stipulated under the Act.

Case Background

Virupaksha Organics Limited, a company with a paid-up capital of ₹41.02 crore and a turnover of ₹654.63 crore in FY 2022-23, is obligated under the Companies Act, 2013, to appoint a whole-time CS and CFO.

The investigation revealed that:

1. The company did not appoint a CS from November 2, 2018, to January 31, 2021.
2. The CFO position remained vacant from November 2, 2018, to May 23, 2021.

Despite multiple attempts, the appointments were delayed significantly, prompting the company to file a suo moto application for adjudication under Section 454 of the Companies Act, 2013.

Hearing and Representation

Following a notice from the RoC, the company and its directors presented their case during a hearing on August 7, 2024. Their authorized representative requested leniency, citing efforts to comply and challenges in finding suitable candidates.

Order and Penalty Details

The RoC considered the facts and circumstances, including retrospective amendments under the Companies (Amendment) Act, 2019. The amended provisions replaced fines with penalties for non-compliance, effective from November 2, 2018.

After evaluating the default periods, the adjudicating officer imposed penalties as follows:

For Non-Appointment of Company Secretary (CS):

• Company: ₹5,00,000
• Directors and Key Personnel:
  • Managing Director: ₹5,00,000
  • Past Directors and Additional Directors: ₹4,70,000 – ₹5,00,000

For Non-Appointment of Chief Financial Officer (CFO):

• Company: ₹5,00,000
• Directors and Key Personnel:
  • Managing Director: ₹5,00,000
  • Past Directors and Additional Directors: ₹4,20,000 – ₹5,00,000

The total penalty amounted to ₹79.40 lakh, payable within 90 days.

Legal Provisions and Compliance Mandates

Under Section 203 of the Companies Act, 2013:

• Companies of prescribed classes must appoint a whole-time CS, CFO, and Managing Director or equivalent.
• Non-compliance attracts penalties, including ₹5 lakh for the company and ₹50,000 plus a daily penalty of ₹1,000 for directors and KMPs.

Key Implications

This case underscores the MCA’s stringent approach towards enforcing compliance with KMP requirements. Companies are urged to ensure timely appointments to avoid financial penalties and reputational damage.

Conclusion

The ₹79.40 lakh penalty imposed on Virupaksha Organics Limited highlights the importance of adhering to corporate governance norms. As the MCA continues to tighten compliance measures, companies must prioritize timely appointments of key managerial personnel to align with statutory requirements.

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OFFICE OF THE REGISTRAR OF COMPANIES, TELANGANA, HYDERABAD
2^ND FLOOR, CORPORATE BHAWAN, BANDLAGU A, NAGOLE, HYDERABAD – 500068

F.NO.ROC/HYDNIRUPAKSHA/ADJ/S.203/2024-25/1944 To 1954 Date: 27-11-2024

ADJUDICATION ORDER UNDER SECTION 203(1) READ SECTION 203(5) AND SECTION 454 OF THE COMPANIES ACT, 2013 IN THE MATTER OF M/S VIRUPAKSHA ORGANICS LIMITED

1. Appointment of Adjudicating Officer:

The Ministry of Corporate Affairs vide its Gazette Notification No. A-42011/112/2014-Ad. dated 24.03.2015 has appointed Registrar of Companies, Hyderabad 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, 2014 for adjudging penalties under the provisions of this Act.

2. Company:

Whereas the company viz M/s. VIRUPAKSI-IA ORGANICS LIMITED with CIN U24110TG1997PLCO28281 (herein after re erred 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 Plot No B I & B2, IDA, Gandhinagar, Kukatpally, Medchal Malkajhiri District, Rangareddy, Hyderabad, Telangana, India, 500037. The financial & other details of the subject company as available on MCA-21 portal is stated as under:

3. Section and Penal Provision as per Companies Act, 2013

Section 203. Appointment of Key Managerial Personnel.:

(1) Every company belonging to such class or classes of companies as may be prescribed shall have the following whole-time key managerial personnel, —

(i) managing director, or Chief Executive Officer or manager and in their absence, a whole-time director.

(ii) company secretary; and

(iii) Chief Financial Officer:

Section 203. Appointment of Key Managerial Personnel

(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

4. Facts of the case:

The company has filed the Suo-moto application vide letter dated 05.02.2024 along with its Managing Director u/s Section 454 of the Companies Act, 2013 (the Act) for the violation of

a) In accordance with section 383 (A) (1) of the Companies Act, 1956, the Company was required to appoint a Company Secretary as on March 25, 2006, as the paid- up capital of the Company was Rs. 2,00,00,000/- (Rupees Two Crore Only). Further, the Company was also required to appoint a Company Secretary in terms of the requirements under Sub section (5) of Section 203 of the Companies Act, 2013 read with Rule 8A of the companies (Appointment and Remuneration of Managerial Personals) Rules, 2014 w.ef, April 01, 2014. The Company had made multiple attempts to find a suitable incumbent for the position of Company Secretary and had appointed Mr. S. Prathap Kumar as a Company Secretary on 01.02.2021 with a lapse of an aggregate of 5416 days. Mr. S. Prathap Kumar resigned on 10.05.2023 and later on Mr. Vikas Kurada has been appointed as Company Secretary of the company w.ef 17.06.2023.

b) Further, The Company was required to appoint a Chief Financial Officer in terms of the requirements under Sub section (5) of Section 203 of the Companies Act, 2013 read with Rule 8A of the companies (Appointment and Remuneration of Managerial Personals) Rules, 2014 w.ef April 01, 2014. The Company had made multiple attempts to find a suitable incumbent for the position of Chief Financial Officer and had appointed Mr. Balasubba Reddy Mamilla as a Chief Financial Officer w.ef. 24.05.2021.

Company has filed the Suo-moto application for adjudication of Section 383(A) (1A) of the Companies Act, 1956 r/w Section 203(5) for violation of Section 383(A) (1) of the Companies Act, 1956 r/w Section 203(1) of the Companies Act, 2013 r/w Section 454 of the Companies Act, 2013 (the Act) seeking necessary orders.

i. “Exempt the Applicant from the applicable penalties by adjudicating the non—compliance under section 621(a) of Companies Act, 1956 and Section 203(5) of the Companies Act, 2013 read with Rule 8A of the companies (Appointment and Remuneration of Managerial Personals) Rules, 2014, on such terms and conditions as may be deemed fit and proper.”

ii. That the whole-time directors of the Company who were authorised for all appointments and recruitments in the Company made reasonable efforts.

iii. It is most respectfully submitted that this is a fit case to take a lenient view of the matter by the Adjudicating Officer, Telangana and pardon the failures under Section 203 (5) of the Companies Act, 2013 read with Section 383A of the Companies Act, 1956 and exempt the Applicants from the consequent penalties.

iv. Grant an opportunity to all Applicants to present their case through representatives with all supporting documents and material as may be relevant; and

v. Pass any other or further order(s) as this Adjudicating Officer, Telangana may deem fit and proper in the facts and circumstances of this case.

5. Notice for adjudication and hearings: –

A reasonable opportunity of being heard vide letter no. ROCH/HEARING NOTICE/VOL/2024/ 984 To 986 dated 31.07.2024 under Sub-section 4 of Section 454 of the Companies Act, 2013 was given to the Authorized professional, Company and its Officers in default to appear before the Adjudicating officer on 07.08.2024. Mr. Sarveswar Reddy, Company Secretary in practice / Authorised representative attended the personal hearing on behalf of the applicants on 07th August 2024 and orally made the submissions before the undersigned. He further made the request to take lenient view and lesser penalty may be imposed on the company and its directors.

6. Order: –

I. The sub-section (5) of section 203 of the Companies Act, 2013 has been amended retrospectively with effect from 02.11.2018 by the Companies (Amendment) Act, 2019 and thereby, the liability of fine for any default in complying with the provisions of section 203 of the Companies Act, 2013 has been amended to the liability of penalty with effect from 02.11.2018. The liability of penalty on default in complying with provisions of section 203 of the Companies Act, 2013 is enforceable with effect from 02.11.2018 only as per the Companies (Amendment) Act, 2019. Hence, the provisions for adjudication of the default regarding non­complying with provisions of section 203 of the Companies Act, 2013 is effective from 02.11.2018. The company is found as defaulted on the appointment of Company Secretary during the period from 02.11.2018 to 31.01.2021 and also defaulted on the appointment of Chief Financial Officer during the period from 02.11.2018 to 23.05.2021.

II. While adjudging quantum of penalty under section 203(5) and Section 454 of the Act, read with Companies (Adjudication of penalties) Rules, 2014, the Adjudicating Officer shall have due regard to the factors, mentioned therein.

III. Having considered the facts and circumstances of the case and after taking into account the factors above, it is concluded that Company and its directors and every Key Managerial Personnel of the company who is in default are liable to penalty as prescribed under Section 203(5) of the Act for violation of Section 203(1) of the Companies Act, 2013.

IV. Accordingly, I am inclined to impose a penalty as prescribed under Section 203(5) of the Companies Act, 2013. The details of the penalty imposed on the company and officers in default are shown in the table below:

UNDER COMPANIES ACT, 2013

I. FOR NON-APPOINTMENT OF COMPANY SECRETARY

II. FOR NON-APPOINTMENT OF CHIEF FINANCIAL OFFICER: –

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 the penalty imposed above on Company and its Officers in default as penalty amount for violation of Section 203(5) of the Companies Act, 2013. With regard to the violation u/s 383A(1) of the Companies Act, 1956 from period 25.03.2006 till 01.11.2018 since the violation was compoundable, an appropriate compounding application be moved/filed before the competent Compounding Authority.

8. The said amount of penalty shall be paid out of own source of income and online by using the website mca.gov.in(Misc. head) within 90 days of receipt of this order and file form INC-28 attaching copy of order and payment challan.

9. Whereas Appeal against this order may be filed with the Regional Director (SER), Ministry of Corporate Affairs, 3′ Floor, Corporate Bhavan, Bandlaguda, Nagole, Hyderabad, Telangana, 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 (Adjudicating of Penalties) Rules, 2014].

10. 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 fails to comply with the order made under sub- section (3) or sub­section (7), as the case may he 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 five 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 lakh rupees, or with both.”

Dated this the 27th day of November, 2024

(PARVINDER SINGH, I.C.L.S)
REGISTRAR OF COMPANIES
FELANGANA, HYDERABAD