Introduction: The Ministry of Corporate Affairs (MCA) has recently imposed a penalty of 7 lakhs on Resonance Eduventures Limited for failing to constitute an audit committee as mandated by Section 177 of the Companies Act, 2013. This article delves into the details of the case, exploring the legal framework, facts surrounding the violation, and the implications of the penalty.
Legal Framework and Background
The Companies Act, 2013, mandates the constitution of an Audit Committee by certain categories of companies. Section 177 of the Act outlines the requirements for the Audit Committee, which is tasked with overseeing various financial and audit-related matters.
Facts of the Case: Resonance Eduventures Limited (referred to as ‘the company’) found itself in violation of Section 177 of the Companies Act, 2013, due to its failure to constitute an Audit Committee as required by law. The violation period covered from November 19, 2019, to April 15, 2021.
The MCA initiated adjudication proceedings and issued a notice for adjudication on March 28, 2023, citing the violation of Section 177 of the Companies Act, 2013, read with Rule 6 of Companies (Meetings of Board and its Powers) Rules, 2014. This violation was punishable under Section 178(8) of the Companies Act, 2013. The company and its Directors/Officers in Default/KMP were given an opportunity to present their case on April 11, 2023.
During the hearing on April 11, 2023, Mr. Akshit Kumar Jangid, FCS, appeared on behalf of the company and the relevant parties. He acknowledged the company’s violation of Section 177 and Rule 6 for not constituting an Audit Committee during the specified period. Mr. Jangid informed the adjudicating authority that the company had since constituted an audit committee, effective from April 15, 2021. He requested that the penalty imposed be minimal due to the company’s compliance post-incident. The appointment and cessation of Directors were as per the MCA portal records.
Penalty Imposition: Considering the facts presented during the hearing, the adjudicating officer had reasonable cause to believe that the company had indeed violated Section 177 of the Companies Act, 2013, and Rule 6 of Companies (Meetings of Board and its Powers) Rules, 2014, for the period specified. As a result, penalties were imposed as follows:
- Resonance Eduventures Limited: A fixed penalty of 5,00,000 INR.
- Shri Ram Kishan Verma (MD & CEO): A fixed penalty of 1,00,000 INR.
- Shri Abhinav Gautam (CS): A fixed penalty of 1,00,000 INR.
The total penalty amount imposed on the company and the individuals in default/KMP amounted to 7,00,000 INR.
Conclusion: In conclusion, Resonance Eduventures Limited faced a penalty of 7 lakhs imposed by the Ministry of Corporate Affairs for its failure to constitute an Audit Committee, violating Section 177 of the Companies Act, 2013. This case serves as a reminder of the importance of complying with regulatory requirements and the consequences that may follow non-compliance, even if corrective actions are taken post-violation.
This article has provided an overview of th penalty imposed by the Ministry of Corporate Affairs on Resonance Eduventures Limited for not constituting an Audit Committee as required by the Companies Act, 2013. It discussed the legal framework, the violation period, the facts of the case, the penalty imposed, and the implications of non-compliance.
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Registrar of Companies, Rajasthan, Jaipur
No. ROC-JP/Adj./2023-24/Sec 177/CA 2013
In the matter of Companies Act 2013
In the matter of adjudication proceeding under section 454(3) read with section 177 of the Companies Act, 2013 r/w Rule 6 of Companies (Meetings of Board and its Powers) Rules, 2014 punishable under section 178(8) of the Companies Act, 2013.
And
In the matter of
1. Resonance Eduventures Limited
2. Shri Ram Kishan Verma (MD & CEO)
3. Shri Abhinav Gautam (CS)
Date of hearing: 11.04.2023
Present
Shri C.M. Karl Marx, Registrar of Companies, Rajasthan, Jaipur
Sh. Akshit Kumar Jangid, FCS on behalf of Company and Party No. 01 to 03.
That the company through Sh. Ram Kishan Verma, MD & CEO has Suo-moto, made an application to adjudicate the violation committed by company by not constituting audit committee as required by the section 177 of the Companies Act, 2013 r/w Rule 6 of Companies (Meetings of Board and its Powers) Rules, 2014 for the period 19.11.2019 to 15.04.2021.
That this office had issued notice for adjudication dated 28.03.2023 for violation Section 177 of the Companies Act, 2013 r/w Rule 6 of Companies (Meetings of Board and its Powers) Rules, 2014 punishable under section 178(8) of the Companies Act 2013 to the Company and its Directors/ Officers in Default/ KMP. The opportunity of being heard was provided to the company and its directors / officers in default/KMP on 11.04.2023.
That on the date of hearing i.e. 11.04.2023 Sh. Akshit Kumar Jangid, FCS appeared on behalf of the Company and Party No. 01 to 03. Sh. Akshit Kumar Jangid, FCS submitted that the company has violated 177 of the Companies Act, 2013 r/w Rule 6 of Companies (Meetings of Board and its Powers) Rules, 2014 punishable under section 178(8) of the Companies Act 2013 by not constituting audit committee as required by the provisions of the section 177 of the Companies Act, 2013 r/w Rule 6 of Companies (Meetings of Board and its Powers) Rules, 2014 for the period 19.11.2019 to 15.04.2021. Further it was submitted that the company has constituted audit committee w.e.f. 15.04.2021. Further it was prayed to adjudicate the offence for not constituting audit committee of the company by imposing minimum penalty. Appointment and cessation of Directors were taken as per MCA portal.
That in view of the above facts the undersigned has reasonable cause to believe that the provision of Section 177 of the Companies Act, 2013 r/w Rule 6 of Companies (Meetings of Board and its Powers) Rules, 2014 had not complied with as required under law by the Company for the period 19.11.2019 to 15.04.2021 and its directors/officers in default/KMP and therefore liable for penal action under section 178(8) of the Companies Act, 2013 r/w sec 454 of the Companies Act, 2013.
That section 177 of the Companies Act, 2013 states that: –
“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 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.
(3) Every Audit Committee of a company existing immediately before the commencement of this Act shall, within one year of such commencement, be reconstituted in accordance with sub-section (2).
(4) Every Audit Committee shall act in accordance with the terms of reference specified in writing by the Board which shall, inter alia, include,—
(i) the recommendation for appointment, remuneration and terms of appointment of auditors of the company;]
(ii) review and monitor the auditor’s independence and performance, and effectiveness of audit process;
(iii) examination of the financial statement and the auditors’ report thereon;
(iv)approval or any subsequent modification of transactions of the company with related parties;
Provided that the Audit Committee may make omnibus approval for related party transactions proposed to be entered into by the company subject to such conditions as may be prescribed;
Provided further that in case of transaction, other than transactions referred to in section 188, and where Audit Committee does not approve the transaction, it shall make its recommendations to the Board:
Provided also that in case any transaction involving any amount not exceeding one crore rupees is entered into by a director or officer of the company without obtaining the approval of the Audit Committee and it is not ratified by the Audit Committee within three months from the date of the transaction, such transaction shall be voidable at the option of the Audit Committee and if the transaction is with the related party to any director or is authorised by any other director, the director concerned shall indemnify the company against any loss incurred by it:
Provided also that the provisions of this clause shall not apply to a transaction, other than a transaction referred to in section 188, between a holding company and its wholly owned subsidiary company.
(v) scrutiny of inter-corporate loans and investments;
(vi) valuation of undertakings or assets of the company, wherever it is necessary;
(vii) evaluation of internal financial controls and risk management systems;
(viii) monitoring the end use of funds raised through public offers and related matters.
(5) The Audit Committee may call for the comments of the auditors about internal control systems, the scope of audit, including the observations of the auditors and review of financial statement before their submission to the Board and may also discuss any related issues with the internal and statutory auditors and the management of the company.
(6) The Audit Committee shall have authority to investigate into any matter in relation to the items specified in sub-section (4) or referred to it by the Board and for this purpose shall have power to obtain professional advice from external sources and have full access to information contained in the records of the company.
(7) The auditors of a company and the key managerial personnel shall have a right to be heard in the meetings of the Audit Committee when it considers the auditor’s report but shall not have the right to vote.
(8) The Board’s report under sub-section (3) of section 134 shall disclose the composition of an Audit Committee and where the Board had not accepted any recommendation of the Audit Committee, the same shall be disclosed in such report along with the reasons therefor.
(9) Every listed company or such class or classes of companies, as may be prescribed, shall establish a vigil mechanism for Directors and employees to report genuine concerns in such manner as may be prescribed.
(10) The vigil mechanism under sub-section (9) shall provide for adequate safeguards against victimisation of persons who use such mechanism and make provision for direct access to the chairperson of the Audit Committee in appropriate or exceptional cases:
Provided that the details of establishment of such mechanism shall be disclosed by the company on its website, if any, and in the Board’s report.”
That section 178(8) of the Companies Act, 2013 states that: –
“(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.
Provided that inability to resolve or consider any grievance by the Stakeholders Relationship Committee in good faith shall not constitute a contravention of this section.
Explanation.—The expression “senior management” means personnel of the company who are members of its core management team excluding Board of Directors comprising all members of management one level below the executive Directors, including the functional heads.”
That Rule 6 of Companies (Meetings of Board and its Powers) Rules, 2014 states that: –
“6. Committees of the Board. –
The Board of directors of 2(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’.”
That in exercising of the power conferred U/s 454 of the Companies Act, 2013 undersigned has passed the adjudication order imposing penalty as under:
Penalty imposed on the Company Resonance Eduventures Limited, Shri Ram Kishan Verma (MD & CEO) and Shri Abhinav Gautam (CS), for violation of Section 177 of the Companies Act, 2013 r/w Rule 6 of Companies (Meetings of Board and its Powers) Rules, 2014 punishable under section 178(8.) of the Companies Act, 2013. :-
|
Accused |
Penalty (fix) | Penalty imposed |
| Resonance Eduventures Limited | 5,00,000/- | 5,00,000/- |
| Shri Ram Kishan Verma (MD & CEO) | 1,00,000/- | 1,00,000/- |
| Shri Abhinav Gautam (CS) | 1,00,000/- | 1,00,000/- |
| Total | 7,00,000/- |
That taking in above facts total penalty of 5,00,000/- is imposed on the company and Rs 1,00,000/- on each Officer in default/KMP namely Shri Ram Kishan Verma (MD & CEO) and Shri Abhinav Gautam (CS) to be paid as stated herein above within 90 days from the receipt of order vide appropriate challan on MCA Portal. The penalty imposed on the Directors should be paid from their personal account.
That failure to pay penalty within the stipulated period the company and its director / officers in default are liable for legal action U/s 454(8) of Companies Act 2013.
The matter stands disposed of in accordance with the order above.
Signed on 11.04.2023
(C.M. Karl Marx)
Registrar of Companies,
Rajasthan, Jaipur
(C.M. KARL MARX)
REGISTRAR OF COMPANIES
RAJASTHAN, JAIPUR
Endt. No. ROC-JP/Adj./2023-24/Sec 177/CA 2013/176 to 180
