CFO appointment delay: RD reduces Penalty to maximum permissible

The Regional Director, South East Region, Ministry of Corporate Affairs, Hyderabad, addressed an appeal filed by Sutara Roads & Infra Limited and its directors, Mr. Audisesha Reddy Putchalapalli, Mr. Ilyas Ghulam Hussain Ghouse, and Mr. Mazharul Haq Syed. The appeal challenged an adjudication order issued by the Registrar of Companies (ROC), Telangana, which imposed penalties for non-compliance with Section 203(1) of the Companies Act, 2013, read with Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. The ROC’s order found that the company failed to appoint a Chief Financial Officer (CFO) for the period between August 15, 2022, and December 20, 2023, resulting in a delay of 421 days in rectifying the non-compliance, which occurred on November 22, 2021. Consequently, the ROC levied a penalty of ₹9,87,000 on Sutara Roads & Infra Limited and ₹5,37,000 on each of the three directors.

During the hearing before the Regional Director, the authorized representative of the appellants argued against the imposed penalties. Upon reviewing the ROC’s order, the Regional Director observed a legal infirmity in the penalty calculation. While Section 203(5) of the Companies Act, 2013, specifies a minimum penalty of ₹5,00,000 for a violation of Section 203, it also establishes a maximum penalty of ₹5,00,000. The Regional Director clarified that while they can modify or set aside an Adjudicating Officer’s order due to legal, procedural, or technical flaws, they cannot reduce the penalty below the statutory minimum for other reasons. Consequently, finding that the ROC had incorrectly fixed the penalty above the maximum limit stipulated in the section, the Regional Director modified the ROC’s order. The penalty imposed on Sutara Roads & Infra Limited was reduced to ₹5,00,000, and the penalty for each director was also reduced to ₹5,00,000, aligning with the maximum penalty permissible under Section 203(5) of the Companies Act, 2013.

F. No: 9/ 20/ADJ/SEC. 203 of 2013/ ROC(TG)/ RD(SER)/ 2024
BEFORE THE REGIONAL DIRECTOR, SOUTH EAST REGION
MINISTRY OF CORPORATE AFFAIRS, HYDERABAD
IN THE MATTER OF COMPANIES ACT, 2013/ 120 to 125

IN THE MATTER OF SUTARA ROADS & INFRA LIMITED

1. M/s. SUTARA ROADS & INFRA LIMITED
156-159 Paigah House, Sardar Patel Road,
Hyderabad, Secunderabad,
Telangana, India, 500003.

2.Mr. Audisesha Reddy Putchalapalli, Director
3. Mr. Ilyas Ghulam Hussain Ghouse, Director
4. Shri Mazharul Haq Syed, Director

………………….. Appellants

Date of hearing: 11.02.2025
Present: Mr. T. Ravi Prakash, PCS

ORDER

1. M/s. Sutara Roads & Infra Limited and Shri Audisesha Reddy Putchalapalli, Director, Shri Ilyas Ghulam Hussain Ghouse, Director, Shri Mazharul Haq Syed, Director has filed an appeal under section 454(5) of the Companies Act, 2013 by the above appellants in e-form AD] vide SRN F92763945 dated 27.02.2024 against the adjudication order issued in F No. ROC(H)/AMLMPL/ADJ-ORDER-4/099082/2024 dated 20.02.2024 under section 454 read with section 203 (5) of the Companies Act, 2013 passed by the Registrar of Companies, Telangana for default in compliance with the requirements of Section 203 (1) read with Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

2. Registrar of Companies in his order of adjudication has stated that “Having considered the facts and circumstance of the case and after taking into account the factors and submissions made in the application and by the Authorized Representative during the hearing on 22.02.2024 and adjourned hearing on 21.03.2024 and the facts of the case it is proved beyond doubt that the company and the officer of the company have defaulted in complying the provisions under Section 203 (1) of the Act and made the offence good on 22th November 2021 with a delay of 421 days. In this regard, the company, and its officer in default (within the meaning of Section 2 (60) of the Companies Act, 2013). I hereby impose penalty as under,

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3. A hearing was fixed on 11.02.2025 before the Regional Director (SER), Hyderabad and Mr. T. Ravi Prakash, PCS, Authorized Representative of the Company attended the hearing.

4. The company has violated the provisions of Section 203(1) of Companies Act, 2013 r/w Rule 8 of the Companies (Appointment & Remuneration of Managerial Personnel) Rules, 2014 regarding non-appointment of Chief Financial Officer for the period 15.08.2022 to 20.12.2023.

5. Heard the appellant. It is observed that the ROC has imposed a penalty of Rs.9,87,000/- on the company and Rs.5,37,000/- on each director. whereas section 203(5) limits the penaulty for the violation of the section to a minimum of Rs. 5,00,000/-

6. As per the understanding of the undersigned the RD can modify or set-aside the order of the Adjudicating Officer in appeal if there is any legal, procedural as technical infirmity in the order of Adjudicating officer and Regional Director cannot reduce the penalty below the maximum specified in the section for any other reaso_ls

7. Hence, as the ROC has erred in fixing a penalty of Rs.9,87,000/- for company and Rs.5,37,000/- on each director. where the maximum penalty is fixed at Rs.5,00,000/-, therefore, the order of the ROC is modified to this extent and a penalty of Rs.5,00,000/- is hereby levied on the company and each director.

Issued on this 4th day of April, 2025.

RICHA KUKREJA
REGIONAL DIRECTOR(S.E.R.)
HYDERABAD