Introduction: In a recent development, the Registrar of Companies in Karnataka has imposed an 8 Lakh penalty on Ceratizit India Private Limited for failing to disclose the reasons for not spending the Corporate Social Responsibility (CSR) amount in its Board’s Report, as required by the Companies Act, 2013. This adjudication has significant implications for compliance with CSR regulations.
Appointment and Authority: The Ministry of Corporate Affairs appointed the Adjudicating Officer under Section 454 of the Companies Act, 2013, to adjudicate penalties. The case involves Ceratizit India Private Limited, a company incorporated in 1996 and registered under the jurisdiction of the Registrar of Companies, Karnataka.
CSR Non-Disclosure Violation: The company filed an adjudication application, acknowledging a violation of Section 134(3)(o) read with Section 135 of the Act. Specifically, it failed to disclose the reasons for not spending the CSR amount in its Board’s Report for the financial years 2017-18 and 2018-19. Subsequently, in 2020-21, the company spent the outstanding CSR amount for those years.
CSR Committee and Spending Obligations: Section 135(1) of the Act mandates that companies with specific financial thresholds constitute a Corporate Social Responsibility Committee. The Board is required to ensure the spending of a specified percentage of the average net profits of the company during the preceding three financial years, as per the Corporate Social Responsibility Policy.
Disclosure Requirement: The second proviso to Section 135(5) of the Act states that if a company fails to spend the prescribed CSR amount, the Board must specify the reasons for not spending the amount in its report under Section 134(3)(o) of the Act.
Board Report Obligation: Section 134(3)(o) requires the Board’s report to include details about the company’s policy and actions regarding corporate social responsibility initiatives during the year.
Adjudication Process: Following the adjudication application, a hearing was conducted, and the company’s representative argued that there were no penalties for not spending the CSR amount; the only requirement was to disclose the reasons in the Board’s report. It was highlighted that the company had subsequently fulfilled its CSR obligations.
Imposition of Penalties: Despite the subsequent CSR spending, the failure to disclose the reasons for not spending the prescribed CSR amount during the specified years constituted a violation of Section 134(3)(o) read with the second proviso to Section 135(5) of the Act. Accordingly, the company and its officers in default are liable for penalties under Section 134(8) of the Act.
Penalty Provisions: Section 134(8) specifies penalties for non-compliance, including a penalty of three lakh rupees for the company and fifty thousand rupees for each officer of the company in default.
Applicability of Lesser Penalties: The company is categorized as a subsidiary company, and the provisions of imposing lesser penalties under Section 446B of the Act do not apply.
Penalty Imposition: Considering the facts and submissions, penalties are imposed on the company and the officers in default for each of the financial years in question.
Conclusion: The imposition of an 8 Lakh penalty on Ceratizit India Private Limited serves as a reminder of the importance of transparent CSR reporting and disclosure. Companies must comply with CSR regulations, including the disclosure of reasons for non-compliance, to avoid financial penalties. This case underscores the significance of adherence to corporate governance standards and regulatory compliance in promoting responsible business practices.
MINISTRY OF CORPORATE AFFAIRS
GOVERNMENT OF INDIA
Registrar of Companies, Karnataka
Kendriya Sadan, 2nd Floor, ‘E’- Wing,
Koramangala, Bengaluru – 560 034
Phone : 080-25537449/25633105
E-mail ID : firstname.lastname@example.org
File No. ROC(B)/Adj.Ord.454-135/Ceratizit/Co.No.128271/2023 Date: 22.09.2023
ORDER OF ADJUDICATION OF PENALTY UNDER SECTION 454 OF COMPANIES ACT, 2013 READ WITH RULE 3 OF THE COMPANIES (ADJUDICATION OF PENLITES) RULES, 2014 FOR VIOLATION OF PROVISIONS OF SECTION 134(3)(o) READ WITH SECTION 135 OF THE COMPANIES ACT, 2013 BY CERATIZIT INDIA PRIVATE LIMITED
Ministry of Corporate Affairs vide its Gazette Notification No. A-42011/112/2014-Ad.11 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, Ceratizit India Private Limited (hereinafter referred to as Company) was incorporated on 22.01.1996 and is currently registered under the jurisdiction of Registrar of Companies, Karnataka with its registered office situated at No.16J, Attibele Industrial Area, Bengaluru — 562107.
3. The company has filed an adjudication application in the matter of section 134(3)(o) read with section 135 of the Act on 19.04.2023. It has been submitted that the company failed to disclose the reasons for not spending the CSR amount in its Board’s Report as required under second proviso to section 135(5) read with section 134(3)(o) of the Act during the financial years 2017-18 and 2018-19. The company has subsequently, in the year 2020-21, spent the entire outstanding CSR amount for the financial years 2017-18 and 2018-19 amounting to Rs. 13,19,849 and Rs. 14,47,982 respectively.
4. As per section 135(1) of the Act, every company having networth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during the immediately preceding financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.
5. As per the then existing provisions of section 135(5) of the Act, the Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy. The second proviso to this subsection provides that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount.
6. As per section 134(3)(o) of the Act, there shall be attached to statements laid before a company in general meeting, a report by its Board of Directors, which shall include the details about the policy developed and implemented by the company on corporate social responsibility initiatives taken during the year.
7. Pursuant to the adjudication application filed by the company on 19.04.2023, Notice of hearing was sent on 17.05.2023 and physical hearing was held on 31.05.2023 which was attended by Mr. Joby Chacko, Advocate and authorised representative. It was submitted that there was no penal provision for not spending the CSR amount, but the only requirement was to disclose the reason for not spending the amount in Board’s report under section 134(3)(o) of the Act. It was submitted that the company had subsequently spent the CSR amount as mentioned in the application.
8. Although the company has spent the prescribed CSR amount for the financial years 2017-18 and 2018-19 subsequently in the year 2020-21, the failure to spend such prescribed amount in the respective years ought to have been declared by the Board in its report made under section 134(3)(o) of the Act for the corresponding financial years. Thus, the company and its officers in default have violated the provisions of section 134(3)(o) read with second proviso to section 135(5) of the Act rending them for penal action as provided under section 134(8) of the Act.
9. As per the provisions of section 134(8) of the Act, if a company is in default in complying with the provisions of this section, the company shall be liable to a penalty of three lakh rupees and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees.
10. It is seen that the company is a subsidiary company and 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.
11. 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 section 134(3)(o) read with second proviso to section 135(5) of the Act, in exercise of the powers vested under section 454(3) of the Act, I do hereby impose penalty in the following manner on the company and the officers in default:
|S. No.||Particulars||Penalty for financial year 2017-18||Penalty for financial year 2018-19||Total penalty imposed|
|ii.||Ashwani Kumar Sareen, Managing Director||50,000||50,000||1,00,000|
12. The company and its 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.gov.in (Miscellaneous head) specifying the details of this Order and the noticee who is paying the penalty.
13. 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 accompanied by a certified copy of this Order.
14. 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 section 454(8)(i) and 454(8)(ii) of the Companies Act, 2013 against the company and directors / key managerial personnel without further notice in the matter.
15. The company is required to serve a copy of this Order on the director(s)/ officer(s)-in-default mentioned above in terms of provisions of section 20 of the Companies Act, 2013.
Registrar of Companies, Karnataka
and Adjudicating Officer