Company & Directors penalized for failure to disclose Director’s shareholding in other Companies

Sun Pharmaceutical Industries Limited and its Directors penalized for failure to disclose Director’s shareholding in other Companies in Form DIR 12

Name of the Company: Sun Pharmaceutical Industries Limited
Order Date: 28/04/2023
ROC: Gujrat, Dadra & Nagar Haveli

Violation: Section 170 (2) of the Companies Act, 2013 read with Rule 18 of the Companies (Appointment and Qualification of Directors) Rules, 2014

Facts:

A Show Cause Notice was issued by an Inquiry Officer to a company and its key managerial personnel for alleged non-compliance with Section 170 of the Companies Act, 2013, which requires a return containing the details of securities held by each director and key managerial personnel in the company or its related entities to be filed with the Registrar within 30 days of appointment and any change. The Notice alleged that the company had not provided details of the shareholding of a director in other entities at the time of his appointment.

The company responded by submitting that the Notice did not constitute a valid show cause notice under Rule 3 of the Adjudication Rules and principles of natural justice, as recognized under case law jurisprudence. They argued that the Notice failed to establish the alleged contravention and did not draw a correlation between the alleged violation and the facts in the matter. The company also argued that the provision of information related to shareholding in other companies was not a mandatory requirement in form DIR-12, which was filed by the company at the time of the director’s appointment.

The Presenting Officer argued that the inquiry was based on a Whistle Blower Complaint in respect of Related Party Transactions and Money Diversion from Sun Pharmaceutical Industries Ltd to Aditya Medisales Ltd and other group companies. The Serious Fraud Investigation Office (SFIO), Ministry of Corporate Affairs, had conducted research and shared a Market Research and Analysis Report (MRAU) with the Inquiry Officer. The Inquiry Officer was directed by the Ministry of Corporate Affairs to investigate the Related Party Transaction matter of Sun Pharmaceutical Industries Ltd. with Aditya Medisales Ltd covering FY 2014-15 to 2017-18, and the omission of reporting of Related Parties Transactions and violation of the provisions thereof.

The case involved a dispute over the interpretation and application of the Companies Act, 2013, and the Appointment and Qualifications of Directors Rules, 2014, in relation to the filing of details of securities held by directors and key managerial personnel in the company or its related entities. The company argued that the provision of information related to shareholding in other companies was not a mandatory requirement in the form DIR-12, while the Inquiry Officer argued that the company was required to provide such information under Section 170 of the Companies Act, 2013.

Order:

The Adjudicating Authority considered various factors while passing the order, including the amount of disproportionate gain or unfair advantage made as a result of the default, the amount of loss caused to investors, and the repetitive nature of the default. Based on the facts and submissions made by the Presenting Officer and the Authorised Person of the company, the Authority found that the company and its officers in default had failed to discharge their duties as per the provisions of Section 170(2) of the Companies Act, 2013 r/w rules framed thereunder. The Authority imposed a penalty on the company and its officers in default as per the table provided in the order, for the violation of Section 170 of the Companies Act, 2013 r/w rules framed thereunder. The Authority considered the penalty to be commensurate under Section 172 of the Companies Act, 2013 for the failure to discharge their statutory duties.

Conclusion:

The case highlights the importance of compliance with statutory requirements and the need for clarity and specificity in the drafting of laws and regulations. It also underscores the challenges faced by companies in navigating complex regulatory frameworks and the potential legal risks associated with non-compliance.

BEFORE THE ADJUDICATING OFFICER
REGISTRAR OF COMPANIES, GUJARAT, DADRA & NAGAR HAVELI

No. ROC-GJ/ADJ. ORDER/ SUN PHARMA/ Sec.454/ 2023-24 /456-37 to 42

Dated: 28 Apr 2023

ORDER FOR PENALTY UNDER SECTION 454 OF THE COMPANIES ACT, 2013 READ WITH COMPANIES (ADJUDICTION OF PENALJTIES) RULES, 2014 AND COMPANIES (ADJUDICATION OF PENALTIES) AMENDMENT RULES, 2019 FOR VIOLATION OF SECTION 170 OF THE COMPANIES ACT, 2013 READ WITH RULES MADE THEREUNDER.

IN THE MATTER OF

M/s. SUN PHARMACEUTICAL INDUSTRIES LIMITED (SPIL) (L24230GJ1993PLC019050)
Date of Hearing: 12/04/2023

Present :

1. Shri R.C. Mishra, 1CLS (ROC), Adjudicating Officer

2. Neelambuj, ICLS (AROC), Presenting Officer

3. Mansi Gokhle, ICLS (Trainee Officer)

4. Shri Prince Kumar, ICLS (Trainee Officer)

Company/ Officers/ Authorised Representative etc.:

1. Mr. Ashok Bhuta, Sr. General Manager of Sun Pharmaceutical Industries Limited appeared.

2. Mr.  Anoop Deshpande, CS & Compliance Officer of Sun Pharmaceutical Industries Limited appeared.

Appointment of Adjudication Authority:-

1. The Ministry of Corporate Affairs vide its Gazette Notification No. A-42011/112/2014-Ad.I1 dated 24.03.2015 has appointed the undersigned as Adjudicating Officer in exercise of the powers conferred under section 454 of the Companies Act, 2013 (hereinafter known as Act) read with Companies (Adjudication of Penalties) Rules, 2014 (Notification No. GSR 254(E) dated 31.03.2014) for adjudging penalties under the provisions of Act.

Fact of the case and Show Cause Notice:

2. The Inquiry of M/s. SUN PHARMACEUTICAL INDUSTRIES LIMITED u/s 206(4) of the Companies Act, 2013 ordered by Ministry of Corporate Affairs in the affair of the company covering Financial Year 2014-15, 2015-16, 2016-17 and 2017-18 respectively. In connection to the Inquiry, the Inquiry Officer has issued Show Cause Notice vide office letter No. ROC­GJ/ADJ/U/S 454/SUN PHARMA/2022-23/23(i)/5454-5462, dated 07.11.2022 to company and key managerial personnel of the company in respect non-compliance of section 170 of the Companies Act, 2013.

3. In pursuant to section 170(2) of the Companies Act, 2013 read with Rule 18 of the Companies (Appointment and Qualifications of Directors) Rules, 2014, that “a return containing the details of securities held by each of them in the company or its holding, subsidiary, subsidiary of company’s holding company or associate companies, of the Directors and the key managerial personnel shall be filed with the Registrar within thirty days from the appointment of every director and key managerial personnel, as the case may be, and within thirty days of any change taking place.”

4. It is observed that the company has filed e-form DIR-12 vide G89842272/29.06.2018 for appointment of Shri Gautam Bhailal Doshi. At the time of his appointment, the company has not provided details of the shareholding of the said director in other entities wherein he has interest in other entities having 2% or more.

Company/any other Person in default:

5. The Company and its Officer(s) in default:

Reply of Authorised person of the company on 12/04/2023

6. In respect of the aforesaid notice, the company has submitted their written reply on 16/12/2022, which is taken on record. In respect of the Adjudication notice, the Authorised Representative of the company i.e. Mr. Ashok Bhuta, General Manager and Mr. Anoop Deshpande, CS & Compliance Officer of Sun Pharmaceutical Industries Limited are present before Adjudicating Authority on 12^th April, 2023 for physical hearing.

7. The Authorised Representative of the company have submitted that on a consideration of the charging provisions as well as the penal provisions under the Notice, we would like to clarify that:

a. While the charge is sought to be brought under Rule 18 of the Appointment Rules, the provision of Rule 18 does not require the above details to be captured.

b. Further, it appears that the underlined text in the paragraph above (i.e., under paragraph 2 of the Notice) is an extract of Rule 17 of the Appointment Rules, which deals with maintenance of the register of directors and the key managerial personnel and the details to be mentioned thereunder, and is wholly and absolutely unrelated to the details to be captured under form DIR –

c. It is noted from the Notice that while reproducing the text of Section 170(2) read with Rule 18 of the Appointment Rules, the Notice has, in fact, merged the text of two unrelated provisions (i.e., Section 170(2) of CA, 2013 and Rule 17(2) of the Appointment Rules).

d. While the Notice merely alleges non-compliance with Section 170(2) read with Rule 18 of the Appointment Rules, it fails to clarify whether or not the provision of such information in relation to details of shareholding in other companies is a mandatory requirement in form DIR-12. Without drawing any co-relation between the alleged contravention and the facts in the matter, the Notice fails to establish the manner in which the Noticee has allegedly violated any provision of law.

e. Under paragraph 3 of the Notice, the reference to section 184 of the CA, 2013 is inconsistent with the allegations in the Notice. There is no nexus between Section 184 (read with Rule 9 of the Appointment Rules) and Section 170(2). The Notice is silent on the rationale for the reference to Section 184, in the present matter.

In view of the above, we humbly submit that the Notice does not constitute a valid show cause notice envisaged under Rule 3 of the Adjudication Rules and principles of natural justice, as recognized under case law jurisprudence

i. Without prejudice to the above, set out below are our submissions on merits.

ii. While Section 170(2) obligates a company to file a return containing the particulars of appointment of a director, Rule 18 specifies that such details are to be filed by way of form DIR-12.

iii. The form DIR-12 indicates that only certain heads, denoted by an asterisk, are mandatorily required to be filled. A bare reading of the form demonstrates that the details related to ‘Percentage of shareholding’ in entities in which the director is interested, is not a mandatory field, and is an optional one, as is evident from the absence of an asterisk.

iv. As you would be aware, prior to the submission of the form in the filling system, the form must compulsorily go through a ‘Check Form’ process to ensure that all mandatory fields are adequately filled. Therefore, a form, without the mandatory fields filled, will not be accepted by the filing system. Thus, the fact that the form in question was successfully submitted, by itself, demonstrates that all necessary details were provided.

v. If the legislature intended for this detail to be captured, the same would have been identified as a mandatory field under form DIR – If the law itself did not require such details as a matter of obligation, there is no question of the Company having violated any provision, as alleged under the Notice.

vi. In any event, it may be noted that the details provided under form DIR – 12 by the
Company is consistent with market practice.

vii. As such, the allegations levied are without due consideration to the applicable legal

Submission of the Presenting Officer:-

8. The Presenting Officer submitted that the inquiry of the subject company is based on Whistle Blower Complaint in respect of Related Party Transactions, Money Diversion from Sun Pharmaceutical Industries Ltd to Aditya Medisales Ltd and other group companies. In the said matter, the Serious Fraud Investigation Office (SFIO), Ministry of Corporate Affairs also made research and shared a Market Research and Analysis Report (MRAU) to this office in year 2019. Accordingly, the Inquiry into affairs of the company is independently directed by the Ministry of Corporate Affair to this office to investigate the Related Party Transaction matter of the Sun Pharmaceutical Industries Ltd. with Aditya Medisales Ltd covering the FY 2014-15 to 2017-18 respectively, and the omission of reporting of Related Parties Transaction (RPTs) and violation of the provisions the Companies Act, 2013.

9. The Presenting Officer further submitted as under;

a. The company has filed e-form DIR-12 vide SRN: G89842272/29.06.2018 for appointment of Shri Gautam Bhailal Doshi as an Independent Director.

b. As per the sub-section 2 of section 170 of the Companies Act, 2013, – “While appointment of any person as director, the company need to file e-form DIR-12 along with prescribed details as stated in e-form D1R-12.

c. As per the said e-form DIR-12, the company is need to provide following details of appointee director in the said e-form, as under;

d. It is observed that while appointment of directors/KMPs, the company has not provided details of the shareholding of the said directors in other companies wherein he has interest in other entity u/s 184- 2% or more

e. The format of Interest in other entity that is prescribed u/s 184 of the Companies Act, Hence, company need to submit the details of directors in respect of company or companies, bodies corporate, firms or other association of individuals holding interest two or more percentage of shareholding.

f.  The subject company has neither provided appropriate details in respect of Directorship of appointed directors in other body corporates including foreign companies and nor provided the shareholding in respect of the same.

g. The Presenting officer submitted that the submission made by the company that as the said field was not mandatory and not contain any (*) mark, hence, they have not submitted details regarding shareholding of the said directors, is not appropriate. The said e-form itself contain the detail of FCRN and shareholding.

h. The Presenting Officer submitted that being the large corporate entity the reply submitted by the company is not acceptable. One should read the law in comprehensive way. Hence the reply of the company is not satisfactory and the company and its Officer(s) in default made violation of section 170 of the Companies Act, 2013.

10. The Presenting Officer further submitted that the Adjudicating Authority has power u/s 454 of the Companies Act, 2013, where no specific penalty and punishment is provided in the Chapter-XI of the act, to impose penalty u/s 172 of the Companies Act, 2013, as per said provision of law.

ORDER

11. After hearing the matter in detail, the Adjudicating Authority has given due regard to the following facts while passing the order, namely;

a. The amount of disproportionate gain or unfair advantage, whenever quantifiable, made as a result of default.

b. The amount of loss caused to an investor or group of investors as a result of the default. The repetitive nature of default.

c. The repetitive nature of default.

12. Having the consider the facts and submission made by Presenting Officer, counter submission made by the Authorised Person of the company and aforesaid circumstances, the undersigned has reasonable cause to believe that the Company and its Officer(s) in default has failed to discharge their duty as per the provisions of Section 170(2)of the Companies Act, 2013 r/w rules framed thereunder.

13. Having considered the facts and submissions made by Presenting Officer and submission made by the company and after taking into accounts the facts & factors above, I hereby imposed penalty on Company and its Officers in default as per table below for violation of section 170 of the Companies Act, 2013 r/w rules framed thereunder. I am of the opinion that penalty is commensurate u/s 172 of the Companies Act, 2013, for the aforesaid failure in respect of not discharging of their statutory duties:

Penalty on Company & Officer(s) in Default:

14. The noticee shall pay the amount of penalty by way of e-payment available on Ministry website www.mca.gov.in under “Pay miscellaneous fees” category in MCA fee and payment Services under Rule 3(14) of Company (Adjudication of Penalties) (Amendment) Rules, 2019 within 60 days from the date of receipt of this order and copy of this adjudication order and Challan/SRN generated after payment of penalty through online mode shall be filed in INC­28 under the MCA portal without further reference.

15. Appeal against this order may be filed in writing with the Regional Director, North Western Region, Ministry of Corporate Affairs, ROC BHAVAN, OPP. RU PAL PARK, NR. ANKUR BUS STAND, NARANAPURA, AHMEDABAD (GUJARAT)-380013 within a period of sixty days from the date of receipt of this order, in e-form ADJ (i.e. Memorandum of Appeal) setting forth the grounds of appeal and shall be accompanied by the certified copy of this order. [Section 54(5) & 454(6) of the Companies Act, 2013 read with the Companies (Adjudicating of Penalties) Rules, 2014 as amended by Companies (Adjudication of Penalties) Amendment Rules, 2019].

16. Your attention is also invited to Section 454(8)(i) and 454(8) (ii) of the Companies Act, 2013, which state that in case of non-payment of penalty amount, the company shall be punishable with fine which shall not less than Twenty Five Thousand Rupees but which may extend to Five Lakhs Rupees and officer in default shall be punishable with Imprisonment which may extend to Six months or with fine which shall not be less than Twenty Five Thousand Rupees by which may extend to one Lakhs Rupees or with both.

The adjudication notices stands diposed of with this order.

R.C. Mishra, (ICLS0

Registrar of Companies and Adjudication officer

Gujarat, Dadra & Nagar haveli