The Ministry of Corporate Affairs (MCA) recently imposed a penalty on the Gujarat Chinese Enterprises Association for failing to comply with a mandatory regulatory requirement—filing of e-form INC-20A within the specified due date. The form is a declaration of commencement of business and is obligatory under Section 10A of the Companies Act, 2013. This article delves into the details of the case, the ensuing legal actions, and what it all means for the company and its officers.
Case Background
The company in question, Gujarat Chinese Enterprises Association, was incorporated on December 19, 2019. As per Section 10-A of the Companies Act, 2013, it was required to file INC-20A, a declaration of commencement of business, within 180 days of its incorporation. Due to the COVID-19 pandemic, an extension of an additional 180 days was granted. Despite the extension, the company failed to file the necessary form by the last due date—December 16, 2020.
Legal Procedures Followed
- Adjudication Notice: An adjudication notice was issued to the company and its directors, indicating the default and pending penalties under Section 10A (1)(a) of the Companies Act, 2013.
- Show Cause and Hearing: No suitable reply was provided by the company or its directors, although they were given multiple opportunities for a hearing. During the scheduled hearing, a representative of the company appeared without proper authorization.
- Company’s Defense: The company cited issues with bank account opening and international tensions, primarily due to the COVID-19 pandemic and geopolitical issues, as reasons for the delay. The presenting officer argued that ignorance of law has no excuse.
- Final Order: The adjudicating officer imposed penalties on both the company and its directors. A total penalty of INR 2,50,000 was levied on the company and its officers.
Implications of the Penalties
- Financial Burden: The imposed penalty adds a financial burden to the company and its directors.
- Reputational Risk: Legal actions and penalties can have a negative impact on the reputation of the company and its directors.
- Operational Hurdles: The company might face difficulties in securing loans, grants, or investment, given the legal scrutiny it is under.
- Increased Scrutiny: Both the company and its directors will now likely be under increased scrutiny for future compliance.
Conclusion
The penalty imposed on the Gujarat Chinese Enterprises Association serves as a stark reminder for companies to comply with the regulatory requirements within stipulated deadlines. While the COVID-19 pandemic has presented numerous challenges for businesses, the Ministry of Corporate Affairs has made it clear that it expects full compliance with the Companies Act, 2013, regardless of external circumstances. Thus, it is essential for companies and their officers to be vigilant about their statutory obligations to avoid legal complications and financial penalties.
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Government of India
Ministry of Corporate Affairs
Office of the Registrar of Companies,
Gujarat, Dadra & Nagar Haveli
ROC Bhavan, Opp. Rupal Park.
Nr Ankur Bus Stand, Naranpura,
Ahmedabad (Gujarat) – 380013.
Tel. No.: 079-27438531, Fax: 079-27438371
Website: www.rma.gov
E-mail: [email protected]
Before the Adjudicating Officer
Registrar of Companies, Gujarat, Dadra & Nagar Haveli
In the Matter of Adjudication of Penalty under Section 454 (3) of the Companies Act 2013 Read with Rule 3 of the Companies (Adjudication of Penalties) Rules, 2014 for Violation of Section 10A (1)(a) of the Companies Act, 2013 Read with Rule 23A of the Companies (Incorporation) Rules, 2014
In the Matter of M/s. Gujarat Chinese Enterprises Association
(U85200GJ2019NPL111510)
Date of hearing- 17.03.2022
Order No. 685 to 688 Dated: 04th May 2022
PRESENT :
1. Shri M. K. Sahu (ROC), Adjudicating Officer
2. Trupti Sharma (DROC), Presenting Officer
3. Shri V. S. Tiwari, Senior Technical Assistant
Company/ Officers/Directors/KMP/Authorized Representative: Mr. Murtuza Mandorwala, Company Secretary in Practice appeared without proper Authorization
Appointment of Adjudication Authority:‑
1. The Ministry of Corporate Affairs vide its Gazette Notification No. A42011/112/2014-Ad.11 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 03.2014) for adjudging penalties under the provisions of Act.
Company:
2. M/s. GUJARAT CHINESE ENTERPRISES ASSOCIATION (herein after referred to as “company”) is a company having its registered office at “F/402, Ashavari Tower, B/H Wide Angel Cinema, Nr Fun Republic, Satellite, Ahmedabad, Gujarat-380054, India” registered under the provisions of the Companies Act, 2013. The CIN of the Company is U85200GJ2019NPL111510.
Fact about of the case
3. During the Financial Year 2021-22, after verification of MCA21 portal record, it has observed that the Company was incorporated on 19.12.2019. Under the mandate contained in section 10-A of the Companies Act, 2013, the prescribed e- form i.e. INC-20A duly verified by a Company Secretary or a Chartered Accountant or a Cost Accountant in practice was required to be filed by the company within a period of 180 days of the date of incorporation. Ministry of Corporate Affairs vide General Circular No. 11/2020 dated 24.03.2020 has taken special measure for providing relaxation additional 180 days. So company was required to file the aforesaid compliance i.e. latest by 16.12.2020 (herein after referred to be the “last due date”). The company has failed to file the e-form INC-20A and therefore, default has occurred in complying with the aforesaid statutory provisions by non-filing of the declaration of commencement of business (INC-20A) within the prescribed statutory period and for such default the Company and every officer who is in default are liable for penalty under Section 10A of the Act.
4. Relevant Provisions of Companies Act, 2013: Section 10A (1) Commencement of business etc.
A company incorporated after the commencement of the Companies (Amendment) Ordinance, 2019 and having a share capital shall not commence any business or exercise any borrowing powers unless
(a) a declaration is filed by a director within a period of one hundred and eighty days of the date of incorporation of the company in such form and verified in such manner as may be prescribed, with the Registrar that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him on the date of making of such declaration; and
Section 10A (2) Commencement of business etc.
If any default is made in complying with the requirements of this section, the company shall be liable to a penalty of fifty thousand rupees and every officer who is in default shall be liable to a penalty of one thousand rupees for each day during which such default continues but not exceeding an amount of one lakh rupees.
Rule 23A of the Companies (incorporation) Rules, 2014
The declaration under section 10A by a director shall be in e-Form namely INC-20A and shall be filed with the e-registry on payment of such fee as provided in the Companies (Registration Offices and Fees) Rules, 2014 and the contents of the said form shall be verified by a company Secretary or a chartered Accountant or a cost Accountant in practice.
Show Cause Notice, reply and personal Hearing:‑
5. The Presenting Officer submitted that as per the MCA21 record, the company has failed to file the e-form INC-20A and therefore, default has occurred in complying with the aforesaid statutory provisions by non-filing of the declaration of commencement of business (INC-20A) within the prescribed stipulated period and for such default the Company and every officer who is in default are liable for penalty under Section 10A of the Act. Therefore, an Adjudication Notice was issued to company and its directors vide No. ROC-GJ/ADJ/Section 454/2021-22/ 6366 to 6368 dated 10.01.2022 for default of Section 10A (1)(a) of the Companies Act, 2013 read with Rule 23A of the Companies (Incorporation) Rules, 2014 and Companies (Adjudication of Penalties) Rules 2014. Neither company /Directors have furnished suitable reply to the aforesaid Show cause Notice nor filed overdue declaration of commencement of business (INC-20A). However, before, imposing penalty in the aforesaid matter, the onus of Adjudicating Officer to give a reasonable opportunity of being heard to company/ Officers in default in pursuant to Section 454(4) of the Companies Act, 2013 read with Rules made there under.
6. Therefore, a “written Notice” bearing No. ROC-GJ/70 & 81/ADJ/Section 454/ Gujarat Chinese /2020-21/7373 to 7375 dated 23.02.2022 were issued to the company and its officers in default as per Section 454(4) of the Companies Act, 2013 Read With Rule 3 of Companies (Adjudication of Penalties) Rules, 2014 and a hearing was fixed for 17.03.2022.
7. On the Scheduled date of hearing i.e. on 17.03.2022, Mr. Murtuza Mandorwala, PCS has submitted reply dated 15.03.2022 of company, however, Mr. Murtuza Mandorwala, PCS has failed to produce proper authorization for appearing in the Hence as per Rule 3 of the Companies (Adjudication of Penalties) Rules 2014, the matter is being proceeded with in the absence of any Authorised representative/persons of the company. However, reply of the company dated 15.03.2022 has cognizance to adjudicate the matter.
8. The company replied vide letter dated 15.03.2022 that “one of the director of the company Mr. Jain ping Li has applied for opening a Current Account with HDFC Bank, Maninagar Branch vide Application dated 17th March, 2020 but Bank had denied that Bank account could not be opened due to the Non availability of Mr. Weidong Yin and due to Covid-19 Outbreak in China and various Lockdown and restriction imposed in China HDFC Bank Official could not co-ordinate with HDFC Shanghai Official to verify KYC of Mr. Weidong Yin and then nationwide lockdown ws announced by Government of India on 24th March,2020 and then procedure of account opening procedure was on hold due to Non Availability of Mr. Weidong Yin and ten in June, 2020 tensions had been high at the line of Actual Control (LAC) between China and India. As Bank Account could not been opened and subscription money could not be brough by the subscriber, and as MOU was on hold GCEA was not in operation and there was no activity going on so INC-20A could be filed due to obvious reason.”
9. The Presenting Officer responded that Ministry of Corporate Affairs vide General Circular No. 11/2020 dated 24.03.2020 had taken Special Measures under Companies Act, 2013 to file a declaration for Commencement of Business within 180 days of incorporation under section 10A of the Companies Act, 2013. An additional period of 180 more days was allowed for the aforesaid compliance. However, company/directors have not complied with Section 10A(1)(a) of the Act. Hence, this is a fit case of imposing penalty against the company and its directors/Officers. The law is well settled that that the ignorance of law has no excuse.
10. Under the above circumstances, it is concluded that the company and its Officers in default are liable for penalty under 10A(2) of the Companies Act, 2013 for non-filing of declaration of commencement of business (INC-20A) of the Company viz. GUJARAT CHINESE ENTERPRISES ASSOCIATION and the undersigned has reasonable cause to believe that the company and its officers have violated the provisions of Section 10A (1)(a) of the Companies Act, 2013 as noticed from the MCA21 portal record. In view the facts narrated above, the company and its directors /officers, in default are liable for penalty as per Section 10A (2) of the Companies Act.
11. While adjudging quantum of penalty under section WA (2) of the Act, the Adjudicating Officer shall have due regard to the following factors, 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.
c. The repetitive nature of default.
12. The Presenting Officer further submitted that with regard to the above factors to be considered while determining the quantum of penalty, it is noted that the disproportionate gain or unfair advantage made by the noticee or loss caused to the investor as a result of the delay on the part of the notice to redress the investor grievance are not available on the record. Further, it may also be added that it is difficult to quantify the unfair advantage made by the noticee or the loss caused to the investors in a default of this nature.
13. The Presenting Officer further submitted that it is observed that company is registered under Section 8 of the Companies Act, 2013, in pursuant to first proviso of Section 2(85) of the Companies Act, 2013, the company does fall under the ambit of a “small Company”. Therefore, the provisions of imposing lesser penalty as per the provisions of Section 446B of the Companies Act, 2013 do not applied to the company.
ORDER;
1. Having considered the facts and circumstances of the case and submissions made by the Presenting Officer and reply dated 17.03.2022 submitted by company and after taking into accounts the factors above, I hereby imposed following penalty on company and its directors as prescribed under Section 10A (2) of the Companies Act, 2013 for violation of section 10A (1) of the Companies Act, 2013, I am of the opinion that penalty is commensurate with the aforesaid failure committed by the Noticees:
| Nature of default | Violation of Section of the Companies Act, 2013 | company/ Officers to whom penalty imposed | No. of days in default |
Penalty for defaults as per Section 10A(2) of the Act (Rs.) | Total
penalty (Rs.) |
Maxi-mum Penalty (Rs.) | Penalty Imposed (Rs.) | |
| Non-filing of declaration of commencement of business (INC-20A) |
Section 10A(1) | |||||||
| On Company | 455 | 50000 | 50000 | 50000 | 50000 | |||
| Weidong Yin (DIN-07778666) |
455 | 1000/- per day | 455*500 =4,55,000 | 1,00,000 | 1,00,000 | |||
| JAiping Li (DIN-08643178) |
455 | 1000/- per day | 455*100 =4,55,000 | 1,00,000 | 1,00,00 |
Default counted for 455 days from 17.12.2020 i.e. due date of filing of commencement of business (INC-20A) to 17.03.2022 i.e. date of hearing fixed by the undersigned.
2. The noticee shall pay the amount of penalty individually for the company and its officers from their personal sources/income by way of e-payment available on Ministry website 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 and the Challan/SRN generated after payment of penalty through online mode intimation shall be filed in INC-28.
3. Company/Officers are further directed to file the overdue declaration of commencement of business (1NC-20A) as per the requirement of Section 10A(1) of the Companies Act, 2013 along with applicable fee/additional fee as the case may be, failing which this office shall be proceeded further the matter in pursuant to Section 454A of the Companies Act, 2013 for the non-compliance of the aforesaid provisions of the Companies Act, 2013.
4. Appeal against this order may be filed in writing with the Regional Director, North Western Region, Ministry of Corporate Affairs, ROC BHAVAN, OPP. RUPAL PARK, NR. ANKUR BUS STAND, NARANAPURA, AHMEDABAD (GUJARAT)-380013 within a period of sixty days from the date of receipt of this order, in Form ADJ setting forth the grounds of appeal and shall be accompanied by the certified copy of this order. [Section 454(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].
5. 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 notice stands disposed of with this order.
(M. K. SAHU) (ICLS)
Registrar of Companies & Adjudicating Officer
Gujarat, Dadra & Nagar Haveli.
