Default in Transfer of Unspent CSR Fund: RD upholds penalty of Rs. 61.32 Lakh

Introduction: The Regional Director (RD) of the South East Region, Ministry of Corporate Affairs, Hyderabad, recently upheld a penalty of Rs. 61,31,744 against FMC Technologies India Private Limited and its directors. The penalty was imposed for the company’s failure to comply with the provisions of Section 135(5) of the Companies Act, 2013, regarding the transfer of unspent Corporate Social Responsibility (CSR) funds.

Background: The case was brought before the RD through an appeal filed by FMC Technologies India Private Limited and its directors—David Macfarlane, Housila Prasad Tiwari, Narendra Kumar Dharmavarapu, and Niranjan Desai. The Registrar of Companies, Telangana, had earlier issued an adjudication order under Section 454 of the Companies Act, 2013, imposing a penalty on the company and its directors for the alleged default.

Alleged Violation: The Registrar of Companies contended that, as per Section 135(5) of the Companies Act, 2013, FMC Technologies India Private Limited was obligated to transfer the unspent CSR amount of Rs.26,65,872 to funds specified in Schedule VII of the Act within six months of the expiry of the financial year 2020-21, i.e., on or before September 30, 2021. The company, however, failed to comply with this requirement, resulting in a violation of Section 135(5) and making it liable under Section 135(7).

The company eventually transferred the unspent amount to the PM CARES Fund on November 10, 2022. Despite this corrective action, a penalty was imposed by the Registrar of Companies for the alleged violation.

Appellants’ Response: During the hearing on November 20, 2023, Ms. Gautami Darvesh, the Practicing Company Secretary representing the appellants, argued that the company had no intention to default on the spending of the requisite CSR amount. The appellants claimed that the default was not willful and that upon discovering the lapse, the company promptly rectified the situation by making the required payment to the PM CARES Fund.

RD’s Decision: After considering the submissions from the appellants, the RD noted that the entire shareholding of FMC Technologies India Private Limited is held by FMC Technologies Singapore and FMC Tech. Inc, USA, both of which are large and profitable entities. Considering the size and profits of the company, the RD chose not to interfere with the penalty imposed by the Registrar of Companies.

The RD upheld the penalty of Rs. 53,31,744 on the company and Rs. 2,00,000 each on the four directors, totaling Rs. 61,31,744. The appellants were directed to comply with this order and the provisions of Section 454(8) of the Companies Act, 2013, read with the Companies (Adjudication of Penalties) Rules, 2014.

Penalty Payment: The company and the directors subsequently paid the penalty as follows:

• FMC Technologies India Private Limited: Rs. 53,31,744
• David Macfarlane: Rs. 2,00,000
• Housila Prasad Tiwari: Rs. 2,00,000
• Narendra Kumar Dharmavarapu: Rs. 2,00,000
• Niranjan Desai: Rs. 2,00,000

The total penalty paid amounted to Rs. 61,31,744 (Rs. 61.32 Lakh).

Conclusion: This order serves as a reminder to companies and their directors regarding the strict compliance requirements under the Companies Act, especially in matters related to CSR funds. The decision reinforces the importance of timely adherence to statutory obligations and the potential consequences of non-compliance. Companies are urged to remain vigilant and proactive in fulfilling their CSR commitments to avoid legal repercussions.

*****

 F.No: 9/7/Adj/Sec.135 of 2013/Telangana/RD(SER)/2023/5814
Before the Regional Director, South East Region
Ministry of Corporate Affairs, Hyderabad
In the Matter of Companies Act, 2013

In the Matter of FMC Technologies India Private Limited

1. M/s. FMC Technologies India Private Limited
2. David Macfarlane, Director
3. Housila Prasad Tiwari, Additional Director
4. Narendra Kumar Dharmavarapu, Director
5. Niranjan Desai, Additional Director

Date of hearing: 20.11.2023
Present: Ms. Gautami Darvesh, PCS

Appellants

ORDER

This is an appeal filed under section 454(5) of the Companies Act, 2013 by the above appellants in e-form ADJ vide SRN F60472420 dated 13.04.2023 against the adjudication order No. ROCH/U29219TG2009FTC079988/TELANGANA/135 of 2013/2022/2438 dated 14.09.2023 under section 454 passed by the Registrar of Companies, Telangana for default in compliance with the requirements of Section 135 of the Companies Act, 2013.

2. Registrar of Companies in his order of adjudication has stated that the applicant company pursuant to section 135(5) of the Act, the company was required to transfer the unspent amount of Rs.26,65,872/- to the funds as specified in Schedule VII of the Act, within a period of six months of the expiry of the financial year 2020-21 i.e., on or before 30.09.2021. However, the company has not transferred the unspent amount to a fund specified in Schedule VII, within a period of six months of the expiry of the financial year i.e., on or before 30.09.2021 which is violation of Section 135(5) of the Companies Act, 2013 and liable under section 135(7). Further stated that the company has made payment of unspent amount of Rs.26,65,872/- to PM CARES Fund on 10.11.202. Since the company has made good the offence by making payment of the unspent amount to one of the funds specified in Schedule OVII of the Act, the adjudication request is considered.

Further Registrar of Companies has stated that after considering the submission made in the application made by the company and the facts of the case it is proved beyond that the company and the officers of the company have defaulted in complying the provisions of Section 135(5) of the Act and levied a penalty of Rs.53,31,744/- on the Company and Rs.2,00,000/- each for 4 officers i.e., Narendra Kumar Dharmavarapu, David Macfarlane, Niranjan Desai and Housila Prasad Tiwari, and (total aggregating to Rs.61,31,744/-).

3. An opportunity of being heard was given to the Appellants on 20.11.2023. The authorized representative Ms. Gautami Darvesh, Practicing Company Secretary appeared on behalf of the appellants and reiterated the submissions made in the appeal and also submitted that the applicant company had no intention to default the spending of requisite CSR amount and has neither willfully defaulted in complying with the provisions of Section 135(5) of the Companies Act, 2013. Upon knowing the default, the Applicant Company has immediately made good the offence by making payment of unspent CSR amount to the PM Cares Fund.

4. Taking into consideration the above facts and after hearing the authorized representative it is noticed that entire shareholding of the company is held by FMC Technologies Singapore and FMC Tech.lnc, USA. Both the holding companies and the other shareholding company are very big^. in size. Considering the size and profits made by the company, I am not interfering in the penalty as levied by Registrar of Companies vide adjudication order dated 14.09.2023 and Company to pay Rs.53,31,744/- and for Directors i.e. David Macfarlane, Housila Prasad Tiwari, Narendra Kumar Dharmavarapu and Niranjan Desai to Rs.2,00,000/- each (total aggregating to Rs. 61,31,744/-). The appellants are directed to comply with this order and also provisions of Section 454(8) of the Companies Act, 2013 read with Companies (Adjudication of Penalties) Rules, 2014

5. Accordingly, penalty was paid by the Company and officers as below:

Accordingly, this order is issued to the Appellants with a copy to Registrar of Companies, Telangana and Joint Secretary, E-Governance Cell, Ministry of Corporate Affairs, New Delhi for information and necessary action.

Issued under my hand and seal on this the 13th day of December 2023.

(DR. RAJ SIGNH)
REGIONAL DIRECTOR (SER)