Introduction: The Ministry of Corporate Affairs (MCA) has played a pivotal role in monitoring and regulating companies’ compliance with the Companies Act, 2013. Recently, the MCA exhibited its adjudication discretion by significantly reducing the penalty for CETC Renewable Energy Technology (India) Private Limited due to a delay in the appointment of a Company Secretary.
Background: In a recent order by the Regional Director of the South East Region of the MCA, CETC Renewable Energy Technology (India) Private Limited, along with its directors, appealed against the adjudication order for a default in compliance related to the appointment of a Company Secretary. The original penalty for this non-compliance was a staggering Rs. 20 Lakhs.
Factors Leading to Penalty Reduction
1. Economic Challenges Due to the Pandemic: The company articulated their challenges in finding a suitable candidate for the Company Secretary role. The economic downturn and challenges spurred by the pandemic, coupled with lockdowns, made it difficult for the company to finalize this appointment.
2. Proactive Compliance: Despite the prevailing conditions, the company appointed a Whole Time Company Secretary, Mr. Soubhagya Mohakhud, on 28.03.2022, showcasing their commitment to abide by the Companies Act, 2013.
3. Commercial Status of the Company: The company was not in commercial production during the period of the default. This means that while they failed to appoint a Company Secretary, the company wasn’t actively conducting business, thus potentially minimizing the negative implications of their non-compliance.
4. Financial Health: CETC Renewable Energy Technology (India) Private Limited reported a loss of Rs.23,60,70,212/- as per their latest Profit & Loss statement. The financial condition of the company was perhaps seen as a genuine reason for delayed compliance.
5. Nature of the Company: Being a private limited company, there was no apparent injury to the public interest due to the delay in the appointment of the Company Secretary.
The Verdict: Considering the reasons presented and the company’s attempts to comply with the requirements, the MCA deemed it appropriate to reduce the penalty. The new penalty was set at Rs. 3.50 Lakh, a significant reduction from the initial Rs. 20 Lakh.
Conclusion: The MCA’s decision underscores the importance of companies providing a comprehensive context when defaults occur. While compliance with the Companies Act is non-negotiable, the MCA’s discretion in this case displays its willingness to consider genuine challenges faced by companies, especially during unprecedented times like the current pandemic.
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F.No:9/20/Adj/Sec.203/2013/Andhra Pradesh/RD(Ser)/2023/3357
Before the Regional Director, South East Region
Ministry of Corporate Affairs, Hyderabad
In the Matter of Companies Act, 2013
In the Matter of CETC Renewable Energy Technology (India) Private Limited
1. M/s. CETC Renewable Energy Technology (India) Private Limited
2. Mr. Qian Cao, Director
3. Daliang Zhou, Director
4. Xin Xiao, Director
Appellants
Date of hearing: 10.08.2023
Present : Mr. K Dushyantha Kumar, PCS
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 F62718770 dated 27.07.2023 against the adjudication order No. ADJ 3 of 2022-23/339 dated 24.07.2023 under section 454 passed by the Registrar of Companies, Andhra Pradesh for default in compliance with the requirements of Section 203 read with Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.
3. Registrar of Companies in his order of adjudication has stated that during the course of Inquiry, it is observed that the Company had failed to appoint Company Secretary, since the applicable provisions of the Act came into force to till 28.03.2022 despite paid up capital has exceeded the prescribed limit as stated in the provisions of Section 203(1) of the Companies Act, 2013. Hearing was held before Registrar of Companies on 24.07.2023 and after hearing the authorized representative had levied a penalty of Rs.5.00 Lakhs each on the Company and for 3 directors i.e., Mr. Qian Cao, Mr. Daliang Zhou and Mr. Xin Xiao (total aggregating to Rs.20.00 Lakhs).
3. An opportunity of being heard was given to the Appellants on 10.08.2023. The authorized representative Mr. K Dushyantha Kumar, Practicing Company Secretary appeared on behalf of the appellants and reiterated the submissions made in the appeal and also submitted that the company had tried all its means to appoint whole time company secretary from the date of incorporation but could not find appropriate candidate having experience with the Company’s line of business. Further due to pandemic, downturn of the economy due to lock down and prevailing market conditions the company could not appoint company secretary in whole-time employment. Further, stated that company is a private limited and none of the members, creditors or any third party has been affected by the non-appointment of Company Secretary. Despite all these conditions the Company has appointed a Whole Time Company Secretary Mr. Soubhagya Mohakhud with effect from 28.03.2022 and complied with the provisions of Section 203 of the Companies Act, 2013 and requested to reduce the quantum of penalty as levied by Registrar of Companies with regard to Company and Officers.
4. Though there is a default committed, there is a ground in interfering with the impugned adjudication order of Registrar of Companies to the extent of reducing the quantum of penalty due to the following reasons:.
(a) Company was not in commercial production at the time of default in appointment of Company Secretary.
(b) Company was not in commercial production at the time of default in appointment of Company Secretary.
(c) Company is private limited company and there is no injury to public interest.
(d) The Company has reported loss of Rs.23,60,70,212/- as per its latest profit & loss account as on 31.03.2022.
Taking into consideration the facts of the appeal and submissions made by the authorized representative. I deem it would meet the end of justice if the penalty imposed by Registrar of Companies is reduced for the Company to Rs.2,00,000/- and for 3 officers i.e., Mr. Qian Cao, Mr. Daliang Zhou and Mr. Xin Xiao to Rs.50,000/- each (total aggregating to Rs.3,50,000/-). 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 amounting to Rs.2,00,000/- and by 3 officers i.e., Mr. Qian Cao, Mr. Daliang Zhou and Mr. Xin Xiao to Rs.50,000/- each (total aggregating to Rs.3,50,000/-) vide SRN’s X49701196, X49690100, X49689326 and X49701089 dated 11.08.2023 respectively. Accordingly, this order is issued to the Appellants with a copy to Registrar of Companies, Andhra Pradesh 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 22nd day of August 2023.
(DR. RAJ SINGH)
REGIONAL DIRECTOR (SER)
HYDERABAD
Copy for information and necessary action to :
1. M/s. CETC Renewable Energy Technology (India) Private Limited,
No 250, Thespia Drive Sricity dtz, Gollavaripalem, satyavedu
Sricity, Chittoor, Andhra Pradesh- 517646.
2. Qian Cao, Director
3. Daliang Zhou, Director
4. Xin Xiao, Director
5. Registrar of Companies, Ministry of Corporate Affairs, Andhra Pradesh, Vijayawada.
6. The Joint Secretary, E-Governance Cell, Ministry of Corporate Affairs, New Delhi.
