Director’s Dual DIN Violation: Unveiling Penalties and Implications under Companies Act, 2013

Introduction

The Companies Act, 2013, governs the functioning and management of companies in India. It lays down various provisions and regulations that company directors must adhere to. One of the essential aspects is the issuance of Director Identification Numbers (DINs) to individuals appointed as directors of companies. Section 155 of the Companies Act, 2013, prohibits the possession of multiple DINs by any individual director. In this article, we will analyse Order of Registrar of Companies (ROC), Tamil Nadu dated 10^th July 2023, involving a director, Shri. Thiyagarajan Parthasarathy, and the violation of Section 155.

The Case and Violation

The case involves Shri. Thiyagarajan Parthasarathy, a director with DIN 09018479, residing in Thiruvallur. The violation in question pertains to Section 155 of the Companies Act, 2013, which expressly prohibits an individual from possessing more than one DIN. Despite this legal provision, Shri. Thiyagarajan Parthasarathy was found to have applied for and obtained two DINs through the Ministry of Corporate Affairs (MCA) portal.

Upon thorough investigation, it was discovered that the first DIN (DIN 03191514) was obtained on 23.08.2010 and was still linked to a company called SPS Hyundai Private Limited. However, this did not deter Shri. Thiyagarajan Parthasarathy from acquiring a second DIN (DIN 09018479) on 04.01.2021, while forming a new company, SPS Motors Private Limited.

Such actions represent a clear violation of the law, as the surrender of a DIN is not permissible if it is still associated with an existing company. The Companies Act, 2013, explicitly prohibits such duplication and possession of multiple DINs, as outlined in Rule 11(f) of the Companies (Appointment & Qualifications of Directors) Rules, 2014.

The Office of the Regional Director (Northern Region) processed the DIR-5 for the surrender of the second DIN, which brought to light this violation. Despite being provided with an explanation from Shri. Thiyagarajan Parthasarathy, it was deemed unsatisfactory, and the violation was evident from the records.

Show Cause Notice and Adjudication

Upon discovering the violation, the Office of the Regional Director (Northern Region) issued a Show Cause Notice to Shri. Thiyagarajan Parthasarathy on 19.10.2022, addressing the violation of Section 155 of the Companies Act, 2013. The Show Cause Notice provided an opportunity for the director to present their case and provide a valid defense against the alleged violation.

Subsequently, an Adjudication Hearing Notice was issued on 15.06.2023 to Shri. Thiyagarajan Parthasarathy, requiring him to appear before the relevant authorities to address the matter. In response, his representative appeared before the authorities on 30.06.2023 and admitted the violation on behalf of the director.

Penalty Imposed

According to Section 159 of the Companies Act, 2013, any individual or director of a company found in default of complying with the provisions of Section 152, Section 155, and Section 156 shall be liable to a penalty. The penalty for the first default may extend up to fifty thousand rupees, and in cases of continuing offenses, a further penalty of up to five hundred rupees per day after the first day of default may apply.

Considering the extent of the violation and the continuing nature of the offense, the ROC exercising the powers vested under Section 454(1) & (3) of the Companies Act, 2013, imposed a penalty of Rs. 50,000/- for the first default and Rs. 4,53,500/- for the continuing offense. The total penalty amount imposed on the director sums up to Rs. 5,03,500/-.

Impact of the Order

The impact of the order imposing penalties on Shri. Thiyagarajan Parthasarathy for violations of the Companies Act, 2013, is far-reaching and multifaceted, with implications that extend to various aspects of the corporate landscape:

• Deterrence and Compliance: The substantial penalty serves as a powerful deterrent for other directors and individuals associated with companies. It sends a clear message that violations of the Companies Act will not be tolerated, encouraging greater diligence among directors to adhere to legal requirements and avoid potential violations.
• Accountability and Corporate Governance: The order emphasizes the importance of accountability and adherence to corporate governance principles. It raises concerns about corporate governance practices within the company, highlighting the responsibility directors have towards shareholders, stakeholders, and the public.
• Industry Impact: The order can act as a precedent for other companies and directors, signalling that regulatory authorities are vigilant about enforcing the law. This may lead to increased scrutiny and compliance checks within the corporate sector, fostering a more responsible business environment.
• Encouraging Transparency: Penalties for violations encourage a culture of transparency and disclosure. Directors and companies may be more inclined to share accurate and timely information with regulatory authorities, shareholders, and investors, ensuring corporate affairs are conducted with integrity and openness.

Conclusion

The case of Shri. Thiyagarajan Parthasarathy’s violation of Section 155 of the Companies Act, 2013, exemplifies the importance of strict adherence to corporate laws and regulations. The imposition of penalties on the director serves as a clear message that non-compliance will not be tolerated and that the authorities are committed to upholding the integrity and transparency of the corporate sector. It is crucial for all directors and companies to be aware of their obligations and comply with the law to foster a fair and trustworthy business environment in the country.