Directorship in Over 10 public limited companies (Section 165 Violation): MCA imposes Penalty

The Ministry of Corporate Affairs (MCA) imposed a penalty of Rs. 2,00,000 on Mr. Purushothaman Mooliyil Payyan for violating Section 165 of the Companies Act, 2013, which limits the number of public companies in which a person can hold directorship to ten. Despite the statutory limit, Mr. Payyan held directorships in more than 10 public companies from 01.04.2015 to 30.12.2015. After receiving a show cause notice in 2016, the case was further adjudicated, and it was determined that Mr. Payyan had contravened Section 165 during the specified period, accumulating 274 days of default. The amendment to the Companies Act in 2020 led to the decriminalization of this violation, and the court allowed the case to be transferred to the Registrar of Companies (ROC) for adjudication. Subsequently, a penalty of Rs. 2,00,000 was imposed, payable within 90 days of the order. Appeals can be filed with the Regional Director within 60 days. This action underscores the importance of compliance with the Companies Act, 2013, particularly regarding directorship limits in public companies.

GOVERNMENT OF INDIA
MINISTRY OF CORPORATE AFFAIRS
OFFICE OF REGISTRAR OF COMPANIES, TAMIL NADU, ANDAMAN & NICOBAR ISLANDS, CHENNAI
II FLOOR, C- WING, SHASTRI BHAVAN, 26, HADDOWS ROAD, NUNGAMBAKKAM, CHENNAI- 6

F.NO.ROC/CHN/PURUSHOTHAMAN/ADJ/S.165/2024 DATE: 24 JUL 2024

ADJUDICATION ORDER UNDER SECTION 165 OF THE COMPANIES ACT, 2013
IN THE MATTER OF MR.PURUSHOTHAMAN MOOLIYIL PAYYAN (DIN:00088631)

1. Appointment of Adjudicating Officer:-

The Ministry of Corporate Affairs vide its Gazette Notification No. A-42011/112/2014-Ad.II, dated 24.03.2015 has appointed Registrar of Companies, Chennai as Adjudicating Officer in exercise of the powers conferred by section 454(1) of the Companies Act, 2013 (hereinafter referred as Act or Companies Act, 2013) r/w Companies (Adjudication of Penalties) Rules, 2014 for adjudging penalties under the provisions of this Act.

2. Company: –

Whereas, Mr.Purushothaman Mooliyil Payyan hereinafter referred as the Director under the Companies Act, 2013 having Director Identification Number (DIN)- 00088631 and having Permanent address at 346-A, Patheon Road, Egmore, Nungambakkam, Tamil Nadu.

3. Section and Penal Provision as per Companies Act, 2013

Section 165 of the Companies Act, 2013- Number of Directorships provides –

1) No person, after the commencement of this Act, shall hold office as a director, including any alternate directorship, in more than twenty companies at the same time:

Provided that the maximum number of public companies in which a person can be appointed as a director shall not exceed ten.

Explanation I — For reckoning the limit of public companies in which a person can be appointed as director, Directorship in private companies that are either holding or subsidiary company of a public company shall be included

(3) Any person holding office as director in companies more than the limits as specified in sub-section (1), immediately before the commencement of this Act shall, within a period of one year from such commencement,—

(a) choose not more than the specified limit of those companies, as companies in which he wishes to continue to hold the office of director;

(b) resign his office as director in the other remaining companies; and

(c) intimate the choice made by him under clause (a), to each of the companies in which he was holding the office of director before such commencement and to the Registrar having jurisdiction in respect of each such company.

5) No such person shall act as director in more than the specified number of companies,—

(a) after despatching the resignation of his office as director or non-executive director thereof, in pursuance of clause (b) of sub-section (3); or

(b) after the expiry of one year from the commencement of this Act, whichever is earlier.

6) If a person accepts an appointment as a director in violation of this section, he shall be liable to a penalty of two thousand rupees for each day after the first during which such violation continues, subject to a maximum of two lakh rupees.

4. Facts about the case:

As per the MCA portal, Mr. Purushothaman Mooliyil Payyan (DIN: 00088631) holding directorship of public companies incorporated under the Companies Act, in excess of the limits prescribed under the provisions of Section 165 of the Companies Act,2013.

Mr. Purushothaman Mooliyil Payyan was holding directorship in the following public companies from the activation of his DIN.

The ROC Chennai had issued Show Cause Notice to Mr. Purushothaman Mooliyil Payyan, U/s.165 of the Companies Act, 2013 on 23.02.2016. After that filed a complaint in EOCC No.171 /2016 before the Court of Ld.Additional Chief Metropolitan Magistrate Economic Offences, Egmore, Chennai.

The Court of the Ld. Additional Chief Metropolitan Magistrate E.O-I,Egmore, Chennai vide order dated 31.07.2023 in Crl. M.P. No.5403/2023 in E.O.C.0 No.171/2016 ordered that “As per Companies (Amendment) Act, 2020 the Section 165 (6) of the Companies Act, 2013 was amended and the violation was decriminalized. The Hon’ble High Court of Madras passed an order dated 12.12.2022 in Crl.O.P.No. 2735/2021 regarding withdrawal of prosecution wherein decriminalizing has taken place of the offence & Adjudication proceedings. The Complainant has filed the present petition to withdraw the case and to transfer the same to the ROC, the Adjudicating Authority for adjudication U/s. 454 of the Companies Act, 2013. In the above, circumstances this court is view that the petition is to be allowed.

5. Adjudication Hearing:

Pursuant to the order of Ld. Additional Chief Metropolitan Magistrate E.O-I,Egmore, Chennai, the Adjudicating Authority had issued Notice of Hearing dt 12.02.2024 by fixing the hearing on 19.02.2024 at 12:45 PM. Pursuant to the notice dt 12.02.2024, Adv.Ronak Jain appeared before the Adjudicating Authority on 19.02.2024 and made submissions that the Adjudication may be dropped as the director held directorships in the Public companies within the limit prescribed under Section 165 of the Companies Act,2013.

6. Analysis of Non- compliance of Section 165 of the Companies Act, 2013:

As per Section 165(3) — “any person holding office as director in companies more than the limits as specified in sub-section (1) immediately before the commencement of this Act shall, within a period of one year from such commencement i.e 01.04.2015, (a) choose not more than the specified limit of those companies in which he wishes to continue to hold the office as director; (b) resign his office as director in the other remaining companies; and (c) initiate the choice made by him under clause (a), to each of the companies in which he was holding the office of director before such commencement and to the Registrar having jurisdiction in respect of each such company. However, Mr. Purushothaman Mooliyil Payyan was holding the directorship in more than 10 Public limited companies w.e.f 24.05.2006. As per Section 165(3) of the Companies Act, 2013, within one year from the commencement of the Companies Act, 2013 i.e. from 01.04.2015 the maximum number of public companies in which a person can be appointed as a director shall not exceed ten (10). Further, Mr. Purushothaman Mooliyil Payyan was resigned from the directorship of some of the Public limited companies during 2010-2015. Thereafter, he holds directorship in more than 10 public limited companies till 31.12.2015. Thus, there is a contravention of Section 165 for the period 01.04.2015 to 30.12.2015 and he is liable for penalty as prescribed under Section 165(6) of the Companies Act, 2013.

7. Decision

Having considered the facts and circumstances of the case and after taking into account the factors above, it is concluded that Mr. Purushothaman Mooliyil Payyan was holding directorships in more than 10 public companies during the period 01.04.2015 to 30.12.2015 ( 274 days). This resulted in violation of the provisions of Section 165 of the Companies Act, 2013.

Accordingly, I am inclined to impose a penalty as prescribed under Sub-section 6 of Section 165 of the Companies Act, 2013. The details of the penalty imposed on the director as shown in the below table:

Therefore, in view of the above said violation, in exercise of the powers vested to the undersigned under Section 454(1) & (3) of the Companies Act, 2013 a penalty of Rs.2,00,000/- (Rupees Two Lakhs) is imposed on the Director for violation of Section 165 of the Companies Act, 2013.

8. The said amount of penalty shall be paid online by using the website mca.gov.in (Misc. head) within 90 days of receipt of this order and intimate this office with proof of penalty paid.

9. Whereas Appeal against this order may be filed with the Regional Director (SR), Ministry of Corporate Affairs, 5th Floor, Shastri Bhavan, 26 Haddows Road, Chennai-600006, Tamil Nadu within a period of sixty days from the date of receipt of this order, in Form ADJ [available on Ministry website mca.gov.in] setting forth the grounds of appeal and shall be accompanied by a certified copy of this order. [Section 454(5) & 454(6) of the Act read with Companies (Adjudicating of Penalties) Rules, 2014].

10. Your attention is also invited to section 454(8) of the Act in the event of non­compliance of this order, “(8)(i) Where company fails to comply with the order made under sub-section (3) or sub-section (7), as the case may be within a period of ninety days from the date of the receipt of the copy of the order, the company shall be punishable with fine which shall not be less than twenty five thousand rupees but which may extend to five lakh rupees.

(ii) Where an officer of a company or any other person who is in default fails to comply with the order made under sub-section (3) or sub-section (7), as the case may be within a period of ninety days from the date of the receipt of the copy of the order, such officer shall be punishable with imprisonment which may extend to six months or with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees, or with both.”

(B. SRIKUMAR, ICLS)
REGISTRAR OF COMPANIES
TAMILNADU, CHENNAI.
ADJUDICATING OFFICER