Ministry of Corporate Affairs (MCA) has levied a penalty of ₹5.87 lakh on M/s. Shareway Securities Limited and its directors for failing to appoint the required number of Independent Directors as per Section 149 of the Companies Act, 2013. This decision was made by the Registrar of Companies, Chennai, who was appointed as the Adjudicating Officer under the Companies (Adjudication of Penalties) Rules, 2014.
M/s. Shareway Securities Limited, an unlisted public company, is registered with the MCA under CIN: U67120TN2008PLC066952. As of the financial year ending on March 31, 2023, the company had a paid-up capital of ₹15,14,10,280. The company, which is not a small company, holding company, or registered under any special Act, had its financial statements and annual returns up to date until the mentioned fiscal year.
The violation occurred when the company increased its paid-up capital from ₹9,84,10,280 to ₹10,74,10,280 through a rights issue on January 5, 2023. This increase brought the company under the purview of Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014, which mandates the appointment of at least two Independent Directors for public companies with a paid-up share capital of ₹10 crore or more. Despite this requirement, Shareway Securities Limited failed to appoint the necessary Independent Directors.
Upon realizing the oversight, Shri. S. Raghavan, a Company Secretary in practice, submitted a suo moto application on behalf of the company for adjudication of the non-compliance. The adjudicating authority issued a hearing notice on May 2, 2024, scheduling it for May 8, 2024. During the hearing, the company representative admitted the inadvertent contravention of Section 149 and requested leniency.
The company filed e-form PAS-3, reporting the allotment of equity shares, which led to the increased paid-up capital. Despite this, the company did not appoint the required Independent Directors. Furthermore, although the company held an Extraordinary General Meeting on January 12, 2024, to convert its status from a public limited company to a private limited company, the conversion application was only approved on April 23, 2024. This resulted in a default period of 474 days, during which the company did not comply with the mandatory appointment of Independent Directors.
Taking into account the facts and circumstances, the Adjudicating Officer imposed a penalty as per Section 172 of the Companies Act, 2013. The breakdown of the penalties is as follows: Shareway Securities Limited was penalized ₹2,87,000 for a default period of 474 days, while Shri. Kabirdass Murali (Managing Director), Shri. Anjanappa Ajath (CFO), and Manoj Jayanthilal Shah (Company Secretary) were each fined ₹1,00,000 for the same default period. The total penalty imposed on the company and its officers amounts to ₹5,87,000, which must be paid online via the MCA website within 90 days of receiving the order. Failure to comply with this order within the stipulated time may result in further fines or imprisonment for the officers in default.
The company and its officers have the right to appeal this order to the Regional Director (Southern Region), Ministry of Corporate Affairs, within 60 days from the receipt of the order. The appeal must be filed in Form ADJ, accompanied by a certified copy of the adjudication order.
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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/SHAREWAY SECURITIES /ADJ/S.149/2024 DATE: 1 9 JUN 2024
ADJUDICATION ORDER UNDER SECTION 149 OF THE COMPANIES ACT, 2013
IN THE MATTER OF M/S. SHAREWAY SECURITIES LIMITED
Failure to appoint Independent Directors: MCA imposes penalty of Rs. 5.87 Lakh
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 the company viz. M/s. Shareway Securities Limited with CIN: U67120TN2008PLC066952 (herein after referred as ‘ company’ or ‘ subject company’) is a registered company with this office under the provisions of Section 7 of the Companies Act, 2013 having its registered office as per MCA21 Registry at L Block,46 Anna Nagar East, Chennai, Tamil Nadu 600102.The financial & other details of the subject company as available on MCA-21 portal is stated as under:
| S. No. | Particulars | Information |
| 1. | Company’s Status | Active |
| 2. | Filing Status | Financial Statement: up to 31.03.2023
Annual Return: up to |
| 3. | Paid up Capital (As per FY 2022-23) | 15,14,10,280/- |
| a. Revenue from Operation | Rs.1,39,994/- | |
| b. Other Income | Rs.1,51,017/- | |
| c. Profit/Loss for the Period | (Rs.7506.09)/- | |
| 4. | Whether it is a Holding Company | No |
| 5. | Whether it is a Subsidiary Company | Yes |
| 6. | Whether company registered under Section 8 of the Act? | No |
| 7. | Whether company registered under any other special Act? | No |
3. Directors/ KMPs during the period of violation
| S. No. | Name of Director/KMPs | Designation | Date of Appointment | Date of Cessation |
| 1. | Shri.Kabirdass Murali | Managing Director | 01.10.2013 | ….. |
| 2. | Shri.Anjanappa Ajath | CFO | 05.01.2023 | ….. |
| 3. | Manoj Jayanthilal Shah |
Company Secretary | 05.01.2023 | ….. |
4. Section and Penal Provision as per Companies Act, 2013
Section 149. Company to have Board of Directors
(1) Every company shall have a Board of Directors consisting of individuals as Directors and shall have—
(a) a minimum number of three Directors in the case of a public company, two Directors in the case of a private company, and one director in the case of a One Person Company;
and
(b) a maximum of fifteen Directors:
Provided that a company may appoint more than fifteen Directors after passing a special resolution:
(4) Every listed public company shall have at least one-third of the total number of Directors as independent Directors and the Central Government may prescribe the minimum number of independent Directors in case of any class or classes of public companies.
Rule 4 of the Companies (Appointment and Qualification of Directors), Rules 2014 – Number of Independent Directors
(1) The following class or classes of companies shall have at least two directors as independent directors –
(i) the Public Companies having paid up share capital of ten crore rupees or more; or
(ii) the Public Companies having turnover of one hundred crore rupees or more; or
(iii) the Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding fifty crore rupees: –
Provided that in case a company covered under this rule is required to appoint a higher number ofindependent directors due to composition of its audit committee, such higher number of independent directors shall be applicable to it:
Provided further that any intermittent vacancy of an independent director shall be filled-up by the Board at the earliest but not later than immediate next Board meeting or three months from the date of such vacancy, whichever is later:
Provided also that where a company ceases to fulfil any of three conditions laid down in sub-rule (1) for three consecutive years, it shall not be required to comply with these provisions until such time ask meets any of such conditions;
Section 172 -Penalty
“If a company is in default in complying with any of the provisions of this Chapter and for which no specific penalty or punishment is provided therein, the company and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees, and in case of continuing failure, with a further penalty of five hundred rupees for ‘each day during which such failure continues, subject to a maximum of three lakh rupees in case of a company and one lakh rupees in case of an officer who is in default.”
5. Facts of the Case:
Shri. S. Raghavan, Company Secretary in Practice has submitted a Suo moto application on behalf of M/s. Shareway Securities Limited and its directors along with a copy of GNL-1 filed vide SRN F94235009 dated 03.04.2024 for adjudication of non-compliance of Section 149 of the Companies Act,2013 read with Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014. As per the application, the company had on 05.01.2023 through allotment of equity shares by way of right issue increased its paid up share capital from Rs.9,84,10,280/- to Rs.10,74,10,280/- divided into Rs.1,07,41,028/- equity shares of Rs.10/- thereby falling into the threshold limit as specified under sub-section (i) of sub rule (1) of Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014. The company being an unlisted public company has failed to appoint required number of Independent Directors on board thereby the company and -its directors and its key managerial personnel have violated the provisions of Section 149(4) of the Companies Act, 2013 read with sub- rule (1) of Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014. The company on an Extra- Ordinary General Meeting held on 12.01.2024 passed a resolution to convert the status of the company from Public Limited Company to Private Limited Company. As a result, the mandatory requirement of appointment of Independent Director does not apply to the company. The defaulting period of 372 days (from 05:01.2023 to 12.01.2024) is unintentional and the company has inadvertently contravened the said provisions of the Companies Act, 2013.
6. Adjudication Hearing:
On the basis of application submitted by the company and its directors, the Adjudicating Authority has issued notice of hearing on 02.05.2024 by fixing the hearing on 08.05.2024 at 01:45 PM. Pursuant to the notice dated 02.05.2024, Shri. S. Raghavan, Company Secretary in Practice , the authorized representative of the company & its KMPs appeared before the adjudicating authority and made submissions that the company has inadvertently contravened Section 149 of the Companies Act, 2013 and to take very lenient action against this non willful default.
7. Analysis of Non-compliance of Section 149 of the Companies Act, 2013
It is observed that the company has filed e- form PAS 3- return of allotment of 9,00,000 equity shares of Rs.10/- each vide SRN AA1419978 dt 21.02.2023 wherein the date of allotment was mentioned as 05.01.2023. Consequently, the paid-up capital of the company increased more than Rs.10 Crores which led to the mandatory appointment of two independent directors as specified in Section 149 of the Companies Act read with Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014. As per the attachments to INC-27 filed by the company vide SRN: AA7800866 dt 10.05.2024, the date of Board resolution passed for conversion to Public to private was mentioned as 11.01.2024 and the application under Section 14(1) of the Companies Act, 2013 filed by the company for conversion of its status from public company to private was approved by the Regional Director (SR) vide order dated 23.04.2024. Hence, there is default of 474 days for non -appointment of independent director in the company from 05.01.2023 to 22.04.2024 and the company and its Officers in default are liable for penalty U/s. 172 of the Companies Act, 2013.
The company being a subsidiary and having paid up capital of Rs.15 Crores does not fall under the definition of small company as per provision of section 2(85) of the companies Act, 2013. Therefore, imposing the provision of lesser penalty as per Section 446(b) of the Companies Act, 2013 shall not be applicable in this case.
8. Decision
Having considered the facts and circumstances of the case and after taking into account the factors above, it is concluded that the company has violated Section 149 of the Companies Act, 2013. Accordingly, I am inclined to impose a penalty on the company and its Officers in default as prescribed under Section 172 of the Companies Act, 2013. The details of the penalty imposed on the company and its directors is given below:
| S. No | Name of the Company/ Officers in default |
No of days of default | Penalty for default | Total Penalty | Maximum Penalty | Penalty Imposed |
| 1. | Ws. Shareway Securities Limited | 474 days | Rs.50,000/- + Rs. 500/- per day (in case of continuing failure) | 50,000+ 500 x 474 2,87,000 | Rs.3,00,000/- | Rs.2,87,000/- |
| 2. | Shri. Kabirdass Murali | 474 days | Rs.50,000/- + Rs. 500/- per day (in case of continuing failure) | 50,000+ 500 x 474 = 2,87,000 | Rs.1,00,000/- | Rs.1,00,000/- |
| 3. | Shri.Anjanappa Ajath | 474 days | Rs.50,000/- + Rs. 500/- per day (in case of continuing | 50,000+ 500 x 474 = 2,87,000 | failure)
Rs.1,00,000/- |
Rs.1,00,000/- |
| 4. | Manoj Jayanthilal Shah | 474 days | Rs.50,000/- + Rs. 500/- per day (in case of continuing failure) | 50,000+ 500 x 474
2,87,000 |
Rs.1,00,000/- | Rs.1,00,000/- |
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.2,87,000/- (Rupees Two lakhs eighty seven thousand) is imposed on the company and Rs.. 1,00,000/- .(Rupees One lakhs) imposed on each Officers in default. Totally Rs.5,87,000/- (Rupees five lakhs eighty seven thousand) is imposed for violation of Section 149 of the Companies Act, 2013.
9. The said amount of penalty shall be paid through 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.
10. 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].
11. Your attention is also invited to section 454(8) of the Act in the event of non-compliance of this order, “(8)(i) Where company fails to comply with the order made under subsection (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
