Failure to Constitute Remuneration & Nomination Committee: MCA Imposes ₹39 Lakh Penalty

Failure to Constitute Remuneration & Nomination Committee: MCA Imposes ₹39 Lakh Penalty

In a recent adjudication under Section 178(1) of the Companies Act, 2013, the Registrar of Companies, Chennai imposed penalties totaling ₹39 lakhs on M/s. Best & Crompton Engineering Projects Limited and its directors for failing to constitute the Nomination and Remuneration Committee over several financial years.

M/s. Best & Crompton Engineering Projects Limited, a public company, failed to comply with the requirement under Section 178(1) of the Companies Act, 2013, which mandates the constitution of a Nomination and Remuneration Committee (NRC) comprising at least three non-executive directors, half of whom must be independent directors, for listed companies and other prescribed categories. This committee is crucial for governance and oversight regarding director appointments and remuneration.

An inspection initiated under Section 206(5) of the Companies Act, 2013, revealed the company’s non-compliance with the NRC requirement from financial years 2014-15 to 2019-20. The Ministry of Corporate Affairs directed the Registrar of Companies to proceed with adjudication based on this inspection report.

The adjudicating authority, after considering submissions from the company and its officers, imposed penalties as follows:

• Financial Year 2014-15 to 2018-19: ₹7 lakhs per year (₹5 lakhs on the company, ₹1 lakh each on officers in default).
• Financial Year 2019-20: ₹5 lakhs on the company

This totaled to ₹39 lakhs across six financial years.

During the adjudication hearing, the company cited financial difficulties and ongoing litigations as reasons for non-compliance but failed to demonstrate any disproportionate gain or unfair advantage from the lapse. The adjudicating authority concluded that the violations warranted penalties under Section 178(8) of the Companies Act, 2013, which mandates penalties for such contraventions.

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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/BEST & CROMPTON /ADJ/S.178(1)/2024 DATE:30 APR 2024

ADTUDICATION ORDER UNDER SECTION 178(1) OF THE COMPANIES ACT, 2013 READ WITH RULE 6 OF THE COMPANIES (MEETINGS OF BOARD AND ITS POWERS) RULES ,2014 & RULE 4 OF THE COMPANIES (APPOINTMENT AND QUALIFICATION OF DIRECTORS),RULES 2014 IN THE MATTER OF WS BEST & CROMPTON ENGINEERING PROTECTS LIMITED

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. Best & Crompton Engineering Projects Limited with CIN U28920TN1999PLC043385 (herein after referred as ‘ company’ or ‘ subject company’) is a registered company with this office under the Companies Act, 2013 having its registered office as per MCA21 Registry at No. 19A, Emerald Apartments, Flat No. 4, First Floor, Wheat crofts Road, Nungambakkam, Chennai, Tamil Nadu 600034. The financial & other details of the subject company as available on MCA-21 portal is stated as under:

S. No.	Particulars	Details
1.	Company’s Status	Active
2.	Filing Position	Financial Statement: up to 31.03.2022 Annual Return: 31.03.2022
3.	Paid up Capital (as per FY 2021-22)	Rs.55,99,23,660/-
	a. Revenue from Operation	NIL
	b. Other Income	Rs.13,59,225/-
	c. Profit for the Period	(Rs.2,46,97,010)
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 is a small company?	No
8.	Whether company registered under any other special Act?	No

3. Directors during the period of violation

S. No.	Name of Director Default	Designation	Date of Appointment	Date of Cessation
1.	Ravi Narayanaswamy Balachandran	Wholetime Director	01.04.2010	10.10.2018
2	Kakulamaari Srinivas Kalyan Rao	Managing Director	06.02.2012	01.01.2018

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

Section 178. Nomination and Remuneration Committee and Stakeholders Relationship Committee.

(1) The Board of Directors of every listed public company] and such other class or classes of companies, as may be prescribed shall constitute the Nomination and Remuneration Committee consisting of three or more non-executive Directors out of which not less than one-half shall be independent directors:

Provided that the chairperson of the company (whether executive or non-executive) may be appointed as a member of the Nomination and Remuneration Committee but shall not chair such Committee.

(8) In case of any contravention of the provisions of section 177 and this section, the company shall be liable to a penalty of five lakh rupees and every officer of the company who is in default shall be liable to a penalty of one lakh rupees.

Rule 4 of The Companies (Appointment and Qualifications 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

(i) 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 of independent 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 as it meets any of such conditions;

Rule 6 of The Companies (Meetings of Board and its Powers) Rules, 2014: Committees

The Board of directors of every listed public company and a company covered under rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014 shall constitute an ‘Audit Committee’, and a ‘Nomination and Remuneration Committee of the Board’.”

5. Issue of Adjudication Notice:

An Inspection of Books and Accounts of the company M/s. Best & Crompton Engineering Projects Limited was carried out U/s 206(5) of the Companies Act, 2013 by an Officer authorized by the Central Government wherein the observations of the Inspecting Officer are as follows:

The company , being a Public Limited Company and having outstanding loan of more than fifty crores, has not constituted the Nomination and Remuneration Committee for the Financial Years 2014-15 to 2019-20 as mandated under Section 178 (1) of the Companies Act,2013 read with Rule 6 of the Companies (Meetings of Board and its Powers), Rules, 2014 read with Rules 4 of the Companies (Appointment and Qualification of Directors), Rules 2014. Hence, the company and its directors have violated Section 178 of the Companies Act, 2013 and are liable for penal action under Section 178(8) of the Companies Act,2013.

Accordingly, on submission of the Inspection Report by the Inspecting Officer, the Ministry vide letter dated 10.04.2023 has directed this Office to take necessary action against the defaulters of the company as per provisions of the Companies Act, 2013.

After that the Adjudicating Authority has issued Adjudication Notice to the company and its directors vide Notice No. ROC/CHN/INSPN.FOLL/43385/P.17/S.178(1)/2021/2023 dated 31.05.2023.

6. Reply of Company and Directors for Adjudication Notice issued:

Pursuant to the Adjudication notice, the company, and Directors/ Officers^– namely Shri. Seshagiri Rao Ippagunta, Shri. Ravi Narayanasamy Balachandran, Shri. Kakulamaari Srinivas Kalyan Rao and Shri. Amuvil Krishnaswamy Rangarajan have filed an Adjudication application in eform GNL-1 vide SRN: F62903026 dated 04.08.2023 and submitted a physical application on 28.08.2023.

7. Adjudication Hearing:

On receipt of the Adjudication application form the company and its Officers in default, the Adjudicating Authority had issued notice of Hearing dated 14.02.2024 by fixing the hearing on 20.02.2024 at 01:45 PM. Pursuant to the said notice, Mr. Rohan Rajasekaran, Advocate has appeared on behalf of the company and its director/ Officers in default before the Adjudicating Authority on 20.02.2024 and made submissions that due to various difficulties and financial position of the company and other pending issues, litigations , the company and its directors could not constitute the Nomination and Remuneration Committee and there is no amount of disproportionate gain or unfair advantage, wherever quantifiable made as a result of the default.

(ii) The company being a subsidiary with paid up capital of Rs.55 Crores does not fall under the definition of small company as per provision of section 2(85) of the companies Act, 2013. Therefore, of imposing the provision lesser penalty as per section 446(b) 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 applicant company and its officers, have violated the provisions of Section 178 of the Companies Act,2013 as the company has defaulted in appointment of Independent Directors on the board and has failed to constitute proper balance of Executive and Non-Executive Directors on Board of the, Company which resulted in default in constituting Nomination and Remuneration Committee as per Section 178 of the Companies Act, 2013 r/w Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014 and are liable for penalties under section 178(8) of the Companies Act, 2013 for the period 2014-15 to 2019-20.

Accordingly, I am inclined to impose a penalty as prescribed under Sub-section 8 of Section 178 of the Companies Act, 2013. The details of the penalty imposed on the company and officers in default are shown in the table below:

I. FY 2014-15

S. No	Company and Officers in default	Penalty for default (Rs.)	Maximum Penalty (Rs.)	Final Penalty Imposed (Rs.)
1.	M/s. Best & Crompton Engineering Projects Limited	Rs5,00,000/-	Rs.5,00,000/-	Rs.5,00,000/-
2.	Ravi Narayanasamy	Rs.1,00,000/-	Balachandran Rs.1,00,000/-	Rs.1,00,000/-
3.	Kakulamaari Srinivas Kalyan Rao	Rs.1,00,000/-	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.5,00,000/- (Rupees Seven lakhs) is imposed on the Company and Rs.1,00,000/- (Rupees One lakh) is imposed on Officers in default as mentioned above. Totally Rs. 7,00,000/-(Rupees Seven lakhs) as penalty amount for violation of Section 178(1) of the Companies Act, 2013 for the FY 2014-15.

II. FY 2015-16

S. No	Company and Officers in default	Penalty for default (Rs•)	Maximum Penalty (Rs.)	Final Penalty Imposed (Rs.)
1.	M/s. Best & Crompton Engineering Projects Limited	Rs.5,00,000/-	Rs.5,00,000/-	Rs.5,00,000/-
2.	Ravi Narayanasamy Balachandran	Rs.1,00,000/-	Rs.1,00,000/-	Rs.1,00,000/-
3.	Kakulamaari Srinivas Kalyan Rao	Rs.1,00,000/-	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.5,00,000/- (Rupees Seven lakhs) is imposed on the Company and Rs.1,00,000/- (Rupees One lakh) is imposed on Officers in default as mentioned above. Totally Rs. 7,00,000/-(Rupees Seven lakhs) as penalty amount for violation .of Section 178(1) of the Companies Act, 2013 for FY 2015-16.

III. FY 2016-17

S.No	Company and Officers in default	Penalty for default (Rs•)	Maximum Penalty (Rs.)	Final Penalty Imposed (Rs.)
1.	M/s. Best & Crompton Engineering Projects Limited	Rs.5,00,000/-	Rs.5,00,000/-	Rs.5,00,000/-
2.	Ravi Narayanasamy Balachandran	Rs.1,00,000/-	Rs.1,00,000/-	Rs.1,00,000/-
3.	Kakulamaari Srinivas Kalyan Rao	Rs.1,00,000/-	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.5,00,000/- (Rupees Seven lakhs) is imposed on the Company and Rs.1,00,000/- (Rupees One lakh) is imposed on Officers in default as mentioned above. Totally Rs. 7,00,000/­- (Rupees Seven lakhs) as penalty amount for violation of Section 178(1) of the Companies Act, 2013 for the FY 2016-17.

IV. FY 2017-18

S. No	Company and Officers in default	Penalty for default (Rs.)	Maximum Penalty (Rs.)	Final Penalty Imposed (Rs.)
1.	M/s. Best & Crompton Engineering Projects Limited	Rs.5,00,000/-	Rs.5,00,000/-	Rs.5,00,000/-
2.	Ravi Narayanasamy Balachandran	Rs. 1,00,000/-	Rs.1,00,000/-	Rs.1,00,000/-
3.	Kakulamaari Srinivas Kalyan Rao	Rs.1,00,000/-	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.5,00,000/- (Rupees Seven lakhs) is imposed on the Company and Rs.1,00,000/- (Rupees One lakh) is imposed on Officers in default as mentioned above. Totally Rs. 7,00,000/-(Rupees Seven lakhs) as penalty amount for violation of Section 178(1) of the Companies Act, 2013 for the FY 2017-18.

IV. FY 2018-19

S. No	Company and Officers in default	Penalty for default (Rs.)	Maximum Penalty (Rs.)	Final Penalty Imposed (Rs.)
1.	M/s. Best & Crompton Engineering Projects Limited	Rs.5,00,000/-	Rs.5,00,000/-	Rs.5,00,000/-
2.	Ravi Narayanasamy Balachandran	Rs.1,00,000/-	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.5,00,000/- (Rupees Seven lakhs) is imposed on the Company and Rs.1,00,000/- (Rupees One lakh) is imposed on Officers in default as mentioned above. Totally Rs. 6,00,000/-(Rupees Six lakhs) as penalty amount for violation of Section 178(1) of the Companies Act, 2013 for the FY 2018-19

V. FY 2019-20

S. No	Company and Officers in default	Penalty for default (Rs•)	Maximum Penalty (Rs.)	Final Penalty Imposed (Rs.)
1.	M/s. Best & Crompton Engineering Projects Limited	Rs.5,00,000/-	Rs.5,00,000/-	Rs.5,00,000/-

• The company had only Additional Directors during the FY 2019-20.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.5,00,000/- (Rupees Seven labs) is imposed only on the Company for violation of Section 178(1) of the Companies Act, 2013 for the FY 2019-20.

9. The said amount of penalty shall be paid through online by using the website to 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)0) 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