Gap between two board meeting exceeded 120 days- MCA imposes penalty

The Ministry of Corporate Affairs (MCA) in India has imposed penalties on Loram Rail Maintenance India Private Limited for violating Section 173(1) and Section 118(10) of the Companies Act, 2013. This article provides an in-depth analysis of the case, the reasons for the penalty, and the consequences for the company and its directors.

Facts about the Case

In this case, Shri Bradley Alan Willems, Director of Loram Rail Maintenance India Private Limited, filed a suo-moto application for the adjudication of penalties under Section 454 of the Companies Act, 2013. The application states that:

1. According to Section 173(1) of the Act, the company is required to hold a minimum of four board meetings every year, with not more than 120 days between two consecutive meetings.
2. During the fiscal year 2021-22, the company held its first board meeting on 21st May 2021, followed by a second meeting on 10th June 2021, a third meeting on 12th October 2021, and a fourth meeting on 25th January 2022.
3. Section 173 and clause 2.1 of Secretarial Standards 1 of the Companies Act, 2013 require companies to conduct four board meetings in a year with a maximum gap of 120 days between them. However, in this instance, the time gap between the second and third board meetings exceeded 120 days, constituting a violation of Section 173 and Secretarial Standards 1.
4. An application under Section 454 of the Companies Act, 2013 was filed by Shri. Bradley Alan Willems for adjudication, stating that this was the company’s first financial year, and the violation occurred due to confusion about the date of the second board meeting.

Relevant Sections of the Act

The key sections involved in this case are Section 173(1) and Section 118(10) of the Companies Act, 2013, along with clause 2.1 of Secretarial Standards 1. These sections mandate the minimum number of board meetings and the maximum gap between them and specify penalties for non-compliance.

Findings

Shri. Bradley Alan Willems admitted non-compliance with Section 173(1) and Secretarial Standards 1 of the Companies Act, 2013 for the financial year 2021-22. The application revealed that the second board meeting was held on 10th June 2021, and the third board meeting, which should have taken place within 120 days, was held on 12th October 2021, in violation of Section 173(1) and Secretarial Standards 1.

Penalty Imposed

After considering the submissions and facts of the case, the penalties were imposed as per the table below:

Penalty under Section 173(4) for violation of Section 173(1):

• Bradley Alan Willems (Director): Rs. 25,000
• David Paul Badger (Director): Rs. 25,000
• Total: Rs. 50,000

Penalty under Section 118(11) for violation of Section 118(10) and Secretarial Standard-1:

• Loram Rail Maintenance India Private Limited: Rs. 25,000
• Bradley Alan Willems (Director): Rs. 5,000
• David Paul Badger (Director): Rs. 5,000
• Total: Rs. 35,000

The noticees are required to pay the penalty through the “Ministry of Corporate Affairs” portal and provide proof of payment within 30 days of receiving the order.

Conclusion

The penalty imposed by the MCA on Loram Rail Maintenance India Private Limited emphasizes the importance of complying with statutory provisions and Secretarial Standards. While the violation was attributed to a minor confusion during the company’s first financial year, the penalties serve as a reminder of the consequences of non-compliance.

It’s essential for companies to adhere to the prescribed guidelines, hold board meetings as required, and ensure timely compliance to avoid penalties and legal consequences. Additionally, it is noted that failure to pay the imposed penalties within the specified timeframe could lead to prosecution under Section 454(8)(i) and (ii) of the Companies Act, 2013.

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GOVERNMENT OF INDIA
MINISTRY OF CORPORATE AFFAIRS
0/o THE REGISRAR OF COMPNAIES, TELANGANA
2″¹ FLOOR, CORPORATE BHAWAN,
BANDLAGUDA, NAGOLE, HYDERABAD — 500 068
website: www.mca.gov.in
e-Mail ID: [email protected]

Order No. ROC (H)/LORAM/ADJ-ORDER/150747/2023 /305 Date: 15-09-2023

ORDER FOR PENALTY UNDER SECTION 454 FOR VIOLATION OF SECTION 173(1) AND 118 (10) OF THE COMPANIES ACT, 2013.

IN THE MATTER OF LORAM RAIL MAINTENANCE INDIA PRIVATE LIMITED

(CIN: U74999TG2021FTC150747)

1. Appointment of Adjudicating Officer:

Ministry of Corporate Affairs vide its Gazette Notification No.A-42011/112/2014-AdJI dated 24­03-2015 appointed the undersigned as Adjudicating Officer in exercise of the powers conferred by section 454 of the Companies Act, 2013 [herein after known as Act] read with Companies (Adjudication of Penalties) Rules, 2014 for adjudging penalties under the provisions of this Act.

2. Company:

Whereas the Company Loram Rail Maintenance India Private Limited [herein after known as Company] is a registered company with this office under the provisions of Companies Act, 2013 having registered office situated at 2-24/2, Mohan Complex, 1st Floor Near Bus Stop Chandanagar Rangareddy, Hyderabad, Telangana,500050, India as per the MCA portal.

3. Facts about the Case:

Shri Bradley Alan Willems, Director, M/s. Loram Rail Maintenance India Private Limited has filed application suo moto for adjudication of penalty under the provisions of section 454 of the Act and rules thereunder and stated therein inter alia that:

1. Pursuant to Section 173 (1) of the Act, the Company is required to hold minimum four meetings of its Board of Directors every year in such a manner that not more than one hundred and twenty days shall intervene between two consecutive meetings of the Board.

2. During the Financial Year 2021-22 the company has conducted the first board meeting on 21s^t May,2021 followed by a second board meeting on 10^th June 2021, third board meeting on 12^th October 2021 and fourth board meeting on 25^th January 2022.

3. Pursuant to provision of section 173 and clause 2.1 of Secretarial Standards 1 of the Companies Act, 2013 every company is required to conduct four board meetings in a year and the time gap between two meetings should not exceed 120 days. However, in the instant case, the time gap between the Second Board Meeting and the third board meeting was 124 days hence company has violated the provisions of section 173 and Secretarial Standards lof the Companies Act 2013.

4. In this connection an application u/s 454 of the Companies Act, 2013 has been filed by Shri. Bradley Alan Willems for adjudication of offence vide Application dated 05.05.2023 received in this office on 13.06.2023. Applicant in their application have inter alia stated that being the first financial year, the company was getting accustomed to the provisions of the Companies Act, 2013 and owing to a minor confusion with respect to the date of the second board meeting, the company inadvertently skipped to convene the third board meeting within the required timeline. Further company has submitted that company is a compliant company with proper track record of Compliances in past and current and all the board meetings of the company prior and post to the aforesaid meetings were held as per the provisions of Section 173 of Companies Act, 2013 on regular basis and company shall continue to comply with the requirements of the Companies Act, 2013 including rules, notifications, circulars issued thereunder.

4. Section 173(1) and 173(4) is reproduced as under:

Section 173:

(1) “Every company shall hold the first meeting of the Board of Directors within thirty days of the date of its incorporation and thereafter hold a minimum number of four meetings of its Board of Directors every year in such a manner that not more than one hundred and twenty days shall intervene between two consecutive meetings of the Board: “

(4) “Every officer of the company whose duty is to give notice under this section and who fails to do so shall be liable to a penalty of twenty-five thousand rupees. “

Section 118:

(10)”Every company shall observe secretarial standards with respect to general and Board meetings specified by the Institute of Company Secretaries of India constituted under Section 3 of the Company Secretaries Act, 1980 and approved as such by the Central Government.”

b) As per clause 2.1 of Secretarial Standards 1:

“The Company shall hold at least four Meetings of its Board in each calendar year with a maximum interval of one hundred and twenty days between any two consecutive meetings.”

(c) Whereas Section 118(11) of the Companies Act, 2013 which contemplates that:

“If any default is made in complying with the provisions of this section in respect of any meeting, the company shall be liable to a penalty of twenty-five thousand rupees and every officer of the company who is in default shall be liable to a penalty of five thousand rupees.”

5. Findings:

(i) Shri. Bradley Alan Willems, Director in his application (filed through GNL-1 vide SRN:F61434775 dated 19-05-2023 and physical copy of application dated 13-06-2023) has admitted non-compliance of provision of section 173(1) and Secretarial Standards 1 of the Companies Act, 2013 for the financial year 2021-22 that the first board meeting of the company was held on 21′ May,2021 followed by a second board meeting on 10^th June 2021, third board meeting on 12^th October 2021 and fourth board meeting on 25^th January 2022. In the instant case, the Second Board Meeting was held on 10^th June 2021 and the subsequent third board meeting which should have been held within a period of 120 days i.e., 07^th October 2021 as prescribed under section 173(1) of the Companies Act 2013 however company has conducted the third board meeting on 12^th October 2021 which is in violation of section 173(1) and Secretarial Standards 1 of the Companies Act, 2013.

ORDER

6. After considering the submission made in the application and the facts of the case it is proved that there is violation of section 173(1) and Section 118 (10) of the Companies Act, 2013. Accordingly, a penalty under the provisions of the Companies Act, 2013 for the year 2021-2022 is imposed as per the table given below;

Penalty under section 173(4) of the Companies Act for violation of section 173(1) of the Companies Act are as follows:

Penalty under Section 118(11) of the Companies Act, 2013 for violation of Section of 118(10) of the Companies Act 2013, read with Secretarial Standard-1 are as follows:

I am of this opinion that, the penalty is commensurate with the aforesaid failure committed by every officer of the company.

The noticee shall pay the said amount of penalty through “Ministry of Corporate Affairs” portal and proof of payment be produced for verification within 30 days of receipt of this order.

Please note that as per Section 454(8)(i) of the Companies Act, 2013 where company does not pay the penalty imposed by the Adjudicating Officer or the Regional Director within a period of ninety days from the date of 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.

Where an officer of a company who is in default does not pay the penalty 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.

Therefore, in case of default in payment or penalty, prosecution will be filed under section 454(8)(i) and (ii) of the Companies Act, 2013 at your own costs without any further notice.

(PARVINDER SINGH, I.C.L.S)
REGISTRAR OF COMPANIES
TELANGANA, HYDERABAD