Introduction: The Registrar of Companies, Maharashtra, Pune, has issued an adjudication order imposing penalties on Khed Developers Limited (CIN: U70102PN2008PLC131478) for non-compliance with the provisions of Section 149(4) of the Companies Act, 2013, and Rule 4 of the Companies (Appointments of Directors) Rules, 2014. The order, issued under Section 454(3) of the Companies Act, highlights the importance of adhering to the stipulated requirements for the appointment of independent directors.
Background: Khed Developers Limited, with its office at FL No. C-303 Maharana Heights, Chavhanmala, Holewadi, Pune, Maharashtra, is governed by the provisions of the Companies Act, 2013. The adjudication order was issued by the appointed Adjudicating Officer in response to the company’s failure to appoint the required number of independent directors as mandated by law.
Violation and Relevant Provisions: The violation pertains to the non-appointment of the requisite number of independent directors as specified in Section 149(4) of the Companies Act, 2013, and Rule 4 of the Companies (Appointments of Directors) Rules, 2014. These provisions require every listed public company to have at least one-third of its total directors as independent directors, with a minimum of two independent directors in certain specified cases.
Facts about the Case
i. Criterion Fulfillment: The company fulfilled the criteria for independent directors due to its paid-up share capital being Rs. 571,081,974/- during the financial years from 01.04.2014 to 31.03.2022.
ii. Non-compliance Duration: The company lacked the required number of independent directors from 01.04.2014 to 12.12.2022, with the offense adjudicable from 21.12.2020.
iii. Board Composition Imbalance: The company failed to constitute a proper balance of executive and non-executive directors on its board due to the default in appointing independent directors.
iv. Adjudication Notice: The Adjudication Officer issued an Adjudication Notice under Section 454(4) of the Companies Act, 2013, and Rule 3(2) of the Companies (Adjudication Of Penalties) Rules, 2014, for the violation.
v. Company’s Response: The company stated in its reply that it continuously sought a suitable candidate with extensive experience in law, finance, administration, or handling farmers but couldn’t find one. This information was disclosed in the Board Report for the respective financial years.
Penalty Imposition: The Adjudicating Officer, after considering the company’s response, imposed penalties on the company and its officers in default. The penalty amounts were determined in accordance with Rule 3(12) and Rule 3(13) of the Companies (Adjudication Of Penalties) Rules, 2014, read with General Circular No. 1/2020 dated 02.03.2020.
The penalty imposition table is not provided in the excerpt, but it would specify the amounts applicable to the company and its officers.
Order and Appeals: The Adjudicating Officer issued the order based on the findings, and the noticee(s) were directed to pay the imposed penalties through the Ministry of Corporate Affairs portal. The order allows for an appeal under Section 454(4) of the Companies Act, with a sixty-day window from the date of receiving the order. Failure to pay the penalty within 90 days may result in consequences as per Section 454(8)(ii) of the Act.
Conclusion: This adjudication order emphasizes the legal obligations of companies, especially listed public companies, to appoint the required number of independent directors. Non-compliance can result in significant penalties, and companies are urged to ensure timely adherence to corporate governance norms as prescribed by the Companies Act, 2013, and related rules.
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OFFICE OF THE REGISTRAR OF COMPANIES
MAHARASHTRA, PUNE
MINISTRY” OF CORPORATE AFFAIRS
GOVERNMENT OF INDIA
Rocp/ADJ/149/23-24/KHED/B/6/2264 To 2272
Date: 19 Dec, 2023
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ADJUDICATION ORDER
Adjudication Order of ‘penalties in the matter of KHED
DEVELOPERS LIMITED (U70102PN2008PLC131478) under
Section 454(3)read with section 149 4 of the Companies Act,
2013 read with Rule 4 of the Companies
(Appointments of Directors) Rules, 2014.
- Companies (Adjudication Of Penalties) Rules, 2014 as mended by Companies Adjudication of Penalties) Amendment Rules, 2019 (G.S.R.131(E).)
- Provisions of Sub-section (4) of Section 149 and Section 172 of the Companies Act, 2013.
- Gazette Notification of Ministry of Corporate Affairs vide No. A42011/112/2014-Ad.II, dated 24.03.2015 (see S.O. 831(E), dated 24.03.2015)
- See circular No.14/2014, dated 9-6-2014 (clarification on Independent Director) Rules, 2014
- Companies (Amendment) Act, 2020.
- The undersigned vide Companies (Amendment) Act, 2020 is entrusted to adjudicate penalties under. section 149 of the Act with effect from21.12.2020.
In respect of:
WHEREAS KHED DEVELOPERS LIMITED having CIN-U70102PN2008PLC131478 is a company governed by the provisions Act and registered with this office having its office at- FL No. C-303 Maharana Heights, Chavhanmala, Holewadi, Pune Maharashtra 410505 India.
1. Appointment of Adjudicating Officer:
Ministry of Corporate Affairs vide its Gazette Notification No. A:42011/112/ 014-Ad.II, dated 24.03.2015 (see SO 831(E), dated 24.03.2015) appointed undersigned as Adjudicating Officer in exercise of the powers conferred by section 454(1) of the Companies act, 2013 (herein after known as Act) r/w rule 3(1) of Companies (Adjudication of Penalties) Rules, 2014 for adjudging penalties and under the provisions of this Act. Th undersign d vide Companies (Amendment) Act, 2020 is entrusted to adjudicate penalties under section 172 of the Companies ACT, 2013 with effect from 21.12.2020.
2. Company:
WHEREAS KHED DEVELOPERS LIMITED having CIN-U70102PN2008PLC131478 is a company governed by the provisions Act and registered with this office having its office at- FL No. C- 03 Maharana Heights, Chavhanmala, Holewadi, Pune Maharashtra 410505 India.
3. Relevant provisions of the Companies Act, 2013:
That Section 149(4) of the Companies Act, 2013 states that :-
Sectio4 149(4) of the Act provides that Every listed public company shall have at least one-third of the total number of directors a independent directors an the Central Government may prescribe the mini m number independent Directors in case of any class or classes of public companies.
Explanation. —For the purposes of this sub-section, any fraction contained in such one-third number shall be rounded off as one.
That Rule 4 of the Companies (Appointments of Directors) Rules, 2014 states that :-
Read with rule 4 of Companies (Appointment of Directors) Rules, 2014, 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 core rupees or more; or
(ii) the Public Companies having turnover of one hundred crore rupees or more; or
(iii) the Pub is Companies which have, in aggregate, outstanding debentures nd deposits, excceding 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 f an independent director shall be filled-up by the Board at the earliest b t 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.
Explanation.- For the purposes of this rule, it is here by clarified that, the paid-up share capital or turnover or outstanding loans, debentures and deposits, as the case may be, as existing on the last date of latest audited financial statements shall be taken into account:
Provided that a company belonging to any class of companies for which a higher number of independent directors has been specified in the law for the time being in force shall comply with the requirements specified in such law.
“(2) The following classes of unlisted public co any shall not be covered under sub-rule(1), namely: -.
(a) joint venture.
(b) wholly owned subsidiary; and
(c) a dormant company as defined under section 455 of the Act.”
That Section 172 of the Companies Act, 2013 states that :-
Section 172 of the Act provides that If a company is in default in complying with any of the provisions of this Chapter (Chapter XI: Appointments & Qualification of Directors) 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 on lakh rupees in case of an officer who is in default.
4. Facts about the Case:
a. In the instant case, it is seen from MCA-21 records that the criteria for dependent directors is fulfilled by the company on account of Paid up Share capital being Rs. 571,081,974/-during the FY from 01.04.2014 to 31.03.2022.
b. Further, as per records, there are only one directors in e category of Independent director. Thus, the company is not having the required no. of Independent directors from 01.04.2014 to 12.12.2022. However, the said offence is adjudicable w.e.f. 21.12.2020.
Further, The company is crossing the above threshold with up share capital as per the financial statements since 20 is mandatory to constitute Audit Committee consisting of three Directors with independent Directors forming a m section 177 of the Companies Act, 2013. However, the defaulted in appointment of Independent Directors on b failed to constitute proper balance of Executive and Directors on Board of the Company. Hence, company an have violated the provisions of Section 149(4) of the Companies Act, 2013.
c. Accordingly, the adjudication officer has issued adjudication ROCP/ADJ/Sec-149/JTA(BW)/23-24/1136 to 1144 dat (herein after referred as Adjudication Notice) under Section with 149 of the Companies Act, 2013 read with Rule 3(2) (Adjudication of Penalties), 2014 as amended in Amendment to the company and its officers in default for the violation o of the act as mentioned in para “b” above;
d. A reply to the Adjudication notice has been received on 10.08.2023 from the company and its Directors stating that the company was continuously in search of a suitable candidate having vast experience law/ finance/ administration or handling farmers. The company could not find a suitable candidate and the disclosed in the Board Report for the respective Financial years.
Further, The company has requested that not to initiate impose ay penalty as referred in the Notice.
e. Further, under section 454(4) of the Act read with R Companies (Adjudication Of Penalties) Rules, 2014, Notice an opportunity to submit a reply by issuing an Adjudication ROCP/ADJ/ Sec-149 /JTA(BW)/23-24/1136 to 1144 dated 27.07.2023 (herein after referred as Adjudication Notice) to why the pen be imposed under the provisions of 172 of the Act against and its officers in default for the above stated violations.
f. As per the records available, it is seen as under-
From the date 21.12.2020 till 12.12.2022, the company Independent Director as against minimum number of two Independent Directors as of Companies (Appointment, of Directors) Rubs, 2014.
g. The penalty has been imposed on KMP who is in default for the period from 21.12.2022 till the date of cessation of KMP i.e.15.06.2022 and in absence of the KMP, the penalty has been imposed on the directors who are in default for the period from 16.06.2022 to 12.12.2022.
h. Hence, I am in the opinion that no further hearing in physical is required to ascertain the violation of the said section.
Furthermore, the Noticee(s) are at liberty to file appeal against this order as per Para. 5.(e) of this order. Hence the Order-
5. ORDER:
a. As per the records available, it is seen as under-
From the date 21.12.2020 till 12.12.2022, the company has only one Independent Director as against minimum number of two Independent as required by 149 (4) of the Companies Act, 2013 and Rule 4 of companies (Appointment of Directors) Rules, 2014.
Thus, the company and its officers have violated provision 149 read Rule 4 of Companies (Appointment of Directors) Rules, 2014 and are liable for action u/s Section 172 of the Act.
b. In exercise of the powers conferred on the undersigned vide Notification dated 24 March, 2015 and after taking into account the factors mentioned herein above, I do hereby impose the penalty on the company and its officers in default pursuant to Rule 3(12) of Companies (Adjudication Of Penalties) Rules, 2014 and the proviso of the said rule and Rule 3(13) of Companies (Adjudication Of Penalties) Rules, 2014 r/w General Circular No. 1/2020 dated 02.03.2020; as per table below for violation of section 149(4) of the Act:-
c. I am of the opinion that penalty so imposed is commensurate with the aforesaid failure committed by the notice(s).The delay ‘n issuance of order is on account of other admin work.
d. The Noticee(s)/applicant(s) shall pay the penalty so imposed through Ministry of Corporate Affairs portal only as per rule 3(14 of Companies (Adjudication of Penalties) Rules, 2014.
e. Appeal against this order may be filed under section 454(4) of the Act, in writing with the Regional Director (Western Region), Ministry of Corporate Affairs 100, Everest, 5th Floor,’ Netaji Subhash Road, Marine Drive, Mumbai-40000 , within a period of sixty days from the date of receipt of this order, Form ADJ setting forth the grounds of appeal and shall be accompanied by a certified copy of this order. [Section 454 of the Act read with Companies (Adjudication of Penalties) Rules, 2014 as emended by Companies (Adjudication of Penalties) Amendment Rules, 2019.
f. Your attention is also invited to section 454(8)(ii) of the Act regarding consequences of non-payment of penalty within the prescribed time limit of 90 days from the date of the receipt of copy of this order in terms of the provisions of section 454(8)(i) of the Act.
g. In terms of the provisions of sub-rule (9) of Rule 3 of Companies (Adjudication of Penalties) Rules, 2014 as amended by Companies (Adjudication of Penalties) Amendment Rules, 2019, copy of this order is being sent to KHED DEVELOPERS LIMITED and all directors/officers in default mentioned herein above and also to Office of the Regional Director (Western Region) and Ministry of Corporate Affairs at New Delhi.
