MCA imposes 66.16 Lakh penalty for Violation of CSR provisions

In a significant development, the Registrar of Companies in Karnataka has imposed a substantial penalty of Rs. 66,16,156 (66.16 Lakh) on Saankhya Labs Private Limited for non-compliance with Corporate Social Responsibility (CSR) provisions under Section 135(6) of the Companies Act, 2013. This adjudication has far-reaching implications for corporate governance and CSR accountability.

Appointment and Authority: The Ministry of Corporate Affairs appointed the Adjudicating Officer under Section 454 of the Companies Act, 2013, to adjudicate penalties. The case involves Saankhya Labs Private Limited, a company incorporated in 2006 and registered under the jurisdiction of the Registrar of Companies, Karnataka.

CSR Committee and Obligations: Section 135(1) of the Act mandates that companies meeting specific financial criteria establish a Corporate Social Responsibility Committee. This committee must consist of at least three directors, with at least one being an independent director.

CSR Spending Obligations: Section 135(5) of the Act requires companies to spend at least two percent of the average net profits of the company made during the three immediately preceding financial years on CSR activities, as outlined in the Corporate Social Responsibility Policy.

Unspent CSR Amount and Transfers: Section 135(6) of the Act stipulates that any unspent CSR amount from ongoing projects, fulfilling prescribed conditions, must be transferred to a special account known as the Unspent Corporate Social Responsibility Account within 30 days from the end of the financial year. This amount should then be spent within three financial years, or it must be transferred to a Fund specified in Schedule VII.

Penalty Provisions: Section 135(7) outlines penalties for non-compliance. A company in default is liable for a penalty, while officers of the company in default may also face penalties.

Adjudication Application: Saankhya Labs Private Limited filed an adjudication application, acknowledging a violation of Section 135 of the Act. It was revealed that the company failed to fulfill its CSR spending obligations for the financial years 2020-21 and 2021-22. For 2020-21, the company should have spent Rs. 18,63,032 on CSR activities but contributed only Rs. 3,00,000 and transferred the unspent amount with a delay. In 2021-22, no amount was spent, and the unspent CSR amount was transferred with a delay.

Hearing and Submission: Following the adjudication application, a hearing took place, and Mr. Dwarakanath, a practicing company secretary, made submissions on behalf of the company.

Applicability of Lesser Penalties: It is noted that the company does not qualify as a small company under Section 2(85) of the Companies Act, 2013, and therefore, the provisions of imposing lesser penalties as per Section 446B do not apply.

Penalty Imposition: Considering the violations for two distinct financial years, the Adjudicating Officer imposed penalties on the company and the officers in default separately for each year.

• For Financial Year 2020-21:
  • Company: Rs. 31,26,064
  • Mr. Parag Naik Balwant: Rs. 1,56,304
• For Financial Year 2021-22:
  • Company: Rs. 31,21,624
  • Mr. Parag Naik Balwant: Rs. 1,56,082
  • Ms. Anusha: Rs. 1,56,082

Payment and Appeal: The company and its directors/key managerial personnel are instructed to pay the penalty amounts within 90 days from the date of receipt of the Order and file the necessary forms. An appeal can be filed with the Regional Director within 60 days.

Conclusion:The imposition of a substantial penalty of Rs. 66,16,156 (66.16 Lakh) on Saankhya Labs Private Limited underscores the significance of adhering to CSR spending obligations and timely transfers as mandated by the Companies Act, 2013. Non-compliance with CSR regulations can result in significant financial penalties, highlighting the need for transparency and adherence to corporate governance standards.

Registrar of Companies, Karnataka
Kendriya Sadan, 2nd Floor, ‘E’- Wing.
Koramangala, Bengaluru – 560 034
Phone : 080-25537449/25633105
E-mail ID: roc.bangalore@mca.gov.in

File No. ROC(B)/Adj.Ord.454.135/Saankhya/Co.No.41339/2023 Date:03.08.2023

ORDER OF ADJUDICATION OF PENALTY UNDER SECTION 454 OF COMPANIES ACT READ WITH RULE 3 OF THE COMPANIES (ADJUDICATION OF PENALITESI RULES. 2014 FOR VIOLATION OF PROVISIONS OF SECTION 135 OF THE COMPANIES ACT. 2013 BY SAANKHYA LABS PRIVATE LIMITED

Ministry of Corporate Affairs vide its Gazette Notification No. A-42011/112/2014-Ad.II dated 24.03.2015 has appointed the undersigned as Adjudicating Officer in exercise of the powers conferred by section 454 of the Companies Act 2013 (hereinafter referred to as Act) read with Companies (Adjudication of Penalties) Rules. 2014 for adjudging penalties under the provisions of Companies Act 2013.

2. The company. Saankhya Labs Private Limited (hereinafter referred to as Company) was incorporated on 29.12.2006 under the jurisdiction of Registrar of Companies. Karnataka and the registered office of the company is presently situated at 3″ Level, Mezaninne Floor, No.3, Infantry Road, Vasanth Nagar. Embassy Icon Building, Bengaluru -560001.

3. As per section 135(1) of the Act. every company having netgoth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during the immediately preceding financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors. out of which at least one director shall be an independent director.

4. As per section 135(5) of the Act, the board of event company referred to in sub-section (1) shall ensure that the company spends, in every financial year. at least two per cent of the average net profits of the company made during the three immediately preceding financial year. or where the company has not completed the period of three financial years since its incorporation, during such immediately, preceding financial years. in pursuance of its Corporate Social Responsibility Policy

5. As per section 135(6) of the Act, any amount remaining unspent under sub-section (5), pursuant to any ongoing project fulfilling such conditions as may be prescribed, undertaken by a company in pursuance of tis Corporate Social Responsibility Policy, shall be transferred by the company with a period of 30 days from the end of financial year to a special account to be opened by the company in that behalf for that financial year in any scheduled bank to be called the Unspent Corporate Social Responsibility Account and such amount shall be spent by the company in pursuance of its obligation towards the Corporate Social Responsibility Policy within a period of three financial years from the date of such transfer, failing which, the company shall transfer the same to a Fund specified in Schedule VII, within a period of thirty days from the date of completion of the third financial year.

6. As per section 135(7) of the Act if a company is in default in complying with the provisions of sub-section (5) or sub-section (6). the company shall be liable to a penalty of twice the amount required to be transferred by the company to the Fund specified in the Schedule VII or the Unspent Corporate Social Responsibility Account. as the case may be. or one crore rupees, whichever is less, and every officer of the company who is in default shall be liable to a penalty of one-tenth of the amount required to be transferred by the company to such Fund specified in Schedule VII, or the Unspent Corporate Social Responsibility Account. as the case may be, or two lath rupees, whichever is less.

7. The company has filed adjudication application on 18.04.2023 !or violation of section 135 of the Act. This application has been signed by Mr. Parag Naik 8alwant Managing Director. It is seen that for the financial year 2020-21, the company ought to have spent Rs. 18,63,032 towards CSR activities. However, it had contributed a sum of Rs. 3.00,000 towards CSR activities and identified an ongoing project and transferred the unspent CSR amount of Rs. 15,63,032 to a special account opened by the company for this purpose on 17.082021 with a delay as the unspent amount pertaining to an ongoing project ought to have been transferred within a period of 30 days from the end of the financial year. Similarly, for the financial year 2021-22, the company ought to have spent Rs. 15,60.812 towards CSR activities. However, it did not spend any amount pertaining to FY 2021-22 in the particular year and identified an ongoing project and transferred the entire unspent CSR amount of Rs. 15,60,812 to a special account on 15.07.2022 with a delay as the unspent amount pertaining to an ongoing project ought to have been transferred within a period of 30 days from the end of the financial year.

8. Pursuant to the adjudication application filed by the company, Notice of hearing was sent on 17.05.2023 and physical hearing was held on 31.05.2023 which was attended by Mr. Dwarakanath, practising company secretary who made submissions on the same lines as provided in the application.

9. As seen from the financial statements of the company and the criteria prescribed, the company does not fall under the definition of a small company as per the provisions of section 2(85) of the Companies Act. 2013. Therefore, the provisions of imposing lesser penalty as per section 446B of the Act shall not be applicable in this case.

10. Therefore, having considered the (acts and circumstances of the case and the submissions made by the company / director / key managerial personnel through their authorised representative. in view of the above said violations under the provisions of section 135 of the Act for two separate financial years which constitute two distinct defaults, in exercise of the powers vested under Section 454(3) of the Act. I do hereby impose penalty in the following manner on the company and all the officers in default

A. Penalty imposed under section 137(7) of the Act for violation of section 135(6) the Act for the financial year 2020-2021

B. Penalty imposed under section 137(7) of the Act for violation of section 135(6) of the Act for the financial year 2021-2022

11. The company and its directors / key managerial personnel are hereby directed to pay the penalty amount as tabulated above. separately for each financial year. within 90 days from the date of receipt of this Order and file Form INC-28 attaching a copy of the Order and payment challans. In case of directors, such penalty amount is required to be paid out of their own funds. The noticee shall pay the said amount of penalty online by using the website www.mca.gov.in (Miscellaneous head) specifying the details of this Order and the noticee who is paying the penalty.

12. Appeal, if any. against this Order may be filed with the Regional Director (South East Region), Hyderabad within a period of 60 days from the date of receipt of this Order in Form AD1 setting forth the grounds of appeal and shall be accompanied by a certified _copy of this Order,

13. Your attention is also invited to section 454(8) of the Companies Act 2013 in case of non-compliance of this Order wherein necessary penal action will be Initiated under section 454(8)(i) and 454(8)(ii) of the Companies Act. 2013 against the company and directors / key managerial personnel without further notice in the matter.

(Sanjay Sood)
Registrar of Companies. Karnataka
and Adjudicating Officer