MCA Imposes Penalty on Company & Directors for Violating Section 135(5) of Companies Act, 2013

In a recent development, the Ministry of Corporate Affairs (MCA) has imposed penalties on AECOM India Private Limited, along with its directors, for violations of Section 135(5) of the Companies Act, 2013. The order, issued by the Office of Registrar of Companies, NCT of Delhi & Haryana, highlights the company’s failure to comply with Corporate Social Responsibility (CSR) spending obligations.

1. Appointment of Adjudicating Officer:The Ministry of Corporate Affairs appointed an Adjudicating Officer through a Gazette Notification (No. A-42011/112/2014-Ad.II) dated March 24, 2015, in accordance with the powers conferred by Section 454(1) of the Companies Act, 2013, and the Companies (Adjudication of Penalties) Rules, 2014.

2. Company Details:AECOM India Private Limited, incorporated under the Companies Act, 1956, with its registered office in Gurgaon, Haryana, faced penalties for non-compliance with CSR spending obligations during the financial year 2021-22.

3. Facts about the Case:The case emerged when the company, through an application dated May 29, 2023, admitted non-compliance with Section 135(3)(o) and Section 135(5) of the Companies Act. The company had initially spent Rs. 65,53,120 on CSR, but a subsequent calculation revealed an underspending of Rs. 6,35,326, which was subsequently transferred to the “PM Cares Fund.”

4. Factors Considered for Adjudication:The Adjudicating Officer considered the voluntary application for adjudication, the rectification of the default by the company, and the company’s compliance with its obligations as per Section 135 of the Act.

5. Relevant Provision of Section 135 (Corporate Social Responsibility):Section 135(5) of the Companies Act, 2013, places an obligation on the Board of every company 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.

6. Adjudication of Penalty:The Adjudicating Officer, in exercising the powers conferred, imposed penalties on AECOM India Private Limited and its Directors, Mr. Jatin Didwania and Mr. Avinash Misra, for violating Section 135(5) of the Companies Act, 2013. The penalties were calculated as per the provisions of Section 135(7) of the Act.

7. Order:The order directs AECOM India Private Limited, Mr. Jatin Didwania, and Mr. Avinash Misra to pay the imposed penalties within 90 days of receiving the order. The payment is to be made online through the MCA website. Parties have the option to appeal the order within sixty days, and non-compliance may lead to further consequences as per Section 454(8) of the Act.

This order serves as a reminder of the strict adherence required by companies to fulfill their CSR obligations and the consequences for non-compliance. Companies are urged to be diligent in their CSR activities and ensure timely and accurate reporting to avoid penalties and legal ramifications.

For further information, parties involved can refer to the order issued by the Registrar of Companies, NCT of Delhi & Haryana, bearing No. ROC/D/Adj Order/Section 135/AECOM/1-5, dated January 3, 2024.

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Government of India
Ministry of Corporate Affairs,
Office of Registrar of Companies,
NCT of Delhi & Haryana
4th Floor, IFCI Tower, 61, Nehru Place,
New Delhi – 110019

Order of Penalty Pursuant to Section 135 of the Companies Act, 2013 in the Matter of Adjudication of AECOM India Private Limited (CIN: U74210HR2008FTC038183)

1. Appointment of Adjudicating Officer:

Ministry of Corporate Affairs vide its Gazette Notification No. A-42011/112/2014-Ad.II, dated 24.03.2015 (See SO 831(E), dated 2403.2015) 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 Companies (Adjudication of Penalties) Rules, 2014 for adjudging penalties under the provisions of this Act.

2. Company: –

Whereas the company viz. AECOM INDIA PRIVATE LIMITED (herein after known as `company’) incorporated under the Companies Act, 1956 having its registered office as per MCA21 Registry at address 9th Floor, Infinity Tower – C, DLF Cyber City, DLF Phase-II, Gurgaon,Haryana,122002, India. The financial & other details of the subject company for immediately preceding F.Y. as available on MCA-21 portal is stated as under:

3. Facts about the Case: –

i. This office is in receipt of application on 29.05.2023 (GNL 1 SRN F61320933) wherein the company, directors and KMP have admitted non-compliance of section 135(3)(o) and Section 135(5) of the Act. It is stated that the Company spent Rs. 65,53,120/- on account of CSR during the F.Y. 2021-22. Subsequently the Company noticed a calculation error and as per the revised calculation the spending requirement was Rs. 71,88,446/- which resulted in an underspending of Rs.6,35,326/- towards its CSR obligation for F.Y. 2021-22.

ii. That the Company came to know about the unspent amount of Rs. 6,35,326/-after the expiry of time limit of 6 months from end of Financial Year, provided in the law for transfer of unspent amount to the funds specified in Schedule VII.

iii. Subsequently, the company transferred Rs. 6,35,866 against unspent amount of Rs. 6,35,326/- to “PM Cares Fund”, a fund specified under Schedule VII of the Companies Act 2013 on December 09, 2022.

iv. A SCN was issued to company vide dated 19.09.2023 in response to which company had submitted its reply on 03.10.2023. In view of submissions made in reply, a hearing in the matter was scheduled for oral submissions on 28.12.2023. Mr. Neeraj Kumar (KMP) and Mr. Divesh Goyal (PCS) authorised representatives of the Company appeared for hearing and submitted as under:

That in the present case the company has already rectified the default and it has on its own filed an application to adjudicate this matter. Therefore, a lenient view may be taken at the time of imposition of penalties.

4. Factor considered for adjudication:

i. It is undeniable that at the first instance, the company and its officers had applied for adjudication on its own, after admitting its default.

ii. It is clear that section 135 of the Act and rules made thereunder casts an onus on the Board to comply with the provisions. The responsibility inter alia includes that the Board shall not only 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 years but shall also satisfy itself regarding the utilisation of the disbursed CSR funds. The Board here refers to all the directors of the company, whether executive or otherwise. It is a trite principle of law that in case the law casts an obligation upon any person/body, the liability in case of default in complying with such obligation would also squarely lie with such person/body. The FAQs issued by the Ministry also unequivocally point out in the same direction that —CSR is a Board driven process. Thus, the onus of non-compliance would also lie on the Board itself.

iii. That as per above observations and provisions mentioned herein Mr. Neeraj Jain, Company Secretary (applicant no.4) who did not hold Board positions would not be liable under section 135. However, the subject company and its Board of Directors are liable for penalties u/s 135(7) of the Act.

5. The relevant provision of Section 135 (Corporate Social Responsibility):

(5) “The Board of every 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 years [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:

Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities:

Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount [and, unless the unspent amount relates to any ongoing project referred to in sub-section (6), transfer such unspent amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year.

Provided also that if the company spends an amount in excess of the requirements provided under this sub-section, such company may set off such excess amount against the requirement to spend under this sub-section for such number of succeeding financial years and in such manner, as may be prescribed.

(7) 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 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 lakh rupees, whichever is less.

6. Adjudication of penalty: –

i. The subject company does not get covered under the purview of small company as defined u/s 2(85) of the Act. Hence, the benefit of section 446B would not be applicable on the company.

ii. Even though the applicant has preferred the adjudication application on his own, the present law does not allow for any lenient treatment in such cases.

iii. Now in exercise of the powers conferred on me vide Notification dated 24th March, 2015 and having considered the reply submitted by the noticee (s) in response to the notice issued on 19.09.2023 and hearing held in the matter on 28.12.2023, I do hereby impose the penalty on the company and its Board of Directors for violation of section 135 (5) of the Companies Act, 2013 r/w Rule 10 of the Companies (Corporate Social Responsibility Policy) Rules, 2014:

7. Order:

a. Names of parties as mentioned in the table above are hereby directed to pay the penalty amount as per column no. `D’ therein. In case of parties other than company, such amount is required to be paid out of their own funds.

b. The said amount of penalty shall be paid through online by using the website mca.gov.in (Misc. head) in favor of “Pay & Accounts Officer, Ministry of Corporate Affairs, New Delhi, within 90 days of receipt of this order, and intimate this office with proof of penalty paid.

c. Appeal against this order may be filed with the Regional Director (NR), Ministry of Corporate Affairs, B-2 Wing, 2nd Floor, Paryavaran Bhawan, CGO Complex, Lodhi Road, New Delhi-110003 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 the order. [Section 454(5) & 454(6) of the Act read with Companies (Adjudicating of Penalties) Rules, 2014].

d. Your attention is also invited to section 454(8) of the Act in the event of non­compliance of this order.

(Pranay Chaturvedi, ICLS)
Registrar of Companies
NCT of Delhi & Haryana

No. ROC/D/Adj Order/Section 135/AECOM/1-5

Dated: 3-1-24