MCA imposes penalty for delay in Regularisation of Additional Director- Section 161

In a recent decision by the Ministry of Corporate Affairs (MCA), NEU Science and Metallurgical Technology Private Limited has been penalized for non-compliance with the Companies Act, 2013. The penalty pertains to the company’s failure to regularize an additional director as mandated by Section 161 of the Act.

Background and Appointment of Adjudicating Officer

The Ministry of Corporate Affairs, through its Gazette notification no A-42011/112/2014-AdJI dated March 24, 2015, appointed the undersigned as the Adjudicating Officer under Section 454 of the Companies Act, 2013. This appointment was made to adjudge penalties related to non-compliance with the Act, specifically in the case of NEU Science and Metallurgical Technology Private Limited.

Nature of Violation

NEU Science and Metallurgical Technology Private Limited, registered under CIN-U93090UP2018PTC105331, had appointed Mr. Roshan Jha as an Additional Director on May 27, 2021. However, the company failed to regularize Mr. Jha’s position as a director within the stipulated time frame. This lapse is a clear violation of Section 161(1) of the Companies Act, 2013, which requires additional directors to be regularized by the date of the next Annual General Meeting or the last date on which such a meeting should have been held.

According to Section 172 of the Act, if a company defaults in complying with any provisions and no specific penalty is prescribed, the company and its officers can be penalized up to ₹50,000, with additional penalties of ₹500 per day of continued failure, capped at ₹3 lakh for the company and ₹1 lakh for each officer.

Penalty Calculation

The default period for NEU Science was from October 1, 2022, until April 25, 2024, totaling 572 days. The maximum penalty for this period, as per Section 172, amounted to ₹3,36,000. However, considering the provisions of Section 446B, which reduces penalties for small companies, the adjudicated penalty was adjusted to ₹1,50,000 for the company and ₹50,000 each for the three directors involved.

Here is a breakdown of the penalties:

• Company: ₹1,50,000
• Directors: ₹50,000 each (Mr. Chen Xudong, Mr. Zhang Wenxin, and Mr. Roshan Jha)

Non-Compliance and Final Order

Despite receiving a show cause notice on April 25, 2024, the company and its directors failed to respond within the allotted 15-day period. Consequently, the lack of response was interpreted as an acknowledgment of non-compliance, reinforcing the decision to impose penalties.

The company is required to pay the adjudicated penalty through the MCA21 portal within 90 days of receiving the order. Additionally, the company must file INC-28, attaching the adjudication order and proof of payment.

Appeal Process

If NEU Science or its directors wish to contest this order, they can file an appeal with the Regional Director (Northern Region) within 60 days from the receipt of the order. The appeal must be submitted in Form ADJ, accompanied by a certified copy of the order.

GOVERNMENT OF INDIA
MINISTRY OF CORPORATE AFFAIRS
OFFICE OF REGISTRAR OF
COMPANIES, Uttar Pradesh
37/17, Westcott Building, The Mall,
Kanpur — 208001 (U.P.)
Phone : 0512 — 2310443/2310227

ORDER OF ADJUDICATION OF PENALTY UNDER SECTION 454 OF THE COMPANIES ACT, 2013  READ WITH RULE 3 OF THE COMPANIES (ADJUDICATION OF PENALTIES) RULES, 2014 FOR VIOLATION OF PROVISONS OF SECTION 161 OF THE COMPANIES ACT, 2013 .

IN THE MATTER OF NEU SCIENCE AND METALLURGICAL TECHNOLOGY PRIVATE LIMITED.

1. The Ministry of Corporate Affairs vide its Gazette notification no A-42011/112/2014-AdJI dated 24.3.2015, has appointed the undersigned as Adjudicating Officer in exercise of the powers conferred by section 454 of the Companies Act, 2013 (hereinafter known as Act) read with Companies (Adjudication of Penalties) Rules, 2014 for adjudging penalties under the provisions of this Act.

2. Whereas the Company NEU SCIENCE AND METALLURGICAL TECHNOLOGY PRIVATE LIMITED (CIN-U93090UP2018PTC105331) has been registered under the provisions of the Companies Act, on 14.06.2018 and is having its registered office situated at Shop No BS 05 Tower B, Ashiyana Apartment, Saraswati Kunj Near Gaur City 2, Greater Noida West, Ghaziabad-201009, Uttar Pradesh. The authorized capital of the Company is Rs. 1,000,000/-

3. During inquiry, it was observed that the company has appointed Mr. Roshan Jha as Additional director on 27.05.2021 and he is still working in the capacity of the additional director. Hence the company and its directors have violated the provisions of Section 161(1) of the Companies Act, 2013 and are liable for penal action under Section 172 of the Companies Act, 2013.

4. Section 161(1) of the Companies Act, 2013 provides that:-

“The articles of a company may confer on its Board of Directors the power to appoint any person, other than a person who fails to get appointed as a director in a general meeting, as an Additional Director at any time who shall hold office up to the date of the next annual general meeting or the last date on which the annual general meeting should have been held, whichever is earlier.”

Section 172 of the Companies Act, 2013 provides that —

“If a company is in default in complying with any of the provisions of this Chapter 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 one lakh rupees in case of an officer who is in default.

5. Section 446B of the Companies Act, 2013 provides that —

446B. Notwithstanding anything contained in this Act, if penalty is payable for non-compliance of any of the provisions of this Act by a One Person Company, small company, start-up company or Producer Company, or by any of its officer in default, or any other person in respect of such company, then such company, its officer in Default or any other person, as the case may be, shall be liable to a penalty which shall not be more than one- half of the penalty specified in such provisions subject to a maximum of two lakh rupees in case of a company and one lakh rupees in case of an officer who is in default or any other person, as the case may be.

Explanation.—For the purposes of this section-

(a) “Producer Company” means a company as defined in clause (1) of section 378A;

(b) “start-up company” means a private company incorporated under this Act or under the Companies Act, 1956 and recognised as start-up in accordance with the notification issued by the Central Government in the Department for Promotion of Industry and Internal Trade.]

6. This office has issued show cause notice No. 07/21/Adj/2024/Neu science/594 to 597 Dated: 25.04.2024 to the company and its directors giving 15 days time to reply. However, inspite of elapse of the said time period neither the company nor its directors have furnished their reply. Thus, violating provisions of Section 161(1) of the Companies Act,2013.

7. Further, neither the company nor its directors or their representatives have either furnished reply which has further strengthened the apprehension that the company has no reply to furnish. Thus, making the company and its directors liable to penalty as per Section 172 of the Companies Act, 2013.

8. The date of default in the matter has been taken as 10.2022, i.e. the date upto which the additional director appointed on 27.05.2021 Mr. Roshan Jha should have been regularized as a director of the company.

The period of default is from 01.10.2022 to 25.04.2024(the date of issuance of SCN)=572 days

9. Having considered the facts and circumstances of the case and after taking into account the factors above, I hereby impose a penalty of Rs. 1,50,000/- (Rupees One lac fifty thousand only) on the company and Rs.50,000/-( Rupees fifty thousand only) on three directors under section 172 of the Act read with Section 446B of the Act on each of the Noticee of Show Cause Notice dated 25.04.2024 under section 172 of the Act, for failure to make compliance of the Act, U/s 161(1) of the Act. 1 am of this opinion that penalty is commensurate with the aforesaid failure committed by the Noticee. The details of penalty imposed is as under :-

10. The Noticee shall pay the amount of penalty so imposed through MCA21 portal only as per rule 3(14) of the Companies (Adjudication of Penalties) Rules, 2014 within 90 days receipt of this order. The company needs to file INC-28 as per the provisions of the Act, attaching the copy of adjudication order alongwith paid challan.

11. Appeal against this order may be filed in writing with the Regional Director (Northern Region), Ministry of Corporate Affairs, COO Complex, Lodi Road, New Delhi, within a period of sixty days from the date of receipt of this order, in Form ADJ 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 (Adjudication of Penalties) Rules, 2014].

12. Your attention is also invited to section 454(8) of the Companies Act, 2013, in the event of non­compliance of this order. In Case appeal is made 0/o Registrar of Companies, U.P. may be informed alongwith the penalty imposed & the payments made.

(Seema Rath)
Registrar of Companies & Adjudicating Officer-
Uttar Pradesh, Kanpur.

No.07/21/Adj/2024/Neu Science/2759 to 2763

Dated  26/07/2024