The Ministry of Corporate Affairs (MCA) has taken punitive action against Smalticeram India Private Limited for a violation of Section 173(1) of the Companies Act, 2013, which mandates a minimum number of board meetings per year. This article provides a detailed analysis of the case, including the facts, penalties imposed, and compliance implications.
Detailed Analysis
1. Appointment of Adjudication Authority The order begins by noting the appointment of the Adjudicating Officer under Section 454 of the Companies Act, 2013, to adjudicate penalties as per the Act’s provisions.
2. Company Details The company in question is introduced as Smalticeram India Private Limited, with its registration details and registered office address provided.
3. Facts of the Case During the financial year 2022-23, the company held only two board meetings on June 28, 2022, and September 30, 2022. These meetings took place while two directors, Mr. Mahesh Bhat and Mr. Lauro Palazzi (nominated by the holding company, Smalticeram Unicer SPA), were serving on the board.
However, on January 9, 2023, Mr. Lauro Palazzi ceased to be employed by Smalticeram Unicer SPA, which had nominated him to the board of Smalticeram India Private Limited. According to Section 167(1)(h), his office became vacant. The holding company subsequently appointed Mr. Carlo Alberto Contini as its nominee, effective from May 15, 2023. The delay in this appointment was unintentional and procedural, involving translation and Apostille processes. Consequently, no further board meetings were convened during the financial year 2022-23.
4. Section 173(1) of the Companies Act, 2013 Section 173(1) is cited, which requires every company to hold a minimum of four board meetings per year, with no more than 120 days between consecutive meetings. The Central Government may notify exceptions for certain classes or descriptions of companies.
5. Penalty and Adjudication The Registrar of Companies was entrusted with the power to adjudicate penalties under Section 173(4) of the Companies Act, 2013, effective from May 15, 2023. The order mentions the adoption of the In House Adjudication Penalty Mechanism (IAM) for cases under the Companies Act, 1956, and Companies Act, 2013.
6. Submission of Presenting Officer The presenting officer submits that the company and its officers are liable for penalties due to non-compliance with Section 173(1) of the Companies Act, 2013, despite the company voluntarily filing an application for adjudication.
Penalty Details
7. Penalty Imposed Taking into account the circumstances and the provisions of Section 173(4) of the Companies Act, 2013, the Adjudicating Officer imposed a penalty for the default in holding board meetings during the period from January 9, 2023, to May 14, 2023.
Compliance and Appeal
8. Rectification of Default The company and its officers are directed to rectify the default promptly, failing which further action may be taken under Section 454A of the Companies Act, 2013, for non-compliance with the Act.
9. Payment of Penalty The company and its officers are instructed to pay the penalty amount from their personal sources or income through e-payment on the Ministry’s website within 60 days from the receipt of the order. Copies of the adjudication order and the Challan/ SRN generated after payment of the penalty should be filed in INC-28 under the MCA portal.
10. Appeal An appeal against this order can be filed with the Regional Director, North-Western Region, Ministry of Corporate Affairs, within 60 days from the date of receipt, following the specified form and accompanied by a certified copy of the order.
11. Consequences of Non-Payment The order reminds the company of the consequences of non-payment, including fines and imprisonment for both the company and its officers, as per Section 454(8) of the Companies Act, 2013.
Conclusion
This case underscores the significance of adhering to the requirement to hold a minimum number of board meetings as mandated by the Companies Act, 2013. The penalty imposed on Smalticeram India Private Limited serves as a reminder to companies and their officers to ensure strict compliance with corporate governance practices, including holding the prescribed number of board meetings. Failure to do so can result in substantial financial penalties and legal consequences, as outlined in this order. Companies must prioritize compliance with statutory obligations to avoid such penalties and maintain strong corporate governance standards.
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Before the Adjudicating Officer
Registrar of Companies, Gujarat, Dadra & Nagar Haveli
No. ROC-a1/01/Sec. 454(4)/Sec.173/SMALTICERAM/STA (MD) 23-24 Dated: 21 SEP 2023
Order for Penalty under Section 454 of the Companies Act, 2013 read with Companies (Adjudication of Penalties) Rules, 2014, and Companies (Adjudication of Penalties) Amendment Rules, 2019 for Violation of Section 173(1) of the Companies Act, 2013
In the Matter of Smalticeram India Private Limited
(U74900GJ2015PTC085068)
Date of hearing: 20.09.2023
Company/ Officers/ Directors/ KMP/ Authorized Representative:
Appointment of Adjudication Authority:–
1. The 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 power conferred under section 454 of the Companies Act, 2013 (hereinafter known as Act) read with Companies (Adjudication of Penalties) Rules, 2014 (Notification No. GSR 254(E) dated 31.03.2014) for adjudging penalties under the provisions of Act.
Company:
2. SMALTICERAM INDIA PRIVATE LIMITED (hereinafter referred to as “Company”) is a company registered under the provisions of the Companies Act, 1956/2013 in the State of Gujarat on 13.11.2015, having CIN: U74900GJ2015PTC085068 and presently having its registered office situated at “ISCON TILE ZONE, 1st FLOOR, SHOP No. 109, RAFADESHWAR,VILLAGE: JAMBUDIYA, TALUKA: MORBI. RAJKOT GJ 363642 IN”.
Facts of the case
3. That with reference your suo-moto application filed in GNL-1 vide SRN F62158431 dated 28.06.2023 during the Financial year 2022-23, only two board meetings were held on 28.06.2022 and 30.09.2022. Two directors were on the Board during both the board meetings. They are :
1. Mahesh Bhat
2. Lauro Palazzi (Director nominated by the holding company, Smalticeram Unicer SPA on the Board)
On 9′ January, 2023, Mr. Lauro Palazzi ceases to be in employment with Smalticeram Unicer SPA, the holding company that nominated Mr. Lauro Palazzi on the Board of this Company. Given Section 167(1)(h), his office become vacant. The holding company appoints Mr. Carlo Alberto Contini as its nominee in place of Mr. Lauro Palazzi with effect from 15th May 2023. The delay in replacement is unintentional on the part of the holding company as well as the Company. The delay is just procedural in nature. The time was consumed in finding the replacement for Mr. Lauro Palazzi, getting proofs translated into English and Apostille of the new director and others. Therefore, the board meetings were not called further in the financial year 2022-23.
Section 173(1) of the Companies Act, 2013 requires the company to hold atleast (4) board meetings during the year. The Company has held only two (2) board meetings during the year. Therefore, there is non-compliance with section 173(1).
Section 173(1) of the Companies Act, 2013 has been reproduced below:
“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. Provided that the Central Government may, by notification, direct that the provisions of this subsection shall not apply in relation to any class or description of companies or shall apply subject to such exceptions, modifications or conditions as may be specified in the notification.”
Mr. Mahesli Bhat being the only director in the Company called the Extra Ordinary General meeting of the members of the Company on 15th May 2023, wherein the members approved the appointment of Mr. Carlo Alberto Contini as director with effect from 15th May 2023.
4. The Registrar of Companies vide the Companies (Amendment) Act, 2019 is entrusted with power to adjudicate penalty as provided under Section 173(4) of the Companies Act, 2013 w.e.f. 15.05.2023. The DGCoA vide letter dated 11.05.2022 has instructed that all cases filed under Companies Act, 1956 and Companies Act, 2013 can be considered under In House Adjudication Penalty Mechanism (lAM). The DGCoA further directed that all cases filed under CA, 1956 and CA, 2013 can be considered for adjudication process which are now decriminalized (earlier prosecutions to be filed by Companies Amendment Act effective from 02.11.2018 and further Amendment in 2020 effective from 28.09.2020). By keeping in mind, the ease of doing business in India and in compliance to the instructions of the Ministry, the matter should be considered to take cognizance of the default committed for the financial year 2022-23 under In House Adjudication Penalty Mechanism (IAM).
SUBMISSION OF PRESENTING OFFICER:
5. Presenting officer would submit that the matter is fit for further proceedings as the company and its Officers in default are liable for penalty under section 173 (4) of the Companies Act, 2013 for non-holding of board meeting of the company viz. SMALTICERAM INDIA PRIVATE LIMITED for the financial Year 2022-23.
6. It is further submitted that it is reasonable ground to believe that the company and its officers in default have violated the provisions of Section 173(1) of the Companies Act, 2013 as noticed though the company has filed suo-motto application for adjudication. In view of the facts narrated above, the company and its directors/ officers, in default are liable for penalty in pursuant to Section 173 (4) of the Companies Act, 2013 and Rules, made thereunder.
7. Penal, Provisions as per Act :- Section 1731(4) of the Companies Act, 2013 provides as under: “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.”
8. The Presenting Officer further submitted that it is observed from the Balance Sheet/ Financial statement as at 31.03.2022 the paid-up capital of the company is Rs.1,05,00,000/- and Turnover is Rs. 20,64,44,510/-. Hence, as per the Ministry’s Notification No. G.S.R. 700(E) dated 15.09.2022, in light of Companies (Specification of definition details) Amendment Rules, 2022 with respect to the provisions of Section 2(85) of the Companies Act, 2013, the company does fall under the ambit of “small company”. Therefore, the provisions of imposing lesser penalty as per the provisions of Section 446B of the Companies Act, 2013 shall be applied to the company.
ORDER:
1. While adjudging quantum of penalty under 173 (4) of the Act, the Adjudicating Officer shall have due regard to the following factors, namely.
a. The amount of disproportionate gain or unfair advantage, whenever quantifiable, made as a result of default.
b. The amount of loss caused to an investor or group of investors as a result of the default.
c. The repetitive nature of default.
2. With regard to the above factors to be considered while determining the quantum of penalty, it is noted that the disproportionate gain or unfair advantage made by the notice or loss caused to the investor as a result of the delay on the part of the notice to redress the investor grievance are not available on the record. Further, it may also be added that it is difficult to quantify the unfair advantage made by the notice or the loss caused to the investors in a default of this nature.
3. Having considered the facts and circumstances of the case and submissions made by the presenting Officer and after taking into account the facts above, the undersigned has reasonable cause to believe that the company and its officers in default have failed complied with the Provisions of Section 173(1) of the Companies Act, 2013. I hereby imposed penalty as under:
Default for non-holding of Board Meetings
|
Violation under Companies Act, 2013 |
Company/ Directors/ Officer | No. of Days For Default | Penalty for Default (Rs.) in Pursuant to Section 173(4) of the C.A. 2013 | Penalty to Be imposed for
Default (Rs.) |
Maximum Limit for Penalty (Rs.) as per Section 173(4) Of C.A. 2013 |
| Section 173(1) | Company | NA | NA | NA | NA |
| Mr. Mahesh Janardhan Bhat | 126 Days |
25000 | 25000 | 25000 |
[Default counted from 09.01.2023 to 14.05.2023]
is of the opinion that penalty is commensurate with the aforesaid default committed by the Noticees:
4. The company/ Officer is further directed to rectify the default failing which this office shall be proceeded further the matter in pursuant to Section 454A of the Companies Act, 2013 for the non-compliance of the aforesaid provisions of the Companies Act, 2013.
5. The notice shall pay the amount of penalty individually for the company and its officers from their personal sources/ income by way of e-payment available on Ministry Website www.mca,goLLin under “Pay Miscellaneous fees” category in MCA fee and payment Services under Rule 3(14) of Company (Adjudication of Penalties) (Amendment) Rules, 2019 within 60 days from the date of receipt of this order and copy of this adjudication order and Challan/SRN generated after payment of penalty through online mode shall be filed in INC-28 under the MCA portal without further reference.
6. Appeal against this order may be filed in writing with the Regional Director, North-Western Region, Ministry of Corporate Affairs, ROC Bhavan, Opp. Rupal Park, Nr. Ankur Bus Stand, Naranpura, Ahmedabad (Gujarat) 380013 within a period of sixty days from the date of receipt of this order, in Form AD) setting forth the grounds of appeal and shall be accompanied by the certified copy of this order [Section 454(5) & 454 (6) of the Companies Act, 2013 read with the Companies (Adjudicating of Penalties) Rules, 2014 as amended by Companies ( Adjudication of Penalties) Amendment Rules, 2019].
7. Your attention is also invited to Section 454(8) (i) and 454(8) (ii) of the Companies Act, 2013, which state that in case of non-payment of penalty amount, the company shall be punishable with the fine which shall not less than Twenty Five Thousand Rupees but which may be extend to Five Lakhs Rupees and officer in default shall be punishable with imprisonment which may extend to Six months or with fine which shall not be less than Twenty Five Thousand Rupees by which may extend to one Lakhs Rupees or with both.
The adjudication notice stands disposed of with this order.
[Keerthi Thej N., ICLS]
Registrar of Companies & Adjudicating Officer
Ministry of Corporate Affairs,
Gujarat, Dadra Nagar Haveli
