MCA Imposes Penalty for Missing explanatory statement about Independent director appointment in EGM notice
Introduction: The Ministry of Corporate Affairs (MCA) has issued penalties to United Telecoms Limited for its violation of Section 152 of the Companies Act. The violation pertains to an Extraordinary General Meeting (EGM) notice lacking an explanatory statement regarding the appointment of an independent director. In this article, we delve into the details of the case, the relevant legal provisions, and the consequences.
Detailed Analysis:
1. Appointment of Adjudicating Officer: The MCA, in accordance with Section 454 of the Companies Act, 2013, has appointed an Adjudicating Officer to enforce penalties for violations under the Companies (Adjudication of Penalties) Rules, 2014.
2. Company Background: United Telecoms Limited was incorporated on 07.03.1984, under the jurisdiction of the Registrar of Companies, Karnataka. The company’s registered office is located at No. 18A/19, Doddanekundi Industrial Area, Mahadevapura Post Whitefield, Bangalore – 560048.
3. EGM Notice Complaint: A shareholder of the company filed a complaint, highlighting that the explanatory statement accompanying the EGM notice dated 14.07.2021, regarding the appointment of an independent director (Item No. 4), did not contain a statement confirming that the proposed director fulfilled the conditions specified in the Act and was independent of the management, as required by Section 152(5) of the Act.
4. Legal Provisions: Section 152(5) of the Companies Act outlines that for the appointment of an independent director during a general meeting, an explanatory statement should be annexed to the notice. This statement must confirm that, in the Board’s opinion, the appointee satisfies the conditions specified in the Act.
5. Adjudication Process: In response to the Directorate’s instructions, the office issued adjudication notices and hearing invitations to the company and its directors on 16.05.2023. The hearing, conducted on 31.05.2023, saw the presence of Mr. Bimlendu Kumar, a practicing company secretary and the company’s authorized representative, along with all directors except Ms. Chalasani Sandhya Rao. The main argument was that the non-compliance was procedural and minor. A letter dated 01.06.2023 from Ms. Chalasani Sandhya Rao, a non-executive director, emphasized her role in bringing the violation to the office’s attention.
6. Adjudication Notices to Company Secretaries: Separate adjudication notices were issued on 26.07.2023 to Ms. Swetha Iain and Ms. Dipika Todi, both company secretaries of the company. Ms. Swetha Iain submitted a reply on 09.08.2023, stating her resignation from the company, effective from 16.08.2018, and attaching her resignation letter and DIR-12 form. Ms. Dipika Todi replied on the same date, affirming her resignation as of 24.02.2022, and defending the appointment of the independent director, except for the missing statement.
7. Penalties for Violation: Section 159 of the Companies Act specifies penalties for violations of Sections 152, 155, and 156. The penalties can extend up to fifty thousand rupees, with an additional penalty of up to five hundred rupees for each day after the first in case of continuing violations. In this case, the managing director, whole-time director, and company secretary are held liable.
8. Officers’ Violations: The officers of the company, mentioned in this order, have violated the proviso to Section 152(5) of the Act and are liable for penalties as provided under Section 159 of the Act.
9. Penalty Considerations: The company, being a public company, does not qualify as a small company under Section 2(85) of the Companies Act, 2013. However, considering the minor and non-repetitive nature of the non-compliance, the maximum penalty has not been imposed.
10. Imposed Penalties: In light of the facts, circumstances, and submissions by the company, promoters, and directors through their authorized representatives, penalties are imposed as follows:
- Potluri Padmavathi, Managing Director: ₹30,000
- Krantipriya Chakravarty Mitra, Whole-time Director: ₹30,000
- Dipika Todi, Company Secretary: ₹30,000
11. Payment and Appeals: The company, its promoters, directors, and key managerial personnel in default are directed to pay the respective penalty amounts within 90 days from the date of receiving this order. They should also file Form INC-28, attaching a copy of the order and payment challans. Directors are required to pay the penalty from their own funds. Payment should be made through the MCA website (www.mca.gov.in) under the Miscellaneous head, specifying the order details and the name of the payee.
Appeals against this order can be filed with the Regional Director (South East Region), Hyderabad, within 60 days from the date of receiving this order, using Form ADJ, accompanied by a certified copy of this order.
12. Non-Compliance Consequences: The article also emphasizes Section 454(8) of the Companies Act, 2013, which highlights the consequences of non-compliance. Necessary penal actions will be initiated under Sections 454(8)(i) and 454(8)(ii) against the company, directors, and key managerial personnel in default without further notice in case of non-compliance.
13. Serving the Order: The company is required to serve a copy of this order on the directors/officers-in-default, as per the provisions of Section 20 of the Companies Act, 2013.
Conclusion: The penalties imposed by the Ministry of Corporate Affairs underscore the importance of meticulous compliance with legal provisions, particularly when issuing notices for general meetings. United Telecoms Limited’s case serves as a reminder of the significance of including requisite statements, even when addressing seemingly procedural matters.
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Registrar of companies Karnataka
Kendriya Sadan, 2nd Floor, ‘E’-Wing
Koramangala, Bengaluru-560034
Phone: 080-25537449/25633105
E-mail ID: roc.bangalore@mca.gov.in
File No. ROC(B)/Adj.Ord.454-152/United Telecom/Co.No.007800/2023/
Date 05.09.2023
ORDER OF ADJUDICATION OF PENALTY UNDER SECTION 454 OF THE COMPANIES ACT 2013 READ WITH RULE 3 OF THE COMPANIES(ADJUDICATION OF PENALITES) RULES. 2014 FOR VIOLATION OF PROVISIONS OF SECTION 152 OF THE COMPANIES ACT. 2013 READ WITH RULES FRAMED THEREIN BY UNITED TELECOMS 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 read with Companies (Adjudication of Penalties) Rules. 2014 for adjudging penalties under the provisions of the Companies Act 2013
2. The company, United Telecoms Limited (hereinafter referred to as Company) was incorporated on 07.03.1984 under the jurisdiction of Registrar of Companies. Karnataka and the registered office of the company is presently situated No. 18A/19, Doddanekundi Industrial Area. Mahadevapura Post Whitefield, Bangalore – 560048.
3. A complaint was received from a shareholder of the company stating that the explanatory statement attached to the notice dated 14.07.2021 of the EGM to be held on 06.08,2021 with respect to the appointment of independent director (Item No. 4 regarding appointment of Mr. Vijay lath) does not include a statement that in the opinion of the Board, the independent director proposed to be appointment fulfils the conditions specified in the Act and the rules made thereafter and that the proposed director is independent of the management.
4. As per the provisions of section 152(5) of the Act. a person appointed as a director shall not act as a director unless he gives his consent to hold the office as director and such consent has been filed with the Registrar within 30 days of his appointment in such manner as may be prescribed and as per the proviso to this subsection, in the case of appointment of an independent director in the general meeting, an explanatory statement for such appointment, annexed to the notice for the general meeting, shall include a statement that in the opinion of the Board. he fulfils the conditions specified in this Act for such an appointment
5. Pursuant to the instructions received from the Directorate to proceed in the matter of non-compliance of section 152 of the Act, this office had issued adjudication notice followed by hearing notices to the company and its directors for the said violation on 16.05.2023, Hearing was held on 31.05.2023 which was attended by Mr. 8imlendu Kumar, practising company secretary and authorised representative of the company and all directors except Ms. Chalasani Sandhya Rao. He made his submissions on the same lines as detailed out above and prayed for waiver of penalty as the non-compliance was procedural and minor This office also received a letter dated 01.062023 from Ms. Chalasani Sandhya Rao through her attorney holder who submitted that Ms. Chalasani was a non-executive director of the company and the one who brought out the violation in the complaint to this office
6. Separate adjudication notices dated 26.07.2023 were sent to Ms. Swetha lain and Ms. Dipika Todi, company secretaries of the company for the above-mentioned non-compliance. A reply was received from Mr Swetha lain on 09.08.2023 stating that she had resigned form the company w.e.f. 16.08.2018 and copies of her resignation letter and DIR-12 form filed were attached. A reply from Ms Dipika Todi was received on 09.08.2023 stating that she had also resigned from the company w.e.f. 24.02.2022. She further submitted that the appointment of the independent director in question was in accordance with law, except for the aforementioned missing statement. It is noticed that Ms. Dipika Todi was the company secretary of the subject company during the occurrence of this default.
7. As per provisions of section 159 of the Act, if any individual or director of a company, contravenes any of the provisions of section 152, section 155 and section 156. such individual Or director of the company shall be liable to a penalty which may extend to fifty thousand rupees and where the default is a continuing one, with a further penalty which may extend to five hundred rupees for every day after the first during which such default continues. For the purpose of this default. the managing director, whole time director and the company secretary are held liable.
8. The officers of the company, as mentioned in para 10 of this order, have violated the proviso to section 152(5) of the Act and are liable for penalty as provided under section 159 of the Act.
9. It is seen that the company is a public company and does not fall under the definition of a small company as per the provisions of section 2(85) of the Companies Act, 2013. However, giving due regard to the factors provided in Rule 3(12) of Companies (Adjudication of Penalties) Rules. 2014, since the non-compliance is a minor and non-repetitive default. maximum penalty is not being levied.
10. Therefore, having considered the facts and circumstances of the case and the submissions made by the company, promoters and directors through their authorised representatives, in view of the above said violation. in exercise of the powers vested under section 454(3)(a) of the Act. I do hereby impose penalty on the company, promoters and directors who were in default of the offence committed in a manner as tabulated herein;
|
S. No. |
Particulars of noticee | Penalty imposed |
| i. | Potluri Padmavathti Managing Director | Rs. 30,000 |
|
ii. |
Krantipriya Chakravarty Mitra, Wholetime Director | Rs. 30,000 |
| iii. | Dipika Todi, Company Secretary | Rs. 30.000 |
11. The company and its promoters/ directors / key managerial personnel who are in default are hereby directed to pay the penalty amount as tabulated above, 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 notice 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 name of 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 ADJ 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 who are in default without further notice in the matter.
14. The company is required to serve a copy of this Order on the director(s)/ officer(s)-in-default mentioned above in terms of provisions of section 20 of the Companies Act 2013.
(Sanjay Sood)
Registrar of Companies, Karnataka
and Adjudicating Officer
