MCA Imposes penalty for Reappointing Whole-Time Director Without Central Government Approval

The Registrar of Companies, Punjab and Chandigarh, has imposed penalties on SML Isuzu Limited and its officers for violating Section 196 read with Schedule V of the Companies Act, 2013. The company reappointed Mr. Tadanao Yamamoto as a Whole-time Director without seeking the required approval from the Central Government, despite his absence from India for 57 days. This reappointment, covering the period from November 30, 2018, to November 29, 2020, was not compliant with the conditions set forth under the Companies Act. Consequently, penalties totaling ₹2,00,000 were levied on the company, and individual penalties of ₹50,000 each were imposed on Mr. Yamamoto, Mr. Yugo Hashimoto (Managing Director), and Mr. Parvesh Madan (Company Secretary). The officers-in-default are required to pay these penalties from their personal income. The penalties must be paid through the Ministry of Corporate Affairs portal, and an appeal against this order can be filed within sixty days with the Regional Director, Northern Region. Failure to comply with the order may result in additional fines or imprisonment.

GOVERNMENT OF INDIA
MINISTRY OF CORPORATE AFFAIRS
OFFICE OF THE REGISTRAR OF COMPANIES,
PUNJAB AND CHANDIGARH,
CORPORATE BHAWAN,
PLOT NO.4-B, SECTOR 27B, CHANDIGARH
PHONE NO.172-2639415,2639416

No. ROC-CHD/2024-25/Sec.450/5516/488

Dated: 21/08/2024

Order under Section 454 for Violation of Section 196 read with Schedule V of the Companies Act, 2013 read with Companies (Adjudication of Penalties) Rules, 2014

IN THE MATTER OF M/S SML ISUZU LIMITED
(CIN L50101PB1983PLC005516)

1. Appointment of Adjudicating Officer

The Ministry of Corporate Affairs vide its gazette notification no. S.0.831(E) dated 24.03.2015, has appointed the undersigned as Adjudicating Officer (AO) 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. Company

M/S SML ISUZU LIMITED (herein after referred to as “the company”) having CIN: L50101PB1983PLC005516, is a company registered with this office under the Provisions of the Companies Act, 2013/1956, having its registered office situated at Village Asron, Nawanshahr, Nawanshahr, Punjab-144533, India.

The financial and other details of the subject company as on 31.03.2023 are as under:

3. RELEVANT PROVISIONS OF THE COMPANIES ACT, 2013 WHICH ARE APPLICABLE IN THE PRESENT CASE

Provision of Section 196 of the Act are as under: –

“196. Appointment of managing director, whole-time director or manager.—(1) No company shall appoint or employ at the same time a managing director and a manager.

(2) No company shall appoint or re-appoint any person as its managing director, whole-time director or manager for a term exceeding five years at a time:

Provided that no re-appointment shall be made earlier than one year before the expiry of his term.

(3) No company shall appoint or continue the employment of any person as managing director, whole-time director or manager who —

(a) is below the age of twenty-one years or has attained the age of seventy years:

Provided that appointment of a person who has attained the age of seventy years may be made by passing a special resolution in which case the explanatory statement annexed to the notice for such motion shall indicate the justification for appointing such person;

1[Provided further that where no such special resolution is passed but votes cast in favour of the motion exceed the votes, if any, cast against the motion and the Central Government is satisfied, on an application made by the Board, that such appointment is most beneficial to the company, the appointment of the person who has attained the age of seventy years may be made.] ” ;

(b) is an undischarged insolvent or has at any time been adjudged as an insolvent;

(c) has at any time suspended payment to his creditors or makes, or has at any time made, a composition with them; or

(d) has at any time been convicted by a court of an offence and sentenced for a period of more than six months.

(4) Subject to the provisions of section 197 and Schedule V, a managing director, whole-time director or manager shall be appointed and the terms and conditions of such appointment and remuneration payable be approved by the Board of Directors at a meeting which shall be subject to approval by a resolution at the next general meeting of the company and by the Central Government in case such appointment is at variance to the conditions 2 [specified in Part I of that Schedule] :

Provided that a notice convening Board or general meeting for considering such appointment shall include the terms and conditions of such appointment, remuneration payable and such other matters including interest, of a director or directors in such appointments, if any: Provided further that a return in the prescribed form shall be filed within sixty days of such appointment with the Registrar.

(5) Subject to the provisions of this Act, where an appointment of a managing director, whole-time director or manager is not approved by the company at a general meeting, any act done by him before such approval shall not be deemed to be invalid:”

Further, Clause (e) of Part-I of Schedule V Inter alia provides as under: –

“(e) he is resident of India.

Explanation -For the purpose of this Schedule, resident in India includes a person who has been staying in India for a continuous period of not less than twelve months immediately preceding the date of his appointment as a managerial person and who has come to stay in India,

(i) for taking up employment in India; or

(ii) for carrying on a business or vacation in India.”

Provisions of Section 450 of Companies Act, 2013 are as under:-

Section 450 of the Companies Act, 2013 provides for penalty wherein penalty has not been provided for violation of any of the provision of the Companies Act, 2013 and the same is reproduced as under:-

“Punishment where no specific penalty or punishment is provided. “if a company or any officer of a company or any other person contravenes any of the provisions of this Act or the rules made thereunder, or any condition, limitation or restriction subject to which any approval, sanction, consent, confirmation, recognition, direction or exemption in relation to any matter has been accorded, given or granted, and for which no penalty or punishment is provided elsewhere in this Act, the company and every officer of the company who is in default or such other person shall be liable to a penalty of ten thousand rupees, and in case of continuing contravention, with a further penalty of one thousand rupees for each day after the first during which the contravention continues subject to maximum of two lakh rupees in case of a company and fifty thousand rupees in case of an officer who is in default or any other person”.

4. FACTS ABOUT THE CASE

Whereas M/s SML ISUZU LIMITED had filed application for seeking approval of the Central Government u/s. 196 read with sub-clause (e) of Part I of Schedule V of the Companies Act, 2013 for re-appointment of Mr. Tadanao Yamamoto (DIN -08291307) as whole time Director for one year from 30.11.2020. During examination of the application and reply of the company in response to the Ministry’s letter, it was observed that the permission of Central Government was not sought for previous appointment of Mr. Tadanao Yamamoto as Whole time Director from 30.11.2018 to 29.11.2020 in terms of proviso to section 196 r/w clause (e) of Part-I Schedule V of the Companies Act, 2013 (Companies Act, 1956 wherever applicable) in spite of the fact that appointee was out of India for 57 days.

Notice was issued to the Company vide Letter No. ROC CHD/2021-22-12(8)/46791 730 dated 29.12.2023, on the directions of the Central Government received by this office vide Email letter No. SRN R99325409/2021-CL-VII dated 05.09.2023.The Company replied vide letter no. SML/SEC/OTH/2023-24-043 dated 25.01.2024 –

Thus, it is evident that company has violated the provisions of 196 read with sub-clause (e) of Part I of Schedule V of the Companies Act, 2013.

Rule 3(12) of Companies (Adjudication of Penalties) Rules, 2014

While adjudging quantum of penalty, the adjudicating officer shall have due regard to the following factors, namely.-

a) size of the company

b) nature of business carried on by the company,

c) injury to public interest,

d) nature of the default,’

e) repetition of the default,’

f) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the deflate and

g) the amount of loss caused to an investor or group of investors or creditors as a result of the default.

Provided that, in no case, the penalty imposed shall be less than the minimum penalty prescribed, if any, under the relevant section of the Act.

Rule 3 (13) of Companies (Adjudication of Penalties) Rules, 2014 which read as under:

In case a fixed sum of penalty is provided for default of a provision, the adjudicating officer shall impose that fixed sum, in case of any default therein.

5. ADJUDICATION OF PENALTY:

Now in exercise of the powers conferred on the undersigned vide Notification dated 24th March, 2015 and having considered the facts of the case, I hereby impose the following penalties on the company and its officers-in-default as under for violation of section 196 read with Schedule V of the Companies Act, 2013:-

I am of this opinion that penalty is commensurate with the aforesaid failure committed by the Noticees and Penalty so imposed upon the Officer-in-default shall be paid from their personal sources/income.

It is further directed that penalty imposed shall be paid through the Ministry of Corporate Affairs portal only as mentioned under Rule 3(14) of Company (Adjudication of Penalties) (Amendment) Rules, 2019 under intimation to this office.

6. Appeal against this order may be filed in writing with the Regional Director (Northern Region), Ministry of Corporate Affairs, CGO Complex, Lodhi 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].

7. Your attention is also invited to Section 454(8)(i) and 454(8)(ii) of the Companies Act,2013, which states that:

(i) Where company fails to comply with the order made under sub-section (3) or sub-section (7), as the case may be, within a period of ninety days from the date of the receipt of the copy of the order, the company shall be punishable with fine which shall not be less than twenty five thousand rupees but which may extend to five lakh rupees.

(ii) Where an officer of a company or any other person who is in default fails to comply with the order made under sub-section (3) or sub-section (7), as the case may be within a period of ninety days from the date of the receipt of the copy of the order, such officer shall be punishable with imprisonment which may extend to six months or with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees, or with both.

In terms of the provisions of sub-rule (9) of Rule 3 of the Companies (Adjudication of Penalties) Rules, 2014, copy of the order is being sent to the following as under:

a. M/s SML Isuzu Limited, C-17, Village Asron District Nawanshahr, Nawanshahr, Punjab, India, 144533

b. Yugo Hashimoto by E-mail

c. Tadanao Yamamoto, by E-mail

d. Parvesh Madan, H.No.458, Sector 44-A, Chandigarh

e. Regional Director (Northern Region), Ministry of Corporate Affairs, CGO Complex, Lodhi Road, New Delhi and this order will also be uploaded on website of Ministry of Corporate Affairs.

(Kamna Sharma)
Registrar of Companies & Adjudication Officer
Punjab & Chandigarh