The Ministry of Corporate Affairs (MCA) has recently imposed a penalty on Seva Parmodharmah Samajik Nidhi Limited, a company incorporated under the Companies Act, 2013. The penalty, totaling Rs. 16 lakh, is a consequence of the company’s violation of Section 197(1) of the Companies Act, 2013, related to the payment of directors’ remuneration exceeding the prescribed limit.
Background: Seva Parmodharmah Samajik Nidhi Limited, incorporated in Bihar in 2016, has been scrutinized for its financial statements for the fiscal years ending on March 31, 2019, and March 31, 2020. The investigation revealed that the company had paid director’s remuneration of Rs. 13,00,000/- and Rs. 6,60,000/- for the respective years, surpassing the eleven percent limit of net profits. Notably, the company failed to file MGT-14, indicating a lack of special resolution regarding managerial remuneration.
Legal Violations: Section 197(9) of the Companies Act, 2013, stipulates that directors who receive remuneration exceeding the prescribed limit without requisite approval must refund the excess amount to the company. In this case, the directors of Seva Parmodharmah Samajik Nidhi Limited did not refund the excess remuneration, resulting in a violation of Section 197(1) of the Companies Act, 2013.
Company’s Admission and Response: Upon receiving a notice from the MCA, the company and its directors admitted to the default in a letter dated January 17, 2024. They acknowledged exceeding the limit of managerial remuneration due to a misunderstanding or oversight, emphasizing the absence of any malafide intention.
Imposition of Penalty: Considering the admitted default, the Registrar of Companies, Patna, has imposed penalties on the company and its directors under Section 197(15) of the Companies Act, 2013. The penalties are as follows:
- For the financial year 2018-19: Rs. 5,00,000 on the company and Rs. 1,00,000 on each of the three directors.
- For the financial year 2019-20: Rs. 5,00,000 on the company and Rs. 1,00,000 on each of the three directors.
The total penalty amounts to Rs. 16 lakh.
Payment and Appeal: The company and its directors are instructed to pay the penalties individually within 90 days of the order through e-payment on the MCA website. Failure to comply may result in further consequences as per Section 454(8) of the Companies Act, 2013.
Additionally, the affected parties have the right to appeal this order within 60 days of its receipt. The appeal must be submitted in writing to the Regional Director (ER), Ministry of Corporate Affairs, Kolkata, using the prescribed Form ADJ available on the MCA website.
Conclusion: The imposition of a significant penalty underscores the importance of compliance with statutory regulations, especially regarding directors’ remuneration. Companies are urged to adhere to the provisions of the Companies Act, 2013, and promptly rectify any violations to avoid legal consequences and financial penalties. The case of Seva Parmodharmah Samajik Nidhi Limited serves as a cautionary tale for companies to exercise due diligence in corporate governance and regulatory adherence.
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Government of India
Ministry of Corporate Affairs
office of the Registrar of Companies,
4th Floor, ‘A’ Wing Maurya Lok Complex
Dakbunglow Road, Patna-800001
(0612) -2216150/ 2950121
No. ROC/PAT/Inquiry/26369/ 1397
Dated:31.01.2024
Order for penalty for violation of section 197 of the Companies Act, 2013
SEVA PARMODHARMAH SAMAJIK NIDHI LIMITED CIN: U67190BR2016PLCO26369
Company :-
1. Whereas, Company M/s. Seva Parmodharmah Samajik Nidhi Limited, CIN: U67190BR20167PLCO26369 (herein after known as Company) is a company incorporated on 21.03.2016 under the provisions of Companies Act, 2013 in the state of Bihar and having its registered office situated at H/o Sharda Devi, W/o Late Nanhak Singh, Jadhua Pokhara Near Prem High School, Hajipur Vaishali Bihar 844101, India as per MCA website.
Facts about the case:-
2. Whereas, during the course of inquiry upon perusal of the Financial Statements for the financial year ended as on 31.03.2019 and 31.03.2020, it is observed that the Company has paid director’s remuneration as 13,00,000/- and Rs. 6,60,000/- respectively, which exceed eleven percent of the net profits of that company for that financial year. However, as per MCA portal, it has been observed that no MGT-14 has been filed and it implies that company has not passes any special resolution with regard to managerial remuneration.
3. As per section 197(9):- “if any director draws or receives, directly or indirectly, by way of remuneration any such sums in excess of the limit prescribed by this section or without approval required under this section, he shall refund such sums to the company, within two years or such lesser period as may be allowed by the company, and until such sum is refunded, hold it in trust for the company. However, it appears that the excess amount has not been refunded by the directors.
4. Hence, it appears that the provisions of Section 197(1) of the Companies Act, 2013 has been contravened by the company and its directors/officers in default and therefore they are liable for penalty under section 197(15) of the Companies Act, 2013.
5. This office has issued notice under section 197 of the companies Act, 2013 to the company and its directors vide letter dated 19.12.2023, for which reply has been received vide letter dated 17.01.2024 from the company and its directors stating that “we admit that the company has exceeded the limit of managerial remuneration of 11% of the net profit of the respective financial years of 2018-19 and 2019-20, non-filing of MGT 14 have occurred due to misunderstanding or overlook or inadvertence which was unavoidable without having any malafide intention on part of the company”. The company and its directors has admitted their default in its reply.
6. Hence, it appears that the provisions of Section 197(1) of the Companies Act, 2013 has been contravened by the company and its directors in default and therefore they are liable for penalty under section 197(15) of the Companies Act, 2013.
Section 197(15):- “If any person makes any default in complying with the provisions of this section, he shall be liable to a penalty of one lakh rupees and where any default has been made by a company, the company shall be liable to a penalty of five lakh rupees”.
7. It is seen that, the company being a Nidhi Company does not fall under the definition of small company as per provision of section 2(85) of the companies Act, 2013. Therefore the provision of imposing lesser penalty as per section 446B shall not be applicable in this case.
ORDER
8. Therefore, having considered the facts and circumstances of the case, and after taking into account the factors above, I hereby impose a penalty on Company, and its Directors as per table Below under section 197(15) of the Act for failure in compliance of section 197(1) of the Companies Act, 2013.
|
Financial Year |
Company/ Officers to whom penalty imposed | No. of days in default | Penalty for defaults (Rs.) as per Section 197(15) of the Act | Maximum Penalty (Rs.) |
| 2018-19 | Seva Parmodharmah samajik Nidhi Limited | NA | Rs. 5,00,000 | Rs. 5,00,000 |
| Shri Basant Chourashiya | NA | Rs, 1,00,000 | Rs, 1,00,000 | |
| Shri Vinod Kumar | NA | Rs, 1,00,000 | Rs, 1,00,000 | |
| Shri Maharana Pratap Chaudhari | NA | Rs, 1,00,000 | Rs, 1,00,000 | |
| 2019-20 | Seva Parmodharmah samajik Nidhi Limited | NA | Rs. 5,00,000 | Rs. 5,00,000 |
| Shri Basant Chourashiya | NA | Rs, 1,00,000 | Rs, 1,00,000 | |
| Shri Vinod Kumar | NA | Rs. 1,00,000 | Rs. 1,00,000 | |
| Shri Maharana Pratap Chaudhari | NA | Rs. 1,00,000 | Rs. 1,00,000 |
9. The noticee shall pay the amount of penalty individually for the company and its directors (out of own pocket) by way of e-payment (available on Ministry website www.mca.gov.in) under “Pay miscellaneous fees” category in MCA fee and payment Services within 90 (ninety) days of this order. The Challan/SRN generated after payment of penalty through online mode shall be forwarded to this office.
10. Appeal against this order may be filled in writing with the Regional Director (ER), Ministry of Corporate Affairs, Kolkata, within a period of 60 (sixty) days from the date of receipt of this order, in Form ADJ (available on Ministry website www.mca.gov.in) setting forth the grounds of appeal and shall be accompanied by a certified copy of this order {Section 454(5) and 454(6) of the Act read with Companies (Adjudication of Penalties) Rules, 2014}.
11.Your attention is also invited to section 454(8) of the Act in the event of non-compliance of this order.
(Aparajit Barua)
Adjudicating Officer &
Registrar of Companies-Cum-
Official Liquidator, Patna.
