MCA Imposes ₹30.88 Lakh Penalty for Appointing Same KMP in Multiple Companies

Introduction: In a significant development, the Ministry of Corporate Affairs (MCA) has issued a penalty of ₹30.88 Lakh against Western Carriers (India) Limited for non-compliance with Section 203(3) of the Companies Act, 2013. The adjudication order, dated 8th November 2023, sheds light on the violations and the subsequent penalties imposed.

Detailed Analysis: The adjudication order, issued by A. K. Sethi, the Adjudicating Officer and Registrar of Companies, West Bengal, details the case against Western Carriers (India) Limited. The company, incorporated in 2011, was found to have violated Section 203(3) of the Companies Act, 2013, which restricts whole-time key managerial personnel (KMP) from holding office in more than one company simultaneously.

According to the findings, Mr. Kanishka Sethia, the director/KMP, held the office of Managing Director and Chief Financial Officer in Western Conglomerate Limited while also serving as a Whole Time Director in Western Carriers (India) Limited. This dual role contravenes the provisions outlined in Section 203(3). The company and the director, in this case, violated the Act by employing the same person as KMP in more than one company, and they were duly served a notice of hearing under Section 454.

Despite the opportunity to respond, no adequate reply was received from the company and its officers in default, prompting the imposition of penalties. Shri Madan Kumar Maroti, CA, appeared on behalf of the company and directors during the hearing, acknowledging the inadvertent appointment of Mr. Kanishka Sethia and providing additional information about a suo-moto application for adjudication.

Conclusion: The Adjudicating Officer, exercising powers conferred by the Companies (Amendment) Ordinance, 2019, imposed a total penalty of ₹30.88 Lakh. This includes ₹5,00,000 on the company, ₹88,000 for one of its officers in default, and ₹5,00,000 on each of its five officers-in-default. The order emphasizes the violations under Section 203(3) and the consequent penalties, providing a clear directive on the consequences of employing the same person as KMP in multiple companies.

The article concludes by highlighting the appeal process available to the penalized company and the potential consequences of non-payment within the prescribed time limit. Companies should take heed of this case to ensure compliance with key provisions of the Companies Act, 2013, and avoid the financial implications of regulatory penalties. Stay informed for more updates on legal implications and regulatory actions in the corporate sector.

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GOVERNMENT Of INDIA
Ministry of Corporate Affairs
Office of the Registrar of Companies (West Bengal)
Nizam Palace, 2, M. S. 0. Building, 2nd Floor
234/4, Acharya Jagadish Chandra Bose Road
KOLKATA – 700 020

No. ROC/LEGAL/ADJ/21-161111/389/2023/8210-8220

Dated: 08-11-2023

ADJUDICATION ORDER FOR PENALTY U/S 454 OF THE COMPANIES ACT, 2013 READ WITH RULE 3(2) OF THE COMPANIES (ADJUDICATION OF PENALTIES) RULES, 2014 AS AMENDED BY THE COMPANIES (ADJUDICATION OF PENALTIES) RULES, 2019 IN MATTER OF NON­COMPLIANCE OF THE PROVISIONS OF SECTION 203(3) OF THE COMPANIES ACT, 2013

In respect of: WESTERN CARRIERS (INDIA) LIMITED

(CIN: U63090WB2011PLC161111)

1. Appointment of Adjudicating Officer: –

Ministry of Corporate Affairs vide its Gazette Notification No. A-42011/112/2014- Ad.II dated 24.03.2015 appointed undersigned as Adjudicating Officer in exercise of the powers conferred by Section 454(1) read with Section 454(3) of the Companies Act, 2013 [herein after known as Act) read with the Companies (Adjudication of Penalties) Rules, 2014 for adjudicating penalties under the provisions of this Act. The undersigned vide the Companies (Amendment) Ordinance, 2019 is entrusted to adjudicate penalties under Section 203 of the Companies Act, 2013 with effect from 02.11.2018.

2. Company: –

WESTERN CARRIERS (INDIA) LIMITED [herein after known as Company] is a registered company with this office incorporated on 23/03/2011 under the provisions of the Companies Act, 1956 having its registered office as per MCA21 Registry at address 2/6 SARAT BOSE ROAD 2ND FLOOR, KOLKATA – 700020 INDIA

3. Facts about the Case: –

1) The provisions of Section 203(3) of the Act, provides inter alia that:

(3) A whole-time key managerial personnel shall not hold office in more than one company except in its subsidiary company at the same time:

Provided that nothing contained in this sub-section shall disentitle a key managerial personnel from being a director of any company with the permission of the Board:

Provided further that whole-time key managerial personnel holding office in more than one company at the same time on the date of commencement of this Act, shall, within a period of six months from such commencement, choose one company, in which he wishes to continue to hold the office of key managerial personnel:

Provided also that a company may appoint or employ a person as its managing director, if he is the managing director or manager of one, and of not more than one, other company and such appointment or employment is made or approved by a resolution passed at a meeting of the Board with the consent of all the Directors present at the meeting and of which meeting, and of the resolution to be moved thereat, specific notice has been given to all the Directors then in India.

Section 203(5) of the Act provides inter alia that: “If any company makes any default in complying with the provisions of this section, such company shall be liable to a penalty of five lakh rupees and every director and key managerial personnel of the company who is in default shall be liable to o penalty of fifty thousand rupees and where the default is a continuing one, with a further penalty of one thousand rupees for each day after the first during which such default continues but not exceeding five lakh rupees”.

2) As per the record available with this office, it has been found that the Company is an unlisted Company. Further, Mr. Kanishka Sethia was appointed as the director/KMP in Western Conglomerate Limited on 01.04.2008. And continued to hold the office of KMP in Western Conglomerate Limited thereafter. Meanwhile, Mr. Kanishka Sethia was also appointed as a First Director in the subject Company (i.e. Western Carriers (India) Limited from 23.03.2011. Thereafter, w.e.f. 01.04.2016, his designation changed from Director to Whole Time Director.

In view of the above, the subject Company and the Director had violated the provisions of the Section 203(3) of the Companies Act, 2013 by appointing the same person as a Whole Time Director, whereas he was already holding the office of Managing Director and Chief Financial Officer in another company named Western Conglomerate Limited.

3) Accordingly, the adjudication officer has issued notice of hearing under Section 454 read with Rule 3(2) of Companies (Adjudication of Penalties) Rules, 2014 as amended upto date for contravention of section 203(3) of the Companies Act, 2013, to the company and its officers in default for the violation of the provisions of the act as mentioned in para “1 & 2” above giving an opportunity to submit a reply as to why the penalty should not be imposed under the provisions of 203(5) of the Act against the Company and its officers in default for the above stated violations, vide letter no. ROC/LEGAL/ADJ/161111/389/2023/6068-6077 dated: 05.09.2023

4) No adequate reply to the adjudication notice as mentioned above in para 3 have been received from the noticee(s) i.e. the company and its concerned officers in default as to why penalty shall not be imposed.

5) Further, Shri Madan Kumar Maroti, CA, appeared as the authorized representative on 15″‘ September, 2023 on behalf of the Company and directors and submitted that the director Shri Kanishka Sethia of Western Carrier (India) Limited has been inadvertently appointed as Managing Director and Chief Financial Officer w.e.f. 01.04.2016 to 31.07.2022 which contravenes of section 203(3) of the Companies Act, 2013, for which the company has made suo-moto application for adjudication vide GNL-1 SRN no. F56789043 dated: 10.01.2023 for compounding of the offence and the same offence has been decriminalized. The molter was heard and order reserved.

ORDER

1. The applicant company and its officers, who have defaulted the provisions of section 203(3) of the Companies Act, 2013 by employing a same person as KMP in more than one company(ies) are liable for penalties under section 203(5) of the Companies Act, 2013.

2. In exercise of the powers conferred vide Companies (Amendment) Ordinance, 2019, the undersigned is entrusted to adjudicate penalties under section 203 of the Companies Act, 2013 with effect from 02.11.2018. I do hereby impose the penalty of Total Rs. 30,88,000/- (Rupees Thirty Lakhs Eighty-Eight Thousand only) i.e., Rs. 5,00,000/- (Rupees Five Lakh only) on the Company, Rs. 88,000/- (Rupees Eighty-Eight Thousand Only) for one of its officers in default and Rs. 5,00,000/- (Rupees Five Lakhs only) on each of its 5 (five) officers-in-default pursuant to Rule 3(12) of Companies (Adjudication Of Penalties) Rules, 2014 and the proviso of the said Rule and Rule 3(13) of Companies (Adjudication Of Penalties) Rules, 2014 r/w General Circular No. 1/2020 dated 02.03.2020; as per table below for violation of section 203(1) r/w 203(4) r/w 203(5) of the Act:

3. The noticee(s) shall pay the said amount of penalty individually for the company and its directors (out of own pocket) by way of e-payment [available on Ministry website www.mco.gov.in) under “Pay miscellaneous fees” category in MCA fee and payment Services within 90 days of receipt of this order. The Chollan/SRN generated after payment of penalty through online mode shall be forwarded to this Office Address.

4. Appeal against this order may be filed in writing with the Regional Director (ER), Ministry of Corporate Affairs, Kolkata located at Nizam Palace 2nd M.S.O Building, 3rd Floor, 234/4. A.J.C. Bose Road, Kolkata-700020, West Bengal within a period of sixty days from the date of receipt of this order, in Form ADJ [available on Ministry website www.mca.gov.in1 setting forth the grounds of appeal and shall be accompanied by a certified copy of the this order. [Section 454(5) & 454(6) of the Act read with Companies (Adjudicating of Penalties) Rules. 2014).

5. Your attention is also invited to Section 454(8)(i) and (ii) of the Act regarding consequences of non-payment of penalty within the prescribed time limit of 90 days from the date of the receipt of copy of this order.

6. In terms of the provisions of sub-rule (9) of Rule 3 of Companies (Adjudication of Penalties) Rules. 2014 as amended by Companies (Adjudication of Penalties) Amendment Rules, 2019, copy of this order is being sent to Western Carriers (India) Limited and all directors/officers in default mentioned herein above and also to Office of the Regional Director (Eastern Region) and Ministry of Corporate Affairs at New Delhi.

Date : 08th November, 2023

[A. K. Sethi, ICLS]
Adjudicating Officer 8.Registrar of Companies,
West Bengal