Sponsored
    Follow Us:
Sponsored

The Ministry of Corporate Affairs (MCA) recently imposed a Rs. 4 Lakh penalty on Smith N Smith Chemicals Limited for missing Corporate Social Responsibility (CSR) policy details in their board report. The penalty was levied under Section 134 of the Companies Act, 2013. This move sheds light on the seriousness with which the Indian government is treating CSR commitments for corporate entities.

The Genesis of the Case

The company admitted its own non-compliance through an application dated March 16, 2023. It accepted that it failed to detail its CSR policy and actions in its board report for the Financial Year (F.Y.) 2020-21. Although the company did fulfill its CSR obligation by contributing Rs. 6,86,500 to the PMCARES fund on February 7, 2023, the discrepancy lay in the board report’s content.

Penalty for Missing CSR Policy

Non-Compliance and Justification

The company argued that it wasn’t under the purview of Section 135(1) of the Companies Act during the year in question, and hence, didn’t need to form a CSR committee or outline its CSR policies. The company’s authorized representative (AR) claimed that the oversight happened because CSR provisions were applicable to the company for the first time, and the directors were unaware of them.

The Penalty and Legal Standings

Based on the evidence and the company’s admission, a penalty was imposed not only on the company but also on the directors who had signed the board report. The penalty comprised Rs. 3,00,000 on the company and Rs. 50,000 each on the two directors involved. This decision aligns with Section 134(3)(o) and Section 134(8) of the Companies Act, 2013, which clearly outlines the penalties for such oversights.

Implications for Other Companies

This case is a wake-up call for other companies to take CSR policies seriously and to be thorough in their board reports. Ignorance of the law can cost companies heavily, as evidenced by this incident.

Conclusion

The penalty imposed on Smith N Smith Chemicals Limited by the MCA serves as a stringent reminder of the obligation companies have towards CSR. The company did meet its actual CSR financial commitments but fell short on procedural aspects. This case underlines the importance of not just meeting CSR obligations but also meticulously documenting them in board reports. With CSR becoming an increasingly scrutinized area, it is imperative for companies to be fully aware and compliant with the relevant laws and regulations.

*****

Government of India
Ministry of Corporate Affairs,
Office of Registrar of Companies,
NCT of Delhi & Haryana
4th Floor, IFCI Tower, 61, Nehru Place,
New Delhi – 110019

Order of Penalty Pursuant to Section 134 of the Companies Act, 2013 in the Matter of Adjudication of Smith N Smith Chemicals Limited (CIN: U24100DL2013PLC252186)

Order No. ROC/D/Adj Order/Section 134/Smith/3458-3463 Date: 05/09/2023

1. Appointment of Adjudicating Officer : –

Ministry of Corporate Affairs vide its Gazette Notification No. A­42011/112/2014-Ad. II, dated 24.03.2015 appointed Registrar of Companies, NCT of Delhi & Haryana as Adjudicating Officer in exercise of the powers conferred by section 454(1) of the Companies Act, 2013 (hereinafter known as Act) r/w Companies (Adjudication of Penalties) Rules, 2014 for adjudging penalties under the provisions of this Act.

2. Company: –

Whereas the company viz. SMITH N SMITH CHEMICALS LIMITED (herein after known as ‘company’) incorporated under the Companies Act, 1956 having its registered office as per MCA21 Registry at address 4TH & 5TH FLOOR, BLOCK-A, NDM-1, NETAJI SUBHASH PLACE, DELHI, North West, Delhi, 110034, India. The financial & other details of the subject company for immediately preceding F.Y 2021-22. as available on MCA-21 portal is stated as under:

S. No. Particulars Details
1. Paid up capital (in Lakhs of INR) 10
2. a. Revenue from operation (in Lakhs of INR) 12,913.32
 .    Other Income (in Lakhs of INR) 52.72
b. Profit for the Period (in Lakhs of INR) 537.18
3. Holding Company YES
4. Subsidiary Company YES

3. Facts about the Case:

i. This office was in receipt of application on 16.03.2023 (GNL 1 SRN F59634840) wherein the company admitted non-compliance of Section 134(3)(o) and Section 135(5) of the Act. It is stated that in the F.Y. 2019-20, the net profit of the Company exceeded Rs. 5 crores, due to which company was required to spent Rs.6,86,480.21 as part of its CSR obligation during F.Y. 2020-21. That the company could spend Rs. 6,86,500 as the part of its CSR obligation for the F.Y. 2020-21 in PMCARES on 07.02.2023 only.

ii. That the company had disclosed in its Board Report for F.Y. 2020-21 that the Company is not required to constitute a Corporate Social Responsibility Committee as it does not fall within purview of Section 135(1) of the Companies Act, 2013 during the year and hence it is not required to formulate policy on corporate social responsibility.

iii. As per section 135(5) of the Act, the company was required to spend the entire obligation during the financial year. If a company fails to spend the amount required to be spent under their CSR obligation, the Board shall specify the reasons for not spending in the Board’s report.

iv. An SCN was issued on 30.06.2023 in response to which company had submitted a reply on 11.08.2023. In view of submissions made in reply, a hearing in the matter was scheduled for oral submissions on 22.08.2023. Sh. Sumit Kumar, PCS an Authorised representative (AR) of the Company appeared for hearing and submitted as under.

A. The default pertains to the period FY 2020-21 when CSR provisions became applicable to the company for the first time. Therefore, the default took place on account of lack of awareness of the directors.

B. The default actually took place during the Covid period.

C. Subsequently upon realizing the default the company had transferred an amount of Rs. 6.86 lakhs equivalent to the CSR liability to the PM CARES FUND on 07.02.2023.

D. Therefore, AR requested that the aforementioned factors may be kept in mind while levying the penalties. He additionally submitted that penalty should only be levied on Sh. Rajesh Kumar Jindal being an Executive Director.

E. Sumit Kumar was asked to provide the details of the directors who signed the B/R for 2020-21 as it was company’s own admission that the B/R had inadvertently stated that the provisions relating to CSR were not applicable on the signed. The AR state that two directors namely Sh. Surinder Kumar Chaudhary and Sh. Piyush Jindal had signed the B/R for F. Y. 2020-21.

4. Factors considered for adjudication of penalties: –

i. The company has applied for adjudication on its own, after admitting its default. Company in its Board Report for F.Y. 2020-21 has wrongly stated that it does not fall within purview of Section 135(1) of the Companies Act, 2013 during the year, hence it is not required to formulate policy on corporate social responsibility.

ii. Board report for F.Y. 2020-21 was signed by Sh. Surinder Kumar Chaudhary and Sh. Piyush Jindal. Therefore, company and signatories of Board Report is accountable for the violations of section 134(3)(o) of the Act.

5. The relevant Section 134. Financial statement, Board’s report, etc

(3) There shall be attached to statements laid before a company in general meeting, a report by its Board of Directors, which shall include-

(o) the details about the policy developed and implemented by the company on corporate social responsibility initiatives taken during the year;

(8) If a company is in default in complying with the provisions of this section, the company shall be liable to a penalty of three lakh rupees and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees.

Section 135 (Corporate Social Responsibility)

(5) “The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy:

Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities:

Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount and, unless the unspent amount relates to any ongoing project referred to in sub-section (6), transfer such unspent amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year.

Provided also that if the company spends an amount in excess of the requirements provided under this sub-section, such company may set off such excess amount against the requirement to spend under this sub-section for such number of succeeding financial years and in such manner, as may be prescribed.

6. Adjudication of penalty: –

i. The subject company does not get covered under the purview of small company as defined u/s 2(85) of the Act. Hence, the benefit of section 446B would not be applicable on the company.

ii. Under Section 134(3)(o) of the Act, the Board’s Report was required to state the details of the CSR Policy and the initiatives taken. On the contrary, it was stated that in the Board’s Report that CSR is not applicable on the company. The default has already been admitted. As regard the submission of the AR regarding remission in the penalty amount, it is submitted that the law provides for a fix penalty on the company and its officers in default. In this case apart from the company, penalty can only be levied on the two directors who actually signed the Board’s Report.

iii. Now in exercise of the powers conferred on me vide Notification dated 24th March, 2015 and having considered the reply submitted by the noticee (s) in response to the notice issued on 30.06.2023 and hearing held in the matter on 11.08.2023, I do hereby impose the penalty on the company and its Directors who signed Board Report for F.Y. 2020-21 for violation of section 134 (3)(o) of the Act

Violation section Penalty imposed on company/
director(s) under section 134(8)
Penalty imposed as
per Section 134(3)(8) of the Act
(in Rs.)
A B C
u/s 134 (3) (o) of
the Act
SMITH  N SMITH CHEMICALS LIMITED (company) 3,00,000
SURINDER KUMAR CHAUDHARY, (signatory cum director) 50000
PIYUSH JINDAL, (signatory cum director) 50000

7. Order:

a. Names of parties as mentioned in the table above are hereby directed to pay the penalty amount as per column no. ‘C’ therein. In case of parties other than company, such amount is required to be paid out of their own funds.

b. The said amount of penalty shall be paid through online by using the website mca.gov.in (Misc. head) in favor of “Pay & Accounts Officer, Ministry of Corporate Affairs, New Delhi, within 90 days of receipt of this order, and intimate this office with proof of penalty paid.

c. Appeal against this order may be filed with the Regional Director (NR), Ministry of Corporate Affairs, B-2 Wing, 2nd Floor, Paryavaran Bhawan, CGO Complex, Lodhi Road, New Delhi-110003 within a period of sixty days from the date of receipt of this order, in Form ADJ [available on Ministry website mca.gov.in] setting forth the grounds of appeal and shall be accompanied by a certified copy of the order. [Section 454(5) & 454(6) of the Act read with Companies (Adjudicating of Penalties) Rules, 2014].

d. Your attention is also invited to section 454(8) of the Act in the event of non­compliance of this order.

(Pranay Chaturvedi, ICLS)
(Adjudicating Officer)
Registrar of Companies
NCT of Delhi & Haryana

Sponsored

Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.

Leave a Comment

Your email address will not be published. Required fields are marked *

Sponsored
Sponsored
Sponsored
Search Post by Date
October 2024
M T W T F S S
 123456
78910111213
14151617181920
21222324252627
28293031