MCA Penalises CFO (KMP) of Company for holding office in more than one Company: The Registrar of Companies, Madhya Pradesh, issued an order penalizing Mr. Abhay Gupta, the former Chief Financial Officer (CFO) of Gwalior Smart City Development Corporation Limited, for holding office in more than one company, which violated Section 203(3) of the Companies Act, 2013. The violation occurred when Mr. Gupta, while serving as CFO of Gwalior Smart City, also became a director in Causebox Consulting Pvt. Ltd. without obtaining prior permission from the board. The company initiated departmental inquiry against Mr. Gupta and terminated his services. Mr. Gupta defended himself by stating that he was not aware of the requirement to seek approval from the board for holding directorship in another company. However, the adjudicating officer concluded that Mr. Gupta was liable for the violation and imposed a penalty of Rs. 50,000. Mr. Gupta was given the option to appeal the order within sixty days. Failure to pay the penalty within ninety days could lead to further penalties or imprisonment. The order was sent to Mr. Gupta and the Regional Director, North-Western Region, Ministry of Corporate Affairs, Ahmedabad, and would also be uploaded on the MCA website.
GOVERNMENT OF INDIA
MINISTRY OF CORPORATE AFFAIRS
Office of The Registrar of Companies, Madhya Pradesh
Sanjay Complex, ‘A’ Block, 3rd Floor, By Speed
Jayendraganj, Gwalior— 474009.
mail: [email protected]
Order No: ROC-G /Adj. Pen./ Sec. 203/245, 248bDated: 08 MAY 2023
1. Sh. Abhay Gupta, CFO (KMP)
2. Regional Director, North-Western Region,
Ministry of Corporate Affairs,
Ahmedabad (Gujarat).
Subject: Order under Section 454 of the Companies Act, 2013 for violation of Section 20’3(3) of the Companies Act, 2013 read with Companies (Adjudication of Penalties) Rules, 2014).
In the matter of Companies Act, 2013
And
In the matter of adjudication proceeding under sub-section (3) of
Section 203 of the Companies Act, 2013.
And
In the matter of
M/s. Gwalior Smart City Development Corporation Limited, Integrated Command & Control Center, Mod Mahal, Laskar, Gwalior 474002.
(CIN- U75100MP2016SGC041727)
Date of hearing 26th April, 2023
Appointment of adjudicating officer:
1. Ministry of Corporate Affairs vide its Gazette Notification No. A-42011/ 112/2014-Ad.I1 dated 24.03.2015 appointed undersigned as adjudicating officer 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 adjudicating penalties under the provisions of this Act.
Company:
2. Whereas company (CIN- U75100MP2016SGC041727) [herein after known as company] is a registered company with this office under the provisions of the Companies Act, 2013 having its registered office situated at Integrated Command & Control Center, Moti Mahal, Laskar, Gwalior 474002, M.P. as per the MCA website.
Facts about the case:
3. Whereas the captioned company namely Gwalior Smart City Development Corporation Limited has made application supported by an affidavit affirmed by its company Secretary, duly authorised by the board resolution dated 25.09.2020 for adjudication for violation of Section 203(3) of the CA, 2013 company has stating following facts in its application:
(i) The applicant company i.e. Gwalior Smart City Development Corporation Limited is required to appoint a Chief Financial Officer as per Section 203(1) (iii) read with Rule 8 of Chapter XIII, Companies (Appointment of Key Managerial personnel) Rules, 2014 of the Companies Act, 2013.
(ii) Abhay Gupta was appointed as a Chief Financial Officer of the company w.e.f. 04.12.2017.
(iii) The Commissioner, UADD state of MP had received a complaint from Kalchuri Contractors Ltd. which was forwarded to the company and the said complaint inter-alia provides that Mr. Abhay Gupta, CFO of the company (Gwalior Smart City Development Corporation Limited ) had formed a company namely Cashbox Consulting P. ltd. on 08.08.2019 with CIN- U74999MH2019PTC329083) in the capacity of promoter, shareholder and director.
(iv) Causebox Consulting P. ltd. was having two directors and one of them was Mr. Abhay Gupta and simultaneously he was also the CFO of Gwalior Smart City.
(v) Abhay; Gupta CFO of captioned company had formed
a company on 08.08.2019 and Mr. Abhay Gupta become director in Causebox Consulting P. ltd. without obtaining prior permission of the board.
(vi) Abhay Gupta, CFO of captioned company has violated the provisions of Section 203(3) of the Act, 2013.
(vii) Abhay Gupta has resigned from the company Causebox Consulting P. ltd. on 15.03.2020 by filing form DIR-12 vide SRN R52473691 dated 01.09.2020.
(viii) The company Gwalior Smart City e Development Corporation Limited has filed form DIR-12 vide SRN R87169553 dated 21.01.2021 for removal of Mr. Abhay Gupta CFO of captioned. company.
(ix) The company has mentioned in its application that default done by Mr. Abhay Gupta, CFO in complying with the provision of Section ‘203 of the CA, 2013 is not a continuing one as his services has ,been terminated by the company and company prays for adjudication of default as aforesaid under Section 454 of the act, 2013 for considering the facts that company and its directors are not aware of any default done by the Mr. Abhay Gupta as the default was done by the CFO of the company.
4. On receipt of application this office had issued show cause notice u/s. 203(3) of the Companies Act, 2013 vide No. ROC- Gwalior/ Adj. Pen./ Sec 203/2023/2622 84 2623 dated 24.03.2023 and in response of aforesaid notice dated 24.03.2023 this office has received a letter dated 04/05.04.2023 C.S Sh. Prasant Kumar Sahoo of company had stated following facts in its letter as under:
(i) The company is required to appoint a Chief Financial Officer as per Section 203(1) (iii) read with rule 8 of Chapter XIII Companies (Appointment of Key Managerial Personnel) Rules, 2014 of the Companies Act, 2013 and the board appoints Mr. Abhay Gupta as a Chief Financial Officer of the company w.e.f. 04.12.2017.
(ii) The company ex-CFO Mr. Abhay Gupta had formed a company gamely M/s. Causebox Consulting Pvt. Ltd. on 8th August, 2019 with CIN- U74999MH2019PTC329083 in the capacity of promoter, shareholder and director without permission and knowledge of board. Further M/s. Causebox Consulting P. ltd. has also intentionally submitted the Bid in consortium with All India Institute of Local Self Government invited by Satna Smart City Limited (another company formed by the Govt. of M.P. under Smart City Mission). The Commissioner, UADD, State of MP ‘ had received a complaint from M/s. Kalchuri Contractors Ltd. which was forwarded to the company and the company on receiving complaint had conducted an inquiry regarding the formation of new company by CFO and found that Mr. Abhay Gupta has violated the provisions of Section 203(3) of the Companies Act, 2013. Further by bidding for the Tender issued by another Government company which is clearly a conflict of interest, he was also guilty of violation of his service contract with the company.
(iii) The company immediately after having information about the default made by the CFO of the company, initiated departmental inquiry and has taken action against the CFO by terminating his services and filed Form DIR-12 vie SRN R87169553 dated 21.01.2021 for removal of Mr. Abhay Gupta as CFO of the company.
(iv) Further tile company has been.: suo moto filed the compounding application under Section 441 of the Companies Act, 2013 (the Act) with your office praying for compounding of offence committed under first provision of sub-Section (3) of Section 203 of the Companies Act, 2013. This application has been filed by the company supported by an affidavit affirmed by its company Secretary, duly authorized by the Circular Resolution passed by the Board of directors of the company “Gwalior Smart City Development Limited” (the company) on 25th September, 2020. The company has also . filed a request for adjudication by your office in the matter, in response of which your office issued present notice under reply.
(v) The company and its other officers except Mr. Abhay Gupta were not having any knowledge or information about the appointment of Mr. Abhay Gupta as director in another company, resulting into the non-compliance of the first proviso of sub-Section (3) of Section 203 of the act by Mr. Abhay Gupta CFO of the company. Therefore, whatever ,non-compliance has been transpired was without the knowledge and permission of the board.
(vi) The company or its director have not done any default of the provisions of Companies Act: in the matter, on the contrary they are victim of the default done by Mr. Abhay Gupta. As a matter of fact, upon- getting knowledge of misconduct and violation done by Mr. Abhay Gupta, the company and its board have taken action and also approached to your good office for compounding and adjudication in the matter. As a matter of fact during the inquiry Mr. Abhay Gupta stated that he was already resigned from the subjected company but the same was back dated resignation of mislead the company and other statutory authority. Therefore, we request you to drop all the proceedings against the company or its directors as there is nothing on their part and take necessary action against Mr. Abhay Gupta, who is responsible for all these contraventions.
5. In response of aforesaid show cause notice dated 24.03.2023 this office has also received a letter from CA ,Sh. Abhay Gupta on 10.04.2023, had stated following facts in its letter as under:
(i) Sh. Abhay Gupta had joined Gwalior Smart City Development Corporation Limited as CFO from 05.09.2017 and effective 04.12.2017 he was also made KMP under the Companies Act for which no separate information was provided to the undersigned. They was lot of confusion internally in the organization perhaps so they were not able to decide who will be KMP under the Companies Act. In fact, if insist for records you will realize they didn’t pay my salary for couple of months though I kept attending office, which they release letter.
(ii) It is important to mention that the assignment was of contractual nature and scheduled to expire on 04th September, 2019. There was no intimation as to renewal for further term and without any extension he kept on working to make a decision but uncertainty continued and then cam COVID.
(iii) Being CA I helped one of my acquaintance to incorporate a company by the name of Causebox Consulting Pvt. Ltd. and became a director with a intent to incorporate and handover the company to friend. To facilitate initial signing etc. I took this directorship without any monetary or other benefit. The date of incorporation was 8th August, 2019 just a month before expiry of my contract. With GSCDCL. Since there was no clarity on extension of contract upon expiry on 04th September, 2019 I kept my option of professional options open and therefore, worked incorporate the company for friends. Its important Causebox didn’t do any business till I was director in it.
(iv) Ideally I should have informed board of directorship but due •the fact it was expected to short live and erroneously extended till 15th March, 2020. I has made oral mentioned the then ‘CEO that since I was not sure of extension I am looking at Other options. This was, purely un-intentional default and without any monetary or other benefit to myself or loss to anyone else.
(v) Mr. Abhay Gupta continued to work for GSCDCL without any firm contract and also kept trying look for alternate engagements in absence of a firm contract but suddenly came COVID and my mother got cancer she was being treated at Gwalior City. In the meantime since the matter of directorship in other company was raised like a storm I decided to ‘resign. I had zeroed down on some option but due to death of my mother on 23.09.2020 deferred it and resigned from GSCDCL on 9th Nov. 2020 and stood released on 10.11.2020. Post that Sh. Abhay Gupta joined other company on 18.11.2020 non-KMP position.
(vi) Abhay Gupta had incorporated for my friend and to facilitate initial document sign off etc. participated directly with a view to come out in some time. Besides, since my engagement as KMP with GSCDCL was contractual assignment and in any case was expiring in less than a month’s time on 04.09.2019 so I didn’t inform board, though had made oral mentioned to the then CEO of the company. However, assignment continued and erroneously forgot to resign from causebox and also didn’t inform GSCDCL. Its pertinent to mention that cause box has not done any business and I have not obtained any kind of benefit by association nor there has been any kind of loss to exchequer or anyone from causebox by way of any my association.
(vii) Its unintentional violation of 203(3) and without any benefit. In fact it will be worthwhile to check if company has complied with 203(4) by filing the position in prescribed time.
(viii) It is a fact other directors were not aware about other directorship. And I had resigned from the company. The word termination used is wrong or the dealing person had some vendetta towards me.
In view of the above, I request to kindly condone the unintentional violation caused due to my directorship in cause box and close the aforesaid notice against me.
6. Thereafter this office has issued notice of inquiry vide No. ROC- G/Adj. Pen./Sec„ 203/27 8628 dated 10.04.2023 to the company and officer in default and had fixed a date of hearing on i.e. 13.04.2023 at 11.00 A.M. In response of this notice dated 10.04.2023, office has received e-mail dated 10.04.2023 from Sh. Abhay‘ Gupte & CA had intimated that Sh. Ramakant Gupta CA will appear on the date of hearing. On hearing date i.e. 13.04.2023, this office had received a letter from Sh. Ramakant Gupta therein request has made to adjourn the date of hearing due to collection of some other facts. The request of Sh. Ramakant Gupta has been considered and the next date of hearing is fixed on 26.04.2023.
7. On the date of hearing dated 26.04.2023, Smt. Neetu Mathur, CFO of the company has authorised vide authorisation letter dated 25.04.2023 to Sh. Prasant Kumar Sahoo, CS of the company to attend the hearing on scheduled date and time. Sh. Prashant Kumar Sahoo has attended the hearing.
8. On the date of hearing dated 26.04.2023, a letter also received from Sh. Abhay Gupta CA vide letter dated 26.04.2023 had stated following facts in its letter as under:
(i) Further to my submissions earlier, I would like to apprise you the fact that company has nowhere defaulted in complying to the provision of the Act. I too was not aware of the fact that I have to comply to any such process related provision for taking approval of the board for directorship in other company.
(ii) However, I am a director in other company was well known to the full time CS of the company who never advised on the requirement of declaration/approval from board. The fact I have a DIN through other company was known to company secretary and he came to know to about it while doing compliance in respect of my being KMP. He talked to me about it but never mentioned that it needs board approval. ” Company Secretary being the expert of the aspect was being relied upon by company directors and other key ;officials of the company in respect of such compliance related process part. So to conclude that process has been violated by me is not a. justified conclusion’. As I came to know about it I discontinued my association with GSCDCL. There is process noncompliance and not with the intended provision of law in respect of KMP under the Act.
(iii) Besides, the purpose of Section 203(3) shall not hold office in any other company except subsidiary at the same time and provision provides that this does not stop KMP being from director in another company with permission of the board.
(iv) In fact the recommendation of Irani committee before these provisions , of 203 came mentioned that certain persons should be key persons and they should not hold full time office elsewhere which has been captured by section 203(3) as well with a relaxation that KMP can become director in other company which is not a full time position. So th intent of law is that KMP should not hold full lime position anywhere else and I too held no other full time position while being KMP at GSCDCL by way of permission rom it’s board. The process compliance part become less relevant as my contract with company was expiring in a month’s lime on 5th May and there was ever any clarity it will be extended. In fact
(v) it was never formally extended till I myself resigned.
(vi)– It’s important to know that be being director of cause box, I have not gained any financial or other benefit. Also cause box has not gained any thing from my association. And finally company too has not suffered any loss or cost on account of this.
(vii) In fact, it is relevant to mention here that company has withheld my salary for 3-4 months around Rs. 4 Lakhs for this alleged and unintended violation of the process towards the company though they have not suffered any loss or cost on account of this.
In view of above my request you to kindly drop the notice and close the matter.
Order
9. Having considered the facts and circumstances of the case and after taking into account the factors above, it is concluded that the officer in default i.e. Sh. Abhay Gupta ex-CFO is liable to a penalty of fifty thousands rupees.
10. Accordingly, I am inclined to impose a penalty as prescribed under sub Section 5 of Section 203 of the companies Act, 2013. The details of the penalty imposed on the officer in default as under:
| Nature of default | Relevant section under the companies Act, 2013 |
Name of person on whom penalty is imposed | Total default amount | Final penalty imposed (Rs.) |
| A whole time key managerial personnel shall not hold office in more than one company |
Section 203(3) of the Companies Act, 2013 | Sh. Abhay Gupta | Rs. 50,000/- | Rs. 50,000/- |
I am of this opinion that penalty is commensurate with the aforesaid failure committed by the notice 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.
11. Appeal against this order may be filed in writing with the Hon’ble Regional Director, (NWR), Ministry of Corporate Affairs, Ahmedabad within a period of sixty days from the date of receipt of this order in Form ADJ (available on Ministry website www.mca.gov.in in 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 (Adjudicating of Penalties) Rules, 2014.
12. Your attention is also invited to section 454(8)(ii) of the Companies Act, 2013 which state that in case of non-payment of penalty amount within a period of ninety days from the date of receipt of the copy of the order, such .officer in default shall be punishable with imprisonment which may extend to six months or with fine which shall not be less that twenty-five thousand rupees but which may extend to one lakh rupees or with both.
13. In terms of the provisions of sub-rule 3 of the Companies (Adjudication of Penalties) Rules, 2014 copy of the order is being sent to Sh. Abhay Gupta, CFO (KMP) and Regional Director, North-Western Region, MCA, Ahmedabad (Gujarat) and will also be uploaded on MCA website.
The adjudication notice stand disposed off with this order.
(Mukesh Kumar Soni, ICLS)
Adjudication Officer/ Registrar of Companies,
Madhya Pradesh Gwalior.
Order reserved on 26.04.2023
Order pronounced on 03.05.2023
