Introduction: The adjudication process under the Companies Act, 2013, specifically Section 454, is a crucial aspect of regulatory oversight. In this case, we delve into the matter concerning Unique Mercantile India Limited and the penalty order issued by the Registrar of Companies, Gujarat, for the violation of Section 178(1) of the Companies Act, 2013.
Detailed Analysis: The case stemmed from an inquiry report initiated against Unique Mercantile India Limited, directed by the DGCoA. The company’s constitution of the Nomination and Remuneration Committee was found in violation of Section 178(1) of the Companies Act, 2013. The central contention revolved around the presence of Mrs. Usha Rai, the Promoter and wife of the Whole Time Director, as the Chairperson of the Committee, thus breaching the mandate for non-executive directors, including independent directors, in such committees.
The submission from the Authorized Representative of the company highlighted the company’s status as a private limited entity during the fiscal year 2015-16, arguing that the provisions concerning the constitution of the Nomination and Remuneration Committee were inapplicable.
Conversely, the Presenting Officer contended that the company’s conversion to a limited company in 2018 did not absolve it of responsibilities during the pertinent financial year. The officer argued that the company’s declaration in its directors’ report for 2015-16 regarding the inapplicability of certain provisions under the Act was erroneous.
Conclusion: Upon a thorough examination of submissions and documentary evidence, the Adjudicating Officer concluded that Unique Mercantile India Limited and its officers were not in contravention of Section 178(1) of the Companies Act, 2013. The company’s status as a private limited entity during the relevant period, as evidenced by official documents, played a pivotal role in this determination.
In essence, the case underscores the importance of meticulous compliance with regulatory provisions and the need for a nuanced understanding of corporate governance dynamics. The resolution of such disputes through adjudication serves to ensure adherence to statutory frameworks while providing clarity on legal obligations within the corporate landscape.
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BEFORE THE ADJUDICATING OFFICE
REGISTRAR OF COMPANIES, GUJARAT, DADRA & NAGAR HAVELI
No. ROC-G.1/01/Sec. 454(4)/Sec.178/UNIQUE MERCANTILE/STA (MID) 23-24/5932 To 37
Dated: 14 MAR 2024
ORDER FOR PENALTY UNDER SECTION 454 OF THE COMPANIES ACT, 2013 READ WITH COMPANIES (ADJUDICATION OF PENALTIES) RULES, 2014 and COMPANIES (ADJUDICATION OF PEN LTIES) AMENDMENT RULES, 2019 FOR VIOLATION OF SECTION 178 (1) OF THE COMPANIES ACT, 2013
IN THE MATTER OF UNIQUE MERCANTILE INDIA LIMITED
(U45201GJ2006PLC047916)
Date of hearing: 28.02.2024
1. Shri Keerthi Thej N. (ROC), Adjudicating Officer
2. Shri Indrajit Vania (DROC), Presenting Officer
3. Shri Ashish Dc hi, PCS Authorized Representative of the Company
Appointment of Adjudication Authority:-
1. The Ministry of Corporate Affairs vide its Gazette Notification No. A-42011/112/2014- Ad.II dated 24.03.2015 has appointed the undersigned as Adjudicating Officer in exercise of the power conferred under section 454 of the Companies Act, 2013 (hereinafter known, as Act) read with Companies (Adjudication of Penalties) Rules, 2014 (Notification No. GSR 254(E) dated 31.03.2014) for adjudging penalties under the provisions of Act.
Company:
2. UNIQUE MERCANTILE INDIA LIMITED (hereinafter referred to as “Company”) is a company registered under the provisions of the Companies Act, 1956/2013 in the State of Gujarat on 09.03.2006, having CIN: U45201GJ2006PLC04795 and presently having its registered office situated at “Unique House, 2nd Floor, Opp. Union Bank of India, Old High Court Lane, Ash am Road, Ahmedabad-380009, Gujarat, India”.
Facts of the case
3. With reference to DGCoA letter No. CL-II-04/102/2022-0/o DGCoA-MCA dated 03.10. 2023 in the matter of Inquiry Report under Section 206(4) of Companies Act, 2013 against subject company directed this office to take penal action under Adjudication of penalty as per 454 of the Companies Act, 2013 read with Rule 3 of the Companies (Adjudication of Penalties) Rules, 2014 for violation of Section 78 (1) of the Companies Act, 2013. The NRC Committee shall consist of three or more non-executive directors out of which not less than one-half shall be independent directors. It is observed from the financial statement 2015-16 of the company that Mrs. Us a Rai-Promoter and wife of Whole Time Director of the Company is acting as Chairperson of Nomination and Remuneration Committee. Hence, she will not come under the purview of Non-Executive Director {Section 149 (12) read with definition of Promoter}. Therefore, the constitution of Nomination and Remuneration Committee have violates the provisions of the Section 178 (1) of the Companies Act, 2013. Hence, Mrs. Usha Rai cannot considered as a Non-Executive Director of the Company. The compony and Directors have violated provisions of Section 178 (1) of the Companies Act, 2013.
Section 178 (1) of the Companies Act, 2013 has been reproduced below:
Nomination and Remuneration Committee and Stakeholders Relationship Committee:
(1) “The Board of Directors of every listed company and such other class or classes of companies, 7 as may be prescribed shall constitute the Nomination and Remuneration Committee consisting of three or more non-executive directors out of which not less than one-half shall be independent directors”
4. The Registrar of Companies vide the Companies (Amendment) Act, 20:19 is entrusted with power to adjudicate penalty as provided under Section 178(1) of the Companies Act, 2013 w.e.f. 15.05.2023. The DGCoA vide letter dated 11.05.2022 has instructed that all cases filed under Companies Act, 1956 and Companies Act, 2013 can be considered under In House Adjudication Penalty Mechanism (IAM). The DGCoA further directed that all cases filed under CA, 1956 and CA, 2013 can be considered for adjudication process which are now decriminalized (earlier prosecutions to be filed by Companies Amendment Act effective from 02.11.2018 an further Amendment in 2020 effective from 28.09.2020). By keeping in mind, the ease of doing business in India and in compliance to the instructions of the Ministry, the matter should be considered to take cognizance of the default committed for the financial year 2022-23 under In House Adjudication ‘penalty Mechanism (1/5M).
SUBMISSION OF AUTHORISED REPRESENTATIVE OF THE COMPANY:
5. The authorized Representative has furnished written submission and submitted that the company was incorporated as a Private limited on 09.03.2006 and was later on converted as a limited company on 08.02.2018 vide fresh certificate of incorporation issued by Registrar of Companies, Gujarat (copy enclosed). Therefore, our company was a private limited company during the financial year 2015-16.
The notice has been served to the company as well as directors of the company considering all directors as officer in default. However, Mr. Rajkumar Rai is appointed as chairman and Managing Director. Therefore, as per provisions of Section 2(60) of the Companies Act, 2013, Mr. Rajkumar Rai is an officer in default. Inspecting Officer has erred in sending notice to all directors instead of officer in default.
The company was a private Limited company during the year 2015-16 and therefore provisions of constitution of NRC committee was not applicable. The company has also declared in its directors’ report for the financial year 2015-16 that the provisions of constitution of NRC and appointment of independent Directors are not applicable since the company is a private limited company. Any formal committee constituted for selection and remuneration of employees of the companies for internal governance may not be falling under the purview of the provisions of the Act and does not require any compliance as may be required under the provisions of the Act, in view of non-applicability of the provisions of the Act. A copy of the disclosure made in the Directors Report for the financial year 2015-16 is attached herewith. The present notice of adjudication may be dropped and disposed as if no offence has been committed as alleged in the notice of adjudication.
SUBMISSION OF PRESENTING OFFICER
6. Presenting officer would submit: that the written submission made by authorized representatives 1 of the company and in view of the furnished documentary evidence i.e. the company was incorporated as a Private Limited on 09.03.2006 and was later on converted as a limited company on 08.02.2018 vide fresh certificate of incorporation issued by Registrar of Companies, Gujarat. Therefore, the company was a private limited company during the financial year 2015-16 and the company has also declared in its directors’ report for the financial year 2015-16 that he provisions of constitution of NRC and appointment of independent Directors are not applicable since the company is a private limited company. Any formal committee constituted for selection and remuneration of employees of the companies for internal governance shall not be falling under the purview of the provisions of the Act.
7. It is further submitted that it is a reasonable ground to believe that the company was a private limited company during the financial year 2015-16 and the company has also declared in its directors’ report for the financial year 2015-16 that the provisions of constitution of NRC and appointment of independent Directors are not applicable since the company is a private limited company. Therefore, the company and its officers are not liable for violation of the provisions of Section 178(1) of the Companies Act, 2013.
ORDER:
1. With regard to the above factors submitted by the company, the company has furnished documentary evidence stating the company was a private limited company during the financial year 2015-16 and is stating the company has also declared in its directors’ report for the financial year 2015-16 that the provisions of constitution of NRC and appointment of independent Directors are not applicable since the company is a private limited company.
2. Having considered the facts and circumstances of the case and submissions made by the authorized representative and presenting Officer and after taking into account the facts above, the undersigned has reasonable cause to believe that the company and its officers are not in contravention of the provisions of Section 178 (1) of the Companies Act, 201.3 and hence, not liable for penalty pursuant to Section 178 (3) of the Companies Act, 2013 read with Rule 6 of the Companies (Meeting of Board and Its Power) Rules, 2014.
The adjudication notice stands disposed off with this order.
REGISTRAR OF COMPANIES/
ADJUDICATING AUTHORITY
GUJARAT, DADRA & NAGAR HAVELI
