Non-Appointment of CS: MCA imposes a whopping ₹21.73 Lakh Penalty

The Registrar of Companies cum Official Liquidator, attached to the Rajasthan High Court, Jaipur Bench at Jaipur, issued an order on January 16, 2024, imposing penalties under Section 454 of the Companies Act, 2013, for the violation of Section 203(1) of the Companies Act, 2013, read with Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, by Prism Buildcon Private Limited and its directors.

The relevant provisions of the Companies Act, 2013, require certain classes of companies to have key managerial personnel, including a company secretary. Companies failing to comply with this provision are subject to penalties.

The facts of the case reveal that Prism Buildcon Private Limited did not appoint a company secretary despite the requirement to do so. The post of the company secretary had been vacant since April 1, 2014, and should have been filled by September 30, 2014. However, the company failed to do so, thereby violating the relevant provisions of the Companies Act, 2013, and the associated rules.

Show Cause Notices were issued to the company and its defaulting directors on July 25, 2023, and October 23, 2023, respectively. Despite these notices, no replies were received from the respondents. Subsequently, an Adjudication Notice was issued on December 18, 2023, setting a hearing date for January 9, 2024. However, no representatives from the company or its directors appeared for the hearing.

Based on these facts, the adjudicating officer determined that Prism Buildcon Private Limited and its directors had failed to comply with the provisions of Section 203(1) of the Companies Act, 2013, read with Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. Therefore, they were liable for penal action under Section 203(5) of the Companies Act, 2013.

Penalties were imposed as follows:

• Prism Buildcon Private Limited: Rs. 5,00,000/-
• Shripal Choudhari (Additional Director): Rs. 5,00,000/-
• Mahipal Choudhari (Director): Rs. 5,00,000/-
• Ambika Prasad Ramdhari Maurya (ex-Director): Rs. 1,73,000/-
• Ayushman Barua (ex-Director/ex-Additional Director): Rs. 5,00,000/-

The total penalty amounted to Rs. 21,73,000/-. The penalty was to be paid from the personal sources/income of the individuals concerned and remitted through the Ministry of Corporate Affairs portal.

The order also notified the respondents of their right to appeal within sixty days to the Regional Director (NWR), Ministry of Corporate Affairs, Ahmedabad, accompanied by a certified copy of the order.

Attention was drawn to the consequences of non-payment of the penalty amount, including fines or imprisonment as stipulated by the Companies Act, 2013.

Copies of the order were sent to Prism Buildcon Private Limited and its directors, as well as to the Regional Director (NWR), MCA.

In conclusion, the order disposed of the adjudication notice, outlining the penalties imposed for the company’s failure to appoint a company secretary and provided instructions for further action or appeals.

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Government of India
Ministry of Corporate Affairs.
Office of Registrar of Companies cum Official Liquidator,
Attached to Rajasthan High Court, Jaipur Bench at Jaipur
Corporate Bhawan, G/6-7, Residency Area, Civil Lines, Jaipur-302001

Order for Penalty under Section 454 of the Companies Act, 2013 read with Companies (Adjudication of Penalties) Rules, 2014 and Companies (Adjudication of Penalties Amendment) Rules, 2015 for the violation of Section 203(1) of Companies Act, 2013 read with Rule 8(A) of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014: –

1. Prism Buildcon Private Limited, Company
Nawalpura Mod, Delhi Road, Jaipur, Rajasthan-303104.

2. Shripal Choudhari, Additional Director

3. Mahipal Choudhari, Director

4. Ambika Prasad Ramdhari Maurya, ex-Director

5. Ayushman Barua, ex-Director/ ex-Additional Director

….. Respondents

Date of hearing – 09.01,2024

Present: –
01. Shri Ruvit Kumar, ROC-Cum-OL, Rajasthan, Jaipur
02. Shri Raunak Agrawal, AROC-cum-AOL, Rajasthan, Jaipur

ADJUDICATION ORDER

1. Appointment of Adjudicating Officer: –

Whereas the Ministry of Corporate Affairs vide its Gazette Notification No. SO 831 (E) dated 24.03.2015 appointed the Registrar of Companies/undersigned as Adjudicating Officer in exercise of the Power conferred by Section 454 of the Companies Act 2013 read with Companies (Adjudication of Penalties) Rules, 2014. The Registrar of Companies vide the Companies (Amendment) Act, 2019 is entrusted with power to adjudicate penalty as provided under Section 203(5) of the Companies Act, 2013.

2. Respondent Company:

Whereas Prism Buildcon Private Limited (CIN U45201RJ2006PTCO22273) is registered with this office and having registered office at Nawalpura Mod, Delhi Road, Jaipur, Rajasthan-303104.

3. Relevant provisions of the Companies Act, 2013: –

Whereas as per the provision of section 203 (1) of the Companies Act, 2013 “every company belonging to such class or classes of companies as may be prescribed shall have following whole-time key managerial personnel: –

I. Managing Director, or Chief Executive Officer or Manager and in their absence, a Whole-Time Director

II. Company Secretary; and

III. Chief Financial Officer”

WHEREAS as per the provision of Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 “every private company which has a paid-up share capital of ten crore rupees or more shall have whole-time company secretary.”

WHEREAS as per the provision of section 203(4) of the Act, 2013 “If the office of any whole-time key managerial personnel is vacated, the resulting vacancy shall be filled-up by the Board at a meeting of the Board within a period of six months from the date of such vacancy.”

WHEREAS as per provision of section 203 (5) of the Companies Act, 2013 “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 a 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.”

4. Facts of the Case:

➣ This office has observed that the post of the Company Secretary in the Respondent Company was vacant from 01.04.2014 and the same was required to fill up on or before 30.09.2014 pursuant to section 203(4) of the Companies Act, 2013. However, the Respondent Company has failed to fill the same and violated the provision of section 203(1) of the Companies Act, 2013 read with Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

➣ In view of the above, this office has issued Show Cause Notice(s) vide dated 25.07.2023 and 23.10.2023 to the Respondent Company and its defaulting Directors. In this regard, the Respondent Company and its defaulting Directors have not furnished any reply to this office.

➣ This office vide Adjudication Notice dated 18.12.2023 has fixed a date of hearing in the matter on 09.01.2024. However, nobody is appeared on behalf of the Respondent Company and its defaulting Directors.

5. In view of the above facts, the undersigned has reasonable cause to believe that the provision of section 203 (1) of the Companies Act, 2013 read with Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 has not been complied with by the Respondents and therefore liable for penal action under section 203 (5) of the Companies Act, 2013. Accordingly, in exercise of the power of 454 (3) of the Companies Act, 2013, I inclined to impose a penalty on the Respondents, as under-.

I am of this opinion that penalty is commensurate with the aforesaid failure committed by the Respondents and penalty so imposed upon the notice 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.

6. Appeal against this order may be filed in writing with the Regional Director (NWR), Ministry of Corporate Affairs, Ahmedabad within a period of sixty days from the date of receipt of this order, in e-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) & 454(6) of the Companies Act, 2013 read with Companies (Adjudicating of Penalties) Rules, 2014).

7. Attention is also invited to section 454(8)(i) and 454(8)(ii) of the Companies Act, 2013, which state that in case of non-payment of penalty amount, the company shall be punishable with fine which shall not be less than twenty five thousand rupees but which may extend to five lakh rupees and officer in default shall be punishable with imprisonment which may extend to six months or with fine which shall not be less than twenty five thousand rupees but which may extend to one lakh rupees or both.

8. In terms of the provisions of sub-Rule (9) of Rule 3 of the Companies (Adjudicating of Penalties) Rules, 2014, copy of the order is being sent to the following: –

(I) Prism Buildcon Private Limited at Nawalpura Mod, Delhi Road, Jaipur, Rajasthan-303104.

(II) Shripal Choudhari at ____

(III) Mahipal Choudhari at ____

(IV) Ambika Prasad Ramdhari Maurya at ____.

(V) Ayushman Barua at ____.

(VI) Regional Director, NWR, Ministry of Corporate Affairs, Ahmedabad at ROC Bhavan, Opp. Rupal Park Society, Behind Ankur Bus Stop, Naranpura, Ahmedabad, Gujarat-380 013.

The Adjudication Notice is disposed off with this order.

(RUVIT KUMAR)
ROC-cum-OL & Adjudicating officer,
Rajasthan, Jaipur

File No. ROC-JP/ADJ/2023-24/38

Date: -16/01/2024