In a landmark decision that underscores the Ministry of Corporate Affairs’ (MCA) adaptable regulatory approach, Shrushti Contech Private Limited witnessed a substantial reduction in the penalty imposed for the non-appointment of a Company Secretary (CS). Originally set at a staggering ₹25 lakh, the penalty was significantly reduced to ₹3.75 lakh, offering a sigh of relief to the company and its directors.
Background: Under the Companies Act, 2013, it’s mandated for companies exceeding certain thresholds to appoint a whole-time CS. Shrushti Contech Private Limited found itself in contravention of Section 203 read with Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, for failing to appoint a CS from the time the applicable provisions came into force in November 2018 until November 2023.
The Penalty Reduction: The original penalty, amounting to ₹5,00,000 each on the company and its four directors, was appealed against, leading to a hearing before the Regional Director, South East Region, MCA, Hyderabad. The appellants argued the delay was due to the challenges in finding a qualified CS, particularly during the COVID-19 pandemic and ensuing lockdowns. Notably, the company rectified the omission by appointing Jhalak Jain as the CS in December 2023.
Considerations for Penalty Reduction:
The decision to reduce the penalty was based on several factors:
- The company’s private status and the unintentional delay in compliance.
- Efforts made to comply despite the pandemic’s challenges.
- The lack of financial loss or harm to the company’s stakeholders and the public interest.
- Swift compliance upon finding a suitable candidate.
Conclusion: This resolution marks a noteworthy instance of regulatory leniency in response to genuine compliance challenges faced by businesses. It underscores the MCA’s willingness to consider mitigating factors, such as efforts towards compliance and the impact of unforeseen circumstances like the COVID-19 pandemic. Furthermore, it serves as a reminder to companies of the importance of adhering to statutory obligations and the potential for regulatory discretion in enforcing penalties.
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F.No:9/10/ADJ/Sec.203 of 2013/Andhra Pradesh/RD(SER)/2024
Before the Regional Director, South East Region
Ministry of Corporate Affairs, Hyderabad
In the Matter of Companies Act, 2013 /6938
In the Matter of Shrushti Contech Private Limited
1. M/s. Shrushti Contech Private Limited
2. Jampala Madhusudhan Reddy, Managing Director
3. Jampala Prasanna Lakshmi, Director
4. Jampala Sujatha, Director
5. Jampala Rajasekhar Reddy, Director
Appellants
Date of hearing: 01.02.2024
Present: Mr. M Maruthi Rao, PCA
ORDER
This is an appeal filed under section 454(5) of the Companies Act, 2013 by the above appellants in e-form ADJ vide SRN F90210824 dated 13.01.2024 against the adjudication order F No. ADJ72/203 OF 2023-24/876 dated 21.11.2023 under section 454 passed by the Registrar of Companies, Andhra Pradesh for default in compliance with the requirements of Section 203 read with Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.
2. Registrar of Companies in his order of adjudication has stated that the company has failed to appoint the Whole-time Company Secretary since the applicable provisions of the Act came into force i.e., on 02.11.2018 to till date despite paid up capital has exceeded the prescribed limit as stated in the provisions of Section 203(1) of the Companies Act, 2013. Hearing was held before Registrar of Companies on 30.10.2023 and after hearing the authorized representative had levied a penalty of Rs.5,00,000/- each on the Company and 4 directors i.e., Jampala Prasanna Lakshmi, Jampala Sujatha, Jampala Madhusudhan Reddy and Jampala Rajasekhar Reddy (total aggregating to Rs.25,00,000/-).
3. An opportunity of being heard was given to the Appellants on 01.02.2024. The authorized representative Mr. M Maruthi Rao, Chartered Accountant appeared on behalf of the appellants and reiterated the submissions made in the appeal and from the appeal submitted by the company it has been stated that the Company is a private limited company and was delayed in complying the provisions of section 203 of the Companies Act, 2013 failure to appoint company secretary for the period from 02.11.2018 to 30.11.2023. The company has put all its efforts into appointing the said Company Secretary person but could not do so due to no availability of suitable qualified Company Secretary during the lock down and covid 19 pandemic period. Further company has appointed Jhalak Jain, Company Secretary on 01/12/2023 and complied the provisions of section 203 of the Companies Act, 2013 and also stated that the delay was inadvertent and unintentional on the part of the applicants and did not cause any financial loss to the Company or its stakeholders at large or injury to the interest of public.
4. Though there is a default committed, there is a ground in interfering with the impugned adjudication order of Registrar of Companies to the extent of reducing the quantum of penalty due to the following reasons:
(a) Company is a private limited company and was delayed in complying the provisions of section 203 of the Companies Act, 2013 failure to appoint company secretary for the period from 02.11.2018 to 30.11.2023.
(b) The company has put all its efforts into appointing the said Company Secretary person but could not do so due to no availability of suitable qualified Company Secretary during the lock down and covid 19 pandemic period.
(c) the delay was inadvertent and unintentional on the part of the applicants and did not cause any financial loss to the Company or its stakeholders at large or injury to the interest of public.
(d) company appointed Jhalak Jain, Company Secretary on 01/12/2023 and complied the provisions of section 203 of the Companies Act, 2013.
Taking info consideration the facts of the appeal and submissions made by the authorized representative. I deem it would meet the end of justice if the penalty imposed by Registrar of Companies is reduced to 15% i.e., Rs.75,000/- each for the Company and 4 directors i.e., Jampala Prasanna Lakshmi, Jampala Sujatha, Jampala Madhusudhan Reddy and Jampala Rajasekhar Reddy (total aggregating to Rs.3,75,000/-). The appellants are directed to comply with this order and also provisions of Section 454(8) of the Companies Act, 2013 read with Companies (Adjudication of Penalties) Rules, 2014.
5. Accordingly, penalty was paid by the Company and 4 directors i.e., Jampala Prasanna Lakshmi, Jampala Sujatha, Jampala Madhusudhan Reddy and Jampala Rajasekhar Reddy (total aggregating to Rs.3,75,000/-) vide SRN’s X67640888, X67712513, X67715177, X67878389 and X67882043 dated 14.02.2024, 15.02.2024 & 16.02.2024 respectively. Accordingly, this order is issued to the Appellants with a copy to Registrar of Companies, Andhra Pradesh and Joint Secretary, E-Governance Cell, Ministry of Corporate Affairs, New Delhi for information and necessary action.
Issued under my hand and seal on this the 19th day of February 2024.
(DR. RAJ SINGH)
REGIONAL DIRECTOR (SER)
HYDERABAD
