Introduction: This article details the appeal proceedings and decision involving Aura Hotels & Resorts Private Limited and its directors. The appeal was filed under Section 454(5) of the Companies Act, 2013, before the Regional Director, North-Eastern Region, Ministry of Corporate Affairs, Guwahati. The case centers on the non-compliance with Section 203 of the Companies Act, 2013, which mandates the appointment of certain key managerial personnel in companies of a specified class.
Detailed Analysis
Background of the Case: The appellants, Aura Hotels & Resorts Private Limited and its directors, Vikas Agarwal and Lesly Shylla, faced penalties for failing to appoint a full-time Company Secretary as required under Section 203 of the Companies Act, 2013, read with Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. The Registrar of Companies (ROC), North Eastern Region, Guwahati, adjudicated the matter, resulting in substantial penalties.
Key Provisions and Allegations
1. Section 203 of the Companies Act, 2013: This section requires companies to appoint key managerial personnel, including a Company Secretary, if they fall within a specified class.
2. Rule 8 and 8A: These rules stipulate that every public company with a paid-up share capital of ten crore rupees or more, and other specified companies, must appoint a whole-time key managerial personnel.
The appellants, being an unlisted private limited company, failed to comply with these requirements despite having a paid-up capital exceeding the threshold specified.
Appeal Process
The appellants filed an online appeal on 20th November 2023 against the ROC’s adjudication order dated 4th October 2023. The appeal, submitted in e-form No. ADJ, was filed within the stipulated period of 60 days from the date of the adjudication order. The key points presented in the appeal included:
- Commercial Inactivity and Financial Hardship: The company had no revenue generation during the defaulting period and incurred constant losses.
- External Challenges: Ongoing land disputes and disruptions due to anti-Citizenship Amendment Bill protests and the COVID-19 pandemic.
- Compliance Efforts: The company eventually appointed a full-time Company Secretary, albeit with a significant delay.
Hearing and Decision
The hearing took place on 29th May 2024, with Mr. Narayan Sharma, the practicing Company Secretary and authorized representative for the appellants, presenting the case. The Regional Director (NER) and Assistant Director (O/o RD NER) were also present.
Upon reviewing the facts and circumstances, the Regional Director acknowledged the financial difficulties and external challenges faced by the company. It was determined that there were valid reasons for the delay in compliance. Consequently, the penalties were significantly reduced:
- Company: From ₹5,00,000 to ₹1,10,000
- Directors: From ₹5,00,000 to ₹60,000 each
The appellants were instructed to pay the revised penalties within 15 days from the date of the order.
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Application No. RD(NER)/Appeal u/s 454(5)/04/23-24/36
BEFORE THE REGIONAL DIRECTOR, NORTH-EASTERN REGION,
MINISTRY OF CORPORATE AFFAIRS, GUWAHATI
IN THE MATTER OF THE COMPANIES ACT, 2013
Section 454 Adjudication of Penalties.
In the matter of appeal under sub (5) of Section 454 of the Companies Act, 2013 read with Rule 4 of the Companies (Adjudication of Penalties) Rules, 2014 against the adjudication order passed by ROC, NER, Guwahati dated 0410-2023.
In the matter of adjudication for non-compliance of Section 203 read with 454(3) of the Companies Act, 2013.
And
IN THE MATTER OF:
1. AURA HOTELS & RESORTS PRIVATE LIMITED
(CIN: U55101ML2007PTC008290)
having its registered office at Op: Old Meghalaya Legislative
Assembly Police Bazar, East Khasi Hills, Shillong -793001
2. Vikas Agarwal (DIN: 00762111), Director
3. Lesly Shylla (DIN: 01754280), Director ….. Applicants/ Appellants
V/s
Registrar of Companies, North Eastern Region, Guwahati …………… Respondent
Date of Hearing: – 29-05-2024
Present: – 1. Mr. Narayan Sharma, Practicing Company Secretary & Authorized Representative of the Appellants.
2. Mr. K Aravind, Assistant Director, 0/o RD(NER)
ORDER
That the appellants named above have filed an on-line Appeal under Section 454 (5) of the Companies Act, 2013 in e-form No. ADJ on 20th November 2023 vide SRN F81734097 against the order dated 04-10-2023 passed by the Adjudicating officer i.e. Registrar of Companies, NER, Guwahati.
The appeal in Form ADJ is to be filed within a period of 60 days from the date on which the copy of the order made by the adjudicating officer is received by the aggrieved person. On examination of the Application/ Appeal it is seen that the said appeal is filed within sixty days (60) from date of passing adjudication order by the Adjudicating officer i.e Registrar of Companies, NER, Guwahati. Hence, the appeal was filed within the stipulated period of 60 days in terms of provisions of Section 454(6) of the Act.
The brief facts of the case are as under:
1. As per the provision of Sub-section (1) of Section. 203 of the Companies Act, 2013, “every company belonging to such class or classes of companies as may be prescribed shall have the following whole-time key managerial personnel – W managing director, or Chief Executive Officer or manager and in their absence, a whole-time director;
(ii) company secretary; and
(iii) Chief Financial Officer.
Provided that an individual shall not be appointed or reappointed as the chairperson of the company, in pursuance of the articles of the company, as well as the managing director or Chief Executive Officer of the company at the same time after the date of commencement of this Act unless,—
(ii) the articles of such a company provide otherwise; or
(iii) the company does not carry multiple businesses:
Provided further that nothing contained in the first proviso shall apply to such class of companies engaged in multiple businesses and which has appointed one or more Chief Executive Officers for each such business as may be notified by the Central Government.”
2. As per the provisions of Rule 8 of the Companies (Appointment and remuneration of Managerial Personnel) Rules, 2014, “Every listed company and every other public company having a paid-up share capital of ten crore rupees or more shall have whole-time key managerial personnel”
3. As per the provisions of Rule 8A of the Companies (Appointment and remuneration of Managerial Personnel) Rules, 2014, “A company other than a company covered under rule 8 which has a paid up share capital of five crore rupees or more shall have a whole time company secretary”
4. The appellants being an unlisted private limited company failed to appoint a full time Company Secretary as required under the provisions of Sub-section (1) of Section. 203 of the Companies Act, 2013 read with Rule 8A of the Companies (Appointment and Remuneration of Managerial Personals) Rules, 2014.
5. The appellant company had a paid-up capital of Rs. 19,71,00,000/- as on 01.04.2014 i.e on the date of commencement of the Companies Act, 2013 which came into effect w.e.f. from 1st April 2014 and thereby, there was a default for non-compliance of the provisions of Section 203 of the Companies Act, 2013 read with Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.
6. The Registrar of the Companies, Guwahati filed a criminal complaint vide Case No. 1117/ 2016 for default made under section 203(5) of the Companies Act, 2013 read with Rule 8/8A of the Companies (Appointment & Remuneration of Managerial Personnel) Rules 2014 against the appellants before the Hon’ble Court of Chief Judicial Magistrate, Shillong, Meghalaya.
7. The appellants filed an application u/s 454 of the Companies Act before the adjudicating officer for adjudication of penalties for violations of provisions of section 203 (1) of the Companies Act 2013 read with Rule 8A of the Companies (Appointment and Remuneration of Managerial Personals) Rules, 2014.
8. An opportunity of being heard was given to the Appellants on 20th December 2023 where in CS Narayan Sharma, PCS/Authorised Representative on behalf of all the three Appellants appeared. The ROC NER (Adjudication Officer) and Shri K. Aravind, AD, 0/o RD(NER) were also present during the hearing. The case was adjourned for further hearing but due to some unavoidable circumstances and due to transfer of Mr. Vinod Sharma the then RD, NER the further hearing could not take place on the appointed dates. The case was fixed for final hearing on 29th May 2024.
9. The Registrar of Companies, NER, Guwahati after considering the facts and circumstances, passed the Adjudication Order No. ROC- Guwahati/ ADJ-Order/Section 454/2023-24/608-10 dated 04-10-2023 (impugned orders) under Section 454 (3) and (4) of the Companies Act, 2013 for default in compliance with the provisions of Sub-section (1) of Section 203 of the companies Act, 2013 read with Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 as mentioned below
| Nature of default |
Violation of Section of the Companies Act 2013 | Company/ Officers to whom penalty imposed | No. of delays in default | Total Penalty (Minimum) |
Maximum Penalty for defaults (Rs) as per Section 203(5) of the Act | Penalty imposed |
| 1 | 2 | 3 | 4 | 5 | 6 | 7 |
| Non- Appointment of Whole time Company Secretary |
Section 203(1) | Company | 3227 | Rs. 5,00,000 + Rs. 1,000 each day for 3227 days | Rs. 5,00,000 | Rs. 5,00,000 |
| Vikas Agarwal | 3227 | Rs. 50,000 + Rs. 1,000 each day for 3227 days | Rs. 5,00,000 | Rs. 5,00,000 | ||
| Lesly Shylla | 3227 | Rs. 50,000 + Rs. 1,000 each day for 3227 days | Rs. 5,00,000 | Rs. 5,00,000 | ||
| TOTAL | Rs. 15,00,000 | |||||
10. Being aggrieved by the Adjudicating officer order, the Company and its directors in default have preferred appeal before the Regional Director, North Eastern Region under the provisions of Sub-section (5) of Section 454 of the Companies Act, 2013 seeking relief from the penalties imposed in the order dated 04-10-2023 passed by the Adjudicating Officer (AO).
11. On the date of hearing i.e. on 29th May 2024 Mr. Narayan Sharma, PCS appeared in person on behalf of all the three appellants and submitted that the Adjudication Officer did not consider the following circumstances :-
a) The Company did not have any commercial activity during the defaulting period. There was no revenue generation and Company was incurring constant losses and had negative net worth during the defaulting period.
b) There was a land dispute going on with Meghalaya Tourism Development Corporation Ltd. (MTDC) who allotted land for the Company’s project and the project was facing an uncertain future.
c) Protests and disruptions of life and business due to anti-Citizenship Amendment Bill (CAB) protests/ COVID-19 pandemic and genuine scarcity of Company Secretaries in state of Meghalaya.
d) The Company in question is a Private limited Company with four members only. There was no public injury because of default, the default was made good and there was no repetition of default, there was no loss caused to any investor or group of investors or creditors because of the default.
e) The default was made good by filing DIR -12 for appointment of Mrs. Manisha Kedia as a whole time Company Secretary from 02.2021 vide SRN T07926031 dated 04.03.2021 with a delay of 3227 days (730 days under Companies Act, 1956 and 2497 days under Companies Act, 2013).
f) The Company being in losses since its formation, imposing such heavy penalty would put the Company under acute financial stress. The appellants prays that appellant Authority may kindly consider waving of entire penalty to the company and its directors, considering the above facts.
12. Taking into consideration the facts of the appeal as well as considering the submissions made by the authorised representative and Shri K. Aravind, AD, 0/o RD(NER) regarding the poor financial status of the company during the period of default, I find that there is a merit in the reasons given by the appellants for delay in appointment of Company Secretary and therefore, there is a ground in interfering with the impugned adjudication order of the Registrar of Companies, Guwahati to the extent of reducing the quantum of penalty. Accordingly, the penalties imposed are reduced from Rs. 5,00,000/-(Rupees Five Lacs) to Rs. 1,10,000/- (Rupees One Lakh Ten Thousand) for the Company and Rs. 5,00,000/-(Rupees Five Lacs) to Rs 60,000/- (Rupees Sixty Thousand) on each of the appellant Director(s) of the Company. The Appellants shall pay the penalty in 15 days from the date of this order.
13. The appeal stands disposed of with this order subject to payment made within 15 days.
