Non-appointment of Wholetime CS: MCA Imposes Rs. 25 Lakh Penalty

Introduction: The Ministry of Corporate Affairs (MCA) has recently issued an adjudication order imposing a hefty penalty of Rs. 25 Lakh on Delta International Ltd. The penalty is a consequence of the company’s non-compliance with Section 203(1) of the Companies Act, 2013, regarding the appointment of whole-time key managerial personnel.

Detailed Analysis: Delta International Ltd, a registered company incorporated on 09/11/1977, came under scrutiny for not appointing a Company Secretary as required by Section 203(1) of the Companies Act, 2013. The company’s registered office is located at 4, Council House Street, Kolkata.

The adjudication order, dated November 8, 2023, reveals that Delta International Ltd failed to appoint a Company Secretary from 17.01.2015 to 09/09/2022, violating Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. Section 203(5) of the Act stipulates penalties for such non-compliance.

Despite multiple opportunities, including an adjudication notice and several scheduled hearings, the company and its officers-in-default failed to provide an adequate reply to justify non-imposition of penalties.

During the final hearing on 15.09.2023, Shri Madan Kumar Maroti, CA, representing the company, stated that Delta International Ltd had appointed a Company Secretary on 10/09/2022, covering the period of vacancy from 17/01/2015 to 09/09/2022. The company cited the challenging circumstances during the Covid-19 pandemic as a reason for the delay in compliance.

Order: The adjudicating officer, A. K. Sethi, imposed a penalty of Rs. 25 Lakh on Delta International Ltd. The penalty comprises Rs. 5 Lakh on the company and Rs. 5 Lakh on each of its four officers-in-default – Bhagawan Yadav, Dipak Kejriwal, Tapas Kumar Chowdhury, and Laldev Kumar Singh.

The penalty must be paid within 90 days from the receipt of the order through e-payment on the Ministry website. Failure to comply within the specified time may result in further consequences as per Section 454(8)(i) and (ii) of the Companies Act, 2013.

The affected parties have the option to file an appeal within 60 days from the date of receipt of this order, as per Section 454(5) & 454(6) of the Act.

Conclusion: The penalty serves as a reminder of the importance of timely compliance with key managerial personnel appointments, emphasizing the regulatory seriousness surrounding corporate governance, even in challenging circumstances.

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GOVERNMENT OF INDIA
Ministry of Corporate Affairs
Office of the Registrar of Companies (West Bengal)
Nizam Palace, 2nd M. S. 0. Building, 2nd Floor
Acharya Jagadish Chandra Bose Road 234/4,
KOLKATA – 700 020

No. ROC/LEGAL/ADJ/21-031225/88/2022/8195-8205

Dated: 08-11-2023

ADJUDICATION ORDER FOR PENALTY U/S 454(3) OF THE COMPANIES ACT, 2013 READ WITH RULE 3 OF THE COMPANIES (ADJUDICATION OF PENALTIES) RULES, 2014 AS AMENDED BY THE COMPANIES (ADJUDICATION OF PENALTIES) RULES, 2019 IN MATTER OF NON COMPLIANCE OF THE PROVISIONS OF SECTION 203(1) OF THE COMPANIES ACT, 2013 READ WITH RULE B OF COMPANIES (APPOINTMENT AND REMUNERATION OF MANAGERIAL PERSONNEL) RULES, 2014

In respect of: 

DELTA INTERNATIONAL LTD
(CIN: L51909WB1977PLC031225)

1. Appointment of Adjudicating Officer –

Ministry of Corporate Affairs vide its Gazette Notification No A-42011/112/2014-Ad.II dated 24.03.2015 appointed undersigned as Adjudicating Officer in exercise of the powers conferred by Section 454(1) read with Section 454(3) of the Companies Act, 2013 [herein after known as Act] read with the Companies (Adjudication of Penalties) Rules. 2014 for adjudicating penalties under the provisions of this Act. The undersigned vide the Companies (Amendment) Ordinance, 2019 is entrusted to adjudicate penalties under Section 203 of the Companies Act, 2013 with effect from 2.2018.

2. Company:-

DELTA INTERNATIONAL LTD [herein after known as Company] is a registered company with this office incorporated on 09/11/1977 under the provisions of the Companies Act, 1956 having its registered office as per MCA21 Registry at address 4, COUNCIL HOUSE STREET, KOLKATA- 700001, WEST BENGAL, INDIA

3. Facts about the Case:-

1) The provisions of Section 203(1) of the Act, provides interdict that:

‘Every company belonging to such class or classes of companies as may be prescribed shall have the 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

Rule 8 of the Companies (Appointment and Remuneration of managerial Personnel) Rules, 2014 (herein after referred to as ‘the Rules’) provides inter alia that:

“Every listed company and every other public company having a paid-up-share capital of ten crores rupees or more shall have whole-time key managerial personnel.”

Section 203(5) of the Act provides inter alia that: “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’

2) As per the record available with this office, it has been found that the Company is a listed Company. Further, it has also been observed that the Company has not appointed Company Secretary from 17.01.2015 to till date. Hence, the Company and every director and key managerial personnel of the company who is in default has contravened the provisions of Section 203 of the Companies Act, 2013.

3) Accordingly, the adjudication officer has issued adjudication notice vide No. LEGAL/ADJ/2022/31225/11224-11231 dated: 25.07.2022 (herein after referred as Adjudication Notice) under Section 454 read with Rule 3(2) of Companies (Adjudication of Penalties) Rules, 2014 as amended upto date for contravention of section 203(1) of the Companies Act, 2013, to the company and its officers in default for the violation of the provisions of the act as mentioned in para “1 & above giving an opportunity to submit a reply as to why the penalty should not be imposed under the provisions of 203(5) of the Act against the Company and its officers in default for the above stated violations, followed by a notice of hearing scheduling a physical hearing on 03.11.2022 which was shortly adjourned to 21.11.2022, 14.12.2022, 202 2.2022, and a final hearing on 15.09.2023 vide letter no. ROC/ADJ/2022/031225/11224-11231 dated: 04.09.2023

4) No adequate reply to the adjudication notice as mentioned above in para 3 have been received from the noticee(s) i.e. the company and its concerned officers in default as to why penalty shall not be imposed.

5) Further, Shri Madan Kumar Maroti, CA, appeared as the authorized representative on 15⁹¹September, 2023 and submitted that the company has already appointed the CS on 10/09/2022, the period of vacancy of CS was from 17/01/2015 till 09/09/2022, covering Covid period from 20/03/2020 to 28/02/2022. The company is not having any operational income but appointed the CS to comply the requirements of the law. Therefore, the matter may be taken leniently while imposing the penalty. The matter was heard and order reserved.

ORDER

1. The applicant company and its officers, who have defaulted the provisions of section 203(1) of the Companies Act, 2013 for non-appointment of Whole- Time Company Secretary are liable for penalties under section 203(1) of the Companies Act, 2013.

2. In exercise of the powers conferred vide Companies (Amendment) Ordinance, 2019, the undersigned is entrusted to adjudicate penalties under section 203 of the Companies Act, 2073 with effect from 02.11.2018. Upon consideration of “the relaxation of period of limitation due to Covid-19 pandemic” permitted by the apex court of India vide its Order dated 10.01.2022, I do hereby impose the penalty of Total Rs. 25,00,000J- (Rupees Twenty-Five Lakhs only) i.e., 5,00,0001- (Rupees Five Lakh only) on the Company and Rs. 5,00,000/- (Rupees Five Lakh only) on each of its 4 (Four) officers-in-default pursuant to Rule 3(12) of Companies (Adjudication Of Penalties) Rules, 2014 and the proviso of the said Rule and Rule 3(13) of Companies (Adjudication Of Penalties) Rules, 2014 r/w General Circular No. 1/2020 dated 02.03.2020: as per table below for violation of section 203(1) r/w 203(4) r/w 203(5) of the Act:

3. The noticee(s) shall pay the said amount of penalty individually for the company and its directors (out of own pocket) by way of e-payment [available on Ministry website mca.gov.in] under “Pay miscellaneous fees” category in MCA fee and payment Services within 90 days of receipt of this order. The Challan/SRN generated after payment of penalty through online mode shall be forwarded to this Office Address.

4. Appeal against this order may be filed in writing with the Regional Director (ER). Ministry of Corporate Affairs, Kolkata located at Nizam Palace, 2nd M. S. 0. Building, 3rd Floor, 234/4, A.J.C. Bose Road, Kolkata-700020, West Bengal within a period of sixty days from the date of receipt of this order, in Form ADJ [available on Ministry website mca.gov.in setting forth the grounds of appeal and shall be accompanied by a certified copy of the this order. (Section 454(5) & 454(6) of the Act read with Companies (Adjudicating of pending) Rules 2014.

5. Your attention is also invited to Section 454(8)(i) and (U) of the Act regarding consequences of non-payment of penalty within the prescribed time limit of 90 days from the date of the receipt of copy of this order.

6. In terms of the provisions of sub-rule (9) of Rule 3 of Companies (Adjudication of Penalties) Rules, 2014 as amended by Companies (Adjudication of Penalties) Amendment Rules, 2019, copy of this order is being sent to Delta International Ltd and all directors/officers in default mentioned herein above and also to Office of the Regional Director (Eastern Region) and Ministry of Corporate Affairs at New Delhi.

Date: 08^th November, 2023.

[A. K. Sethi, CLS)
Adjudicating Officer & Registrar of Companies,
West Bengal