Non-Compliance with Sections 177 & 178: MCA penalises Company & Direrctors

Ministry of Corporate Affairs (MCA), through the Registrar of Companies (RoC), Chandigarh, issued penalties to M/s BCL Homes Limited for failing to comply with Sections 177 and 178 of the Companies Act, 2013. These sections mandate listed companies and certain other classes of companies to form an Audit Committee and a Nomination and Remuneration Committee. Inspections revealed that the company did not constitute these committees despite crossing the threshold criteria since April 1, 2017. Consequently, penalties of ₹5,00,000 were imposed on the company, and ₹1,00,000 each on three directors—Baldev Chand Bansal, Tarjinder Singh Bansal, and Rajeev Kumar—for non-compliance spanning 2832 days.

The investigation was initiated after directives from the Central Government to inspect the company’s records. A show cause notice and subsequent summons to the directors did not elicit a response. The penalties were determined following rules governing adjudication of penalties, considering factors like the size of the company and nature of the default. The company and its directors are required to pay the penalties via the MCA portal and may appeal to the Regional Director within 60 days. Non-payment or further violations could lead to additional fines or imprisonment.

GOVERNMENT OF INDIA
MINISTRY OF CORPORATE AFFAIRS
OFFICE OF THE REGISTRAR OF
COMPANIES PUNJAB AND CHANDIGARH,
CORPORATE BHAWAN
PLOT NO.4-B, SECTOR 27B, CHANDIGARH
PHONE NO.172-2639415, 2639416

Order No. ROC CHD/ADJ/989 to 993 Dated: 08/01/2025

ORDER UNDER SECTION 454 FOR VIOLATION OF SECTION 177 & 178 READ WITH COMPANIES (ADJUDICATION OF PENALTIES) RULES, 2014

IN THE MATTER OF M/S BCL HOMES LIMITED (CIN: U00082CH2005PLCO29291)

1. Appointment of Adjudicating Officer

The Ministry of Corporate Affairs vide its gazette notification no. S.O. 831(E) dated 24.3.2015, has appointed the undersigned as Adjudicating Officer (AO) in exercise of the powers conferred by section 454 of the Companies Act, 2013 (hereinafter known as Act) read with Companies (Adjudication of Penalties) Rules, 2014 for adjudicating penalties under the provisions of this Act.

2.Company: –

Whereas the Company M/s BCL HOMES LIMITED (hereinafter referred to as “the Company”) is a company registered with this office under the Provisions of the Companies Act, 2013/1956 (or previous Acts in force, as applicable) having its registered office situated at Shop No 140, Village Dariya, Chandigarh, India, 160002. As per data available at MCA website, the other details as on 31.03.2022 are as under:

3. Relevant Provisions of the Companies Act, 2013 which are applicable in the present case

Provision of Section 177 of the Companies Act, 2013 are as under: –

177. Audit Committee.

(1) The Board of Directors of every listed public company and such other class or classes of companies, as may be prescribed, shall constitute an Audit Committee.

(2) The Audit Committee shall consist of a minimum of three Directors with independent Directors forming a majority:

Provided that majority of members of Audit Committee including its Chairperson shall be persons with ability to read and understand, the financial statement.

(3) Every Audit Committee of a company existing immediately before the commencement of this Act shall, within one year of such commencement, be reconstituted in accordance with sub-section (2).

(4) Every Audit Committee shall act in accordance with the terms of reference specified in writing by the Board which shall, inter alio, include,—

i. the recommendation for appointment, remuneration and terms of appointment of auditors of the company;

ii. review and monitor the auditor’s independence and performance, and effectiveness of audit process;

iii. examination of the financial statement and the auditors’ report thereon;

iv. approval or any subsequent modification of transactions of the company with related parties;

Provided that the Audit Committee may make omnibus approval for related party transactions proposed to be entered into by the company subject to such conditions as may be prescribed;

Provided further that in case of transaction, other than transactions referred to in section 188, and where Audit Committee does not approve the transaction, it shall make its recommendations to the Board:

Provided also that in case any transaction involving any amount not exceeding one crore rupees is entered into by a director or officer of the company without obtaining the approval of the Audit Committee and it is not ratified by the Audit Committee within three months from the date of the transaction, such transaction shall be voidable at the option of the Audit Committee and if the transaction is with the related party to any director or is authorised by any other director, the director concerned shall indemnify the company against any loss incurred by it:

Provided also that the provisions of this clause shall not apply to a transaction, other than a transaction referred to in section 188, between a holding company and its wholly owned subsidiary company.

v. scrutiny of inter-corporate loans and investments;

vi. valuation of undertakings or assets of the company, wherever it is necessary;

vii. evaluation of internal financial controls and risk management systems;

(viii) monitoring the end use of funds raised through public offers and related matters.

(5) The Audit Committee may call for the comments of the auditors about internal control systems, the scope of audit, including the observations of the auditors and review of financial statement before their submission to the Board and may also discuss any related issues with the internal and statutory auditors and the management of the company.

(6) The Audit Committee shall have authority to investigate into any matter in relation to the items specified in sub-section (4) or referred to it by the Board and for this purpose shall have power to obtain professional advice from external sources and have full access to information contained in the records of the company.

(7) The auditors of a company and the key managerial personnel shall have a right to be heard in the meetings of the Audit Committee when it considers the auditor’s report but shall not have the right to vote.

(8) The Board’s report under sub-section (3) of section 134 shall disclose the composition of an Audit Committee and where the Board had not accepted any recommendation of the Audit Committee, the same shall be disclosed in such report along with the reasons therefor.

(9) Every listed company or such class or classes of companies, as may be prescribed, shall establish a vigil mechanism for Directors and employees to report genuine concerns in such manner as may be prescribed.

(10) The vigil mechanism under sub-section (9) shall provide for adequate safeguards against victimization of persons who use such mechanism and make provision for direct access to the chairperson of the Audit Committee in appropriate or exceptional cases:

Provided that the details of establishment of such mechanism shall be disclosed by the company on its website, if any, and in the Board’s report.

Provision of Section 178 of the Companies Act, 2013 are as under: –

178. Nomination and Remuneration Committee and Stakeholders Relationship Committee.

(1) The Board of Directors of every listed public company and such other class or classes of companies, 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:

Provided that the chairperson of the company (whether executive or non-executive) may be appointed as a member of the Nomination and Remuneration Committee but shall not chair such Committee.

(2) The Nomination and Remuneration Committee shall identify persons who are qualified to become Directors and who may be appointed in senior management in accordance with the criteria laid down, recommend to the Board their appointment and removal and shall specify the manner for effective evaluation of performance of Board, its committees and individual Directors to be carried out either by the Board, by the Nomination and Remuneration Committee or by an independent external agency and review its implementation and compliance.

(3) The Nomination and Remuneration Committee shall formulate the criteria for determining qualifications, positive attributes and independence of a director and recommend to the Board a policy, relating to the remuneration for the Directors, key managerial personnel and other employees.

(4) The Nomination and Remuneration Committee shall, while formulating the policy under sub-section (3) ensure that—

a. the level and composition of remuneration is reasonable and sufficient to attract, retain and motivate Directors of the quality required to run the company successfully;

b. relationship of remuneration to performance is clear and meets appropriate performance benchmarks; and

c. remuneration to Directors, key managerial personnel and senior management involves a balance between fixed and incentive pay reflecting short and long-term performance objectives appropriate to the working of the company and its goals:

Provided that such policy shall be placed on the website of the company, if any, and the salient features of the policy and changes therein, if any, along with the web address of the policy, if any, shall be disclosed in the Board’s report.

(5) The Board of Directors of a company which consists of more than one thousand shareholders, debenture-holders, deposit-holders and any other security holders at any time during a financial year shall constitute a Stakeholders Relationship Committee consisting of a chairperson who shall be a non-executive director and such other members as may be decided by the Board.

(6) The Stakeholders Relationship Committee shall consider and resolve the grievances of security holders of the company.

(7) The chairperson of each of the committees constituted under this section or, in his absence, any other member of the committee authorised by him in this behalf shall attend the general meetings of the company.

(8) In case of any contravention of the provisions of section 177 and this section, the company shall be liable to a penalty of five lakh rupees and every officer of the company who is in default shall be liable to a penalty of one lakh rupees.

Provided that inability to resolve or consider any grievance by the Stakeholders Relationship Committee in good faith shall not constitute a contravention of this section.

Explanation.—The expression “senior management” means personnel of the company who are members of its core management team excluding Board of Directors comprising all members of management one level below the executive Directors, including the functional heads.

Relevant Rules are as under:-

(i) Rule 3(12) of Companies (Adjudication of Penalties) Rules, 2014

“While adjudging quantum of penalty, the adjudicating officer shall have due regard to the following factors, namely-

a. size of the company

b. nature of business carried on by the company,

c. injury to public interest,

d. nature of the default,’

e. repetition of the default,’

f. the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default: and

g. the amount of loss caused to an investor or group of investors or creditors as a result of the default

Provided that, in no case, the penalty imposed shall be less than the minimum penalty prescribed, if any, under the relevant section of the Act.”

(iii) Rule 3 (13) of Companies (Adjudication of Penalties) Rules, 2014 which read as under:

“In case a fixed sum of penalty is provided for default of a provision, the adjudicating officer shall impose that fixed sum, in case of any default therein.”

(iv) Rule 6 of Companies(Meeting of Board and its Powers) Rule, 2014

“The Board of directors of every listed public company and a company covered under rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014 shall constitute an ‘Audit Committee, and a ‘Nomination and Remuneration Committee of the Board’.”

(v) Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014

(1) The following class or classes of companies shall have at least two directors as independent directors –

i. the Public Companies having paid up share capital of ten crore rupees or more; or

ii. the Public Companies having turnover of one hundred crore rupees or more; or

iii. the Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding fifty crore rupees:

Provided that in case a company covered under this rule is required to appoint a higher number of independent directors due to composition of its audit committee, such higher number of independent directors shall be applicable to it: Provided further that any intermittent vacancy of an independent director shall be filled-up by the Board at the earliest but not later than immediate next Board meeting or three months from the date of such vacancy, whichever is later: Provided also that where a company ceases to fulfil any of three conditions laid down in sub-rule (1) for three consecutive years, it shall not be required to comply with these provisions until such time as it meets any of such conditions;

Explanation. – For the purposes of this rule, it is here by clarified that, the paid up share capital or turnover or outstanding loans, debentures and deposits, as the case may be, as existing on the last date of latest audited financial statements shall be taken into account:

Provided that a company belonging to any class of companies for which a higher number of independent directors has been specified in the law for the time being in force shall comply with the requirements specified in such law.

“(2) The following classes of unlisted public company shall not be covered under sub-rule (1), namely:-.

a. a joint venture;

b. a wholly owned subsidiary; and

c. a dormant company as defined under section 455 of the Act.”

4. Facts about the case: –

That the Central Government has directed this office to conduct the inspection of books and papers of the Company. The Show cause Notice cum Preliminary Finding Letter was issued to the company and directors on 28.02.2023. A summon was sent to the directors of the company seeking information with regard to various points on 15.3.2024. However, no reply has been received from the company or directors.

Accordingly, an Inspection report was prepared by the Inspecting officer and submitted the same to RD-NR vide Letter No. ROC-CHD/Inspection /BCL Homes/1002 dated 26.03.2024. During the inspection it was found that the company has exceeded the limit of outstanding loans w.e.f. 01.04.2017 as per clause (iii) of Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014, due to which the company has to constitute the audit committee and nomination and remuneration committee as required by section 177 and 178 of the Companies Act, 2013 and rules aforesaid. The Company and its officers has not complied with requirement of the said provisions of the act till date. Therefore, the company & its officers have violated the provisions of Section 177 & 178 of the Companies Act, 2013 and rules made thereunder and the company and its officers in default are liable to penalty under section 178(8) of the Act.

5. Adjudication of penalty:

Now, in exercise of the powers conferred on the undersigned vide Notification dated 24th March, 2015 and having considered the facts of the case, I hereby impose the penalties for violation of Section 177 and 178 of the CA,2013 on the company and its directors under Section 178(8) of the Companies Act, 2013 as under :-

I am of this opinion that penalty is commensurate with the aforesaid failure committed by the addressee and penalty so imposed upon the Officers-in-default 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 Companies (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 (Northern Region), Ministry of Corporate Affairs, CGO Complex, Lodhi Road, New Delhi, within a period of sixty days from the date of receipt of this order, in Form ADJ setting forth the grounds of appeal and shall be accompanied by a certified copy of this order. [Section 454(5) & 454(6) of the Act, read with Companies (Adjudication of Penalties) Rules, 2014].

7. Please note that as per Section 454(8):

(i), where a company fails to comply with the order made under sub-section (3) or sub-section (7), as the case may be, within a period of ninety days from the date of the receipt of the copy of the order, 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

(ii) in case of an officer of a company who is in default, such officer 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 with both.

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

No. ROC CHD/Adj/989 to 993

Dated: 08/01/2025