In a recent development, Resonance Eduventures Limited, along with its Managing Director & CEO, Shri Ram Kishan Verma, and Company Secretary, Shri Abhinav Gautam, faced penalties imposed by the Registrar of Companies in Rajasthan, Jaipur. The penalty, amounting to 7 Lakh rupees, was imposed due to non-compliance with Section 177 of the Companies Act, 2013, regarding the constitution of an audit committee. This article delves into the details of the case, the implications of the penalties, and the importance of adhering to corporate governance regulations.
The case centers around the violation of Section 177 of the Companies Act, 2013, which mandates that every listed public company and certain other classes of companies must constitute an Audit Committee. This committee is required to consist of a minimum of three directors, with a majority being independent directors capable of understanding financial statements.
In this case, Resonance Eduventures Limited failed to constitute an audit committee as required by law for the period between November 19, 2019, and April 15, 2021. The penalty was imposed after the company acknowledged the violation and sought adjudication for it. The adjudication proceeding took place on April 11, 2023, where Sh. Akshit Kumar Jangid, FCS, represented the company and admitted the violation.
The penalty was imposed in accordance with Section 178(8) of the Companies Act, 2013. It states that in the event of contravention of Section 177, the company is liable to a penalty of five lakh rupees, while every officer of the company in default is liable to a penalty of one lakh rupees.
In this case, Resonance Eduventures Limited was fined 5,00,000/- rupees, and both Shri Ram Kishan Verma (MD & CEO) and Shri Abhinav Gautam (CS) were fined 1,00,000/- rupees each. The total penalty amounted to 7,00,000/- rupees.
It is crucial to note that the penalty must be paid within 90 days from the receipt of the order, through the appropriate challan on the MCA Portal. Failure to comply with this requirement could result in legal action under Section 454(8) of the Companies Act, 2013.
The case of Resonance Eduventures Limited serves as a reminder of the importance of adhering to corporate governance regulations, particularly those related to the constitution of an audit committee. Non-compliance with such regulations can lead to significant penalties, impacting both the company and its officers.
It is incumbent upon companies to ensure that they not only establish the required committees but also follow the rules and regulations governing their functioning. Failure to do so can not only result in financial penalties but can also harm the company’s reputation and shareholder trust.
This case underscores the need for all companies, especially listed public ones, to maintain strict compliance with the Companies Act, 2013, and related rules, to avoid legal consequences and uphold the principles of good corporate governance.
Registrar of Companies, Rajasthan, Jaipur
Order No. ROC-JP/Adj./2023-24/Sec 177/CA 2013
In the matter of Companies Act 2013
In the matter of adjudication proceeding under section 454(3) read with section 177 of the Companies Act, 2013 r/w Rule 6 of Companies (Meetings of Board and its Powers) Rules, 2014 punishable under section 178(8) of the Companies Act, 2013.
In the matter of
1. Resonance Eduventures Limited
2. Shri Ram Kishan Verma (MD & CEO)
3. Shri Abhinav Gautam (CS)
Date of hearing: 11.04.2023
That the company through Sh. Ram Kishan Verma, MD & CEO has Suo-moto, made an application to adjudicate the violation committed by company by not constituting audit committee as required by the section 177 of the Companies Act, 2013 r/w Rule 6 of Companies (Meetings of Board and its Powers) Rules, 2014 for the period 19.11.2019 to 15.04.2021.
That this office had issued notice for adjudication dated 28.03.2023 for violation of Section 177 of the Companies Act, 2013 r/w Rule 6 of Companies (Meetings of Board and its Powers) Rules, 2014 punishable under section 178(8) of the Companies Act 2013 to the Company and its Directors/ Officers in Default/ KMP. The opportunity of being heard was provided to the company and its directors / officers in default/KMP on 11.04.2023.
That on the date of hearing i.e. 11.04.2023 Sh. Akshit Kumar Jangid, FCS appeared on behalf of the Company and Party No. 01 to 03. Sh. Akshit Kumar Jangid, FCS submitted that the company has violated 177 of the Companies Act, 2013 r/w Rule 6 of Companies (Meetings of Board and its Powers) Rules, 2014 punishable under section 178(8) of the Companies Act 2013 by not constituting audit committee as required by the provisions of the section 177 of the Companies Act, 2013 r/w Rule 6 of Companies (Meetings of Board and its Powers) Rules, 2014 for the period 19.11.2019 to 15.04.2021. Further it was submitted that the company has constituted audit committee w.e.f. 15.04.2021. Further it was prayed to adjudicate the offence for not constituting audit committee of the company by imposing minimum penalty. Appointment and cessation of Directors were taken as per MCA portal.
That in view of the above facts the undersigned has reasonable cause to believe that the provision of Section 177 of the Companies Act, 2013 r/w Rule 6 of Companies (Meetings of Board and its Powers) Rules, 2014 had not complied with as required under law by the Company for the period 19.11.2019 to 15.04.2021 and its directors/officers in default/KMP and therefore liable for penal action under section 178(8) of the Companies Act, 2013 r/w sec 454 of the Companies Act, 2013.
That section 177 of the Companies Act, 2013 states that: –
“177. Audit Committee.
(1) The Board of Directors of 5/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 alia, 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 victimisation 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.”
That section 178(8) of the Companies Act, 2013 states that: –
“(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.”
That Rule 6 of Companies (Meetings of Board and its Powers) Rules, 2014 states that: –
“6. Committees of the Board. –
The Board of directors of 2(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’.”
That in exercising of the power conferred U/s 454 of the Companies Act, 2013 undersigned has passed the adjudication order imposing penalty as under:
Penalty imposed on the Company Resonance Eduventures Limited, Shri Ram Kishan Verma (MD & CEO) and Shri Abhinav Gautam (CS), for violation of Section 177 of the Companies Act, 2013 r/w Rule 6 of Companies (Meetings of Board and its Powers) Rules, 2014 punishable under section 178(8.) of the Companies Act, 2013. :-
|Penalty (fix)||Penalty imposed|
|Resonance Eduventures Limited||5,00,000/-||5,00,000/-|
|Shri Ram Kishan Verma (MD & CEO)||
|Shri Abhinav Gautam (CS)||1,00,000/-||1,00,000/-|
That taking in above facts total penalty of 5,00,000/- is imposed on the company and Rs 1,00,000/- on each Officer in default/KMP namely Shri Ram Kishan Verma (MD & CEO) and Shri Abhinav Gautam (CS) to be paid as stated herein above within 90 days from the receipt of order vide appropriate challan on MCA Portal. The penalty imposed on the Directors should be paid from their personal account.
That failure to pay penalty within the stipulated period the company and its director / officers in default are liable for legal action U/s 454(8) of Companies Act 2013.
The matter stands disposed of in accordance with the order above.
(C.M. Karl Marx)
Registrar of Companies,