In a recent adjudication order, the Ministry of Corporate Affairs (MCA) imposed a penalty of Rs 4 lakh on M/s Trichy Fabricators Private Limited for failing to disclose related party transactions in Form AOC-2. The order was issued by the Registrar of Companies, Tamil Nadu, Andaman & Nicobar Islands, Chennai, under Section 134(3)(h) of the Companies Act, 2013. This article provides a detailed analysis of the case, including the background, legal provisions, and the adjudication process.
Background of the Case
M/s Trichy Fabricators Private Limited, incorporated under the Companies Act, 2013, is a private company with CIN: U28122TN2006PTC059436. The company is registered with the Registrar of Companies, Tamil Nadu, Andaman & Nicobar Islands, Chennai. The company’s financial details, as per the MCA-21 portal, reveal a paid-up capital of Rs 11,00,000, with no revenue from operations and a reported loss of Rs 1,42,070 for the financial year 2022-23.
Legal Provisions
The key legal provisions involved in this case are:
- Section 134 of the Companies Act, 2013: This section mandates the inclusion of a Board of Directors’ report in the financial statements laid before a company’s general meeting. Specifically, Section 134(3)(h) requires disclosure of particulars of contracts or arrangements with related parties referred to in Section 188(1) in the prescribed form (Form AOC-2).
- Companies (Accounts) Rules, 2014: Rule 8(2) stipulates that the Board’s report must contain the particulars of contracts or arrangements with related parties in Form AOC-2.
- Section 134(8) of the Companies Act, 2013: This section prescribes penalties for non-compliance with the provisions of Section 134, including a penalty of three lakh rupees on the company and fifty thousand rupees on each officer in default.
Investigation and Findings
An inquiry under Section 206(4) of the Companies Act, 2013, revealed that Trichy Fabricators had not disclosed related party transactions in Form AOC-2 for the financial years 2014-15 to 2018-19. The related parties involved were M/s Cethar Limited and M/s Dynepro Private Limited. The transactions with these parties, amounting to significant sums, were disclosed in the notes to accounts but not in the Board’s report, violating Section 134(3)(h).
Decision
After considering the submissions, the Adjudicating Officer concluded that the transactions in question were not in the ordinary course of business, as they included significant asset sales. The company and its directors were found in violation of Section 134(3)(h) and were liable for penalties under Section 134(8).
Conclusion
The adjudication order imposed a total penalty of Rs 2 lakh for each financial year (2016-17 and 2017-18), with Rs 1.5 lakh on the company and Rs 25,000 on each director. The company and its officers are required to pay the penalty within 90 days and have the right to appeal the order within 60 days.
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GOVERNMENT OF INDIA
MINISTRY OF CORPORATE AFFAIRS
OFFICE OF REGISTRAR OF COMPANIES, TAMIL NADU, ANDAMAN & NICOBAR ISLANDS, CHENNAI
II FLOOR, C- WING, SHASTRI BHAVAN, 26, HADDOWS ROAD, NUNGAMBAKKAM, CHENNAI- 6
F.NO.ROC/TRICHY FABRI /ADJ/S.134/2024 DATE: 29 APR 2024
ADJUDICATION ORDER UNDER SECTION 134(3)(h) OF THE COMPANIES ACT, 2013
IN THE MATTER OF WS TRICHY FABRICATORS PRIVATE LIMITED
1. Appointment of Adjudicating Officer: –
The Ministry of Corporate Affairs vide its Gazette Notification No. A-42011/112/2014-Ad.II, dated 24.03.2015 hai appointed Registrar of Companies, Chennai as Adjudicating Officer in exercise of the powers conferred by section 454(1) of the Companies Act, 2013 (hereinafter referred as Act or Companies Act, 2013) r/w Companies (Adjudication of Penalties) Rules, 2014 for adjudging penalties under the provisions of this Act.
2. Company: –
Whereas the company viz M/s. Trichy Fabricators Private Limited with CIN: U28122TN2006PTC059436 (herein after referred as ‘ company’ or ‘ subject company’) is a registered company with this office. Under the Companies Act, 2013 having its registered office as per MCA21 Registry at No.4, Amalarpavi Complex, Ground Floor, Behind Car Shed (1st Room), Dindigul Road, Tiruchirappalli, Tamil Nadu 620001. The financial & other details of the subject company as ‘available on MCA-21 portal is stated as under:
| S.No. | Particulars | Details |
| 1. | Company’s Status | Active |
| 2. | Filing Position | Financial Statement: upto 31.03.2023
Annual Return: upto |
| 3. | Paid up Capital (As per 2022-23) | Rs.11,00,000/- |
| 4. | a. Revenue from Operation | NIL |
| b. Other Income | NIL | |
| c. Profit for the Period | (Rs.1,42,070/-) | |
| 5. | Whether it is a Holding Company | No |
| 6. | Whether it is a Subsidiary Company | No |
| 7. | Whether company registered under Section 8 of the Act? | No |
| 8. | Whether company registered under any other special Act? | No |
3. Directors during the period of violation:
| S. No. | Name of Director Default | Designation | Date of
Appointment |
Date of
Cessation |
| 1. | Ramasamy Kannan |
Director | 26.09.2013 | ….. |
| 2. | Srikanth Pothiraj | Director | 26.09.2013 | ….. |
4. Section and Penal Provision as per Companies Act, 2013
Section 134 of the Companies Act, 2013- Financial Statement, Board’s Report, etc.
(3) There shall be attached to statements laid before a company in general meeting, a report by its Board of Directors, which shall include—
(h) particulars of contracts or arrangements with related parties referred to in sub-section (1) of section 188 in the prescribed form;
Rule 8(2) of the Companies (Accounts) Rules 2014 provides :
(2) The Report of the Board shall contain the particulars of contracts or arrangements with related parties referred to in sub-section (1) of section 188 in the Form AOC-2
Section 134 (8) provides:
If a company is in default in complying with the provisions of this section, the company shall be liable to a penalty of three lakh rupees and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees.
5. Issue of Adjudication Notice:
An Inquiry was conducted on the affairs of the company M/s. Trichy Fabricators Private Limited under Section 206(4) of the Companies Act, 2013 by an Officer authorized by the Central Government wherein the observations of the Inquiry Officer are as follows:
While Scrutinizing the Board’s report for the financial years 2014-15,2015-16,201617,2017-18 and 2018-19, it is observed that the company has not disclosed Form AOC-2 along with Board’s Report. The company had related parties namely 1. M/s. Cethar Limited 2. M/s. Dynepro Private Limited (formerly known as Pipelines and Process Equipment’s Private Limited). The said related parties had business transactions with Ws. Trichy fabricators Private Limited and those transactions have been disclosed under related party disclosures in notes to accounts for the aforesaid periods amounting to Rs.25.66 lakhs, Rs. 1.87 Crores, Rs.38.92 lakhs, Rs. 92.27 lakhs, Rs.16.70 lakhs & Rs. 40.26 lakhs. However, the company had not disclosed the related parties in Form AOC-2 along with Board’s report. Therefore, the company has violated Section 134(3)(h) read with Rifle 8(2) Companies (Accounts) Rules, 2014 of the Companies Act, 2013. Hence, the company and every officer who is in liable for penal action under Section 134(8) of the Companies Act, 2013.
Accordingly, on submission of the Inspection Report, the Regional Director, Ministry of Corporate Affairs, Chennai has directed this office to initiate necessary action against the defaulters as per the provisions of the Companies Act, 2013.
After this office has issued Show Cause Notice for Adjudication under Section 134 of the Companies Act vide Notice No. ROC/CHN/059436/S.134(3)(h)/ P.8/INQUIRY FOLLOW UP/2022 dated 25.05.2023.
6. Reply of Company and Directors for Adjudication Notice issued:
Shri. P. Srikanth one of the directors of the company vide letter dated 13.06.2023 informed that “Since the transactions are in the ordinary course of business and at arm’s length basis the requirement of compliance of Section 188(1) and reporting under AOC-2 in the Directors report did not arise. Further, requested to drop the proceedings under Section 134(8) of the Companies Act, 2013”.
7. Adjudication Hearing:
(i) However, the Adjudicating Authority had issued Adjudication Hearing Notice to the subject company and its directors on 16.01.2024 by fixing the hearing date as on 23.01.2024 at 11:00 AM. Pursuant to the hearing notice Shri. N. K. Pothiraaj appeared on behalf of the company and its directors before the Adjudicating Authority on 23.01.2024 made submission that ” since the transactions in question are in the ordinary course of business as well as at arm’s length basis, we are of the view that the requirement of compliance of Section 188(1) and subsequent reporting under AOC-2 in Director’s report did not arise”.
(ii) Further Section 446 B of the Companies Act, 2013 states that ” if penalty is payable for non-compliance of any of the provisions of this Act by a One person Company, Small Company, Start-up company or Producer Company or by any of its Officer in default, or any other person in respect of such company, then such company, its officer in default or any other person, as the case may be shall be liable to a penalty which shall not be more than one half of the penalty specified in such provisions subject to a maximum of two lakh rupees in case of a company and one lakh rupees in case of an Officer who is in default or any ,other person, as the case may be”.
(iii) As per clause 85 of Section 2 of the Companies Act, 2013, small company means a company whose paid up capital and turn over shall not exceed four crore and rupees forty crore respectively. As per MCA portal paid up capital of the company is Rs. 11,00,000/-and turnover is Rs. NIL as per the MGT 7A filed by the company with this office for the Financial Year ending 31.03.2023. Therefore, the benefits of small company are extended to this company while adjudicating the penalty.
8. Decision
Having considered the facts and circumstances of the case and after taking into account the factors above, it is concluded that the transactions in question are not in the ordinary course of business as the transactions include Sale of Assets of Rs.14,600,000/- in FY 2016-17 & Rs.5,956,695/- in FY 2017-18 as per the financial statements filed for the respective years. Though the AOC-2 was filed for the FY 2016-17 and 2017-18 the nature of transactions mentioned in the AOC-2 and in notes to financial statements are different. Hence, the company and directors mentioned in Para 3 have violated Section 134(3)(h) of the Companies Act, 2013 and are liable for penalty as prescribed under Section 134(8) of the Act for the FYs 2016-17 & 2017-18.
Accordingly, I am inclined to impose a penalty as prescribed under Sub-section 8 of Section 134 of the Companies Act, 2013. The details of the penalty imposed on the company and Officer in default are given in the table given below:
| Financial Years | Name of Company/ person on whom penalty imposed |
Penalty for default (Rs) | Maximum Limit for penalty (Rs) | Penalty Imposed (Rs) 50% being small company U/s. 446(B) (Rs.) |
| 2016-17 | Ws. Trichy Fabricators Private Limited | Rs.3,00,000/- | Rs.3,00,000/- | Rs.1,50,000/- |
| Ramasamy Kannan | Rs.50,000/- | Rs.50,000/- | Rs.25,000/- | |
| Srikanth Pothiraj | Rs.50,000/- | Rs.50,000/- | Rs.25,000/- | |
| 2017-18 | M/s. Trichy Fabricators Private Limited | Rs.3,00,000/- | Rs.3,00,000/- | Rs.1,50,000/- |
| Ramasamy Kannan | Rs.50,000/- | Rs.50,000/- | Rs.25,000/- | |
| Srikanth Pothiraj | Rs.50,000/- | Rs.50,000/- | Rs.25,000/- |
Therefore, in view of the above said violation, in exercise of the powers vested to the undersigned under Section 454(1) & (3) of the Companies Act, 2013 a penalty of Rs.1,50,000/- (Rupees One lakh fifty thousand) is imposed on the Company and Rs.25,000/-(Rupees Twenty five thousand) is imposed on each Officers in default for a financial Year. Totally Rs. 2,00,000/- (Rupees Two lakhs) as penalty amount for violation of Section 134 (3)(h) of the Companies Act, 2013 for a financial year.
9. The said amount of penalty shall be paid through online by using the website mca.gov.in(Misc. head) within 90 days of receipt of this order, and intimate this office with proof of penalty paid.
10. Whereas Appeal against this order may be filed with the Regional Director (SR), Ministry of Corporate Affairs, 5th Floor, Shastri Bhavan, 26 Haddows Road, , Chennai-600006, Tamil Nadu within a period of sixty days from the date of receipt of this order, in Form &DI [available on Ministry website mca.gov.in 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 (Adjudicating of Penalties) Rules, 2014].
11. Your attention is also invited to section 454(8) of the Act in the event of non-compliance of this order, “(8)(i) Where 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.
(ii) Where an officer of a company or any other person who is in default 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, 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.”
(B. SRIKUMAR, ICLS)
REGISTRAR OF COMPANIES
TAMILNADU, CHENNAI.
ADJUDICATING OFFICER
